From Memberanda, Spring 2012
Tuition elasticity is the degree to which tuition can be raised without negatively affecting enrollment.
Determining tuition rates, while being mindful of the point at which enrollment drops when tuitions increase, is a key strategic decision for independent schools. Tuition elasticity is the degree to which tuition can be raised without negatively affecting enrollment. An inelastic tuition rate cannot be increased without causing retention rates to drop as well. An elastic tuition can be adjusted to reflect increased costs without significantly affecting retention. Elasticity can be affected by many factors, including the general economic condition, supply and demand, and the school brand and experience.
It can also be a highly localized phenomenon. Last year, Riverdale Country School (NY) made national headlines when it announced that 12th grade tuition for 2011-12 would top $40,000, making Riverdale the most expensive of a group of private New York City schools that are pricier than Harvard. For many families, school tuition rivaling the Ivy Leagues would be the breaking point, but as a recent New York Times article pointed out, private school tuition in NYC is incredibly elastic – plenty of families are willing to pay the price at Riverdale and other metropolitan area private schools. In fact, waiting lists are as full as ever.
However, as with many things, NYC is the exception, not the rule. According to data supplied to the New York Times by NAIS over the past decade, tuition at New York City’s private schools has risen 48 percent; nationwide the increase has been 35 percent. Amy Hammond, National Director of SSS by NAIS, reported at this year’s NAIS Annual Conference that, in 2010, the average independent school tuition represented 55 percent of the average family’s discretionary income. She also reported double digit year-over-year differences between average family income change and average school tuition change.
This increase in tuition mirrors the reality that independent schools are staring down a variety of challenges. The U.S. birth rate has declined, resulting in fewer school-age children. Additionally, the families that used to make up the typical independent school target market are shrinking. The current economic downturn has forced some families to think twice about when to send their children to private school, if at all. And for many families trying to make it work, financial aid is essential. Many schools are now struggling with additional need requests from currently enrolled families that had previously not needed it, leaving less funding available for new families.
Tuition discounting – charging different students different prices for the same educational opportunities – has long been a fact of life at independent schools. But increasingly, significant amounts of institutional aid are being distributed based on criteria other than need. As Hammond notes, the combination of tuition growth outpacing income growth and an increase in aid for high income families is resulting in conflicting priorities of access versus affordability in independent schools. According to SSS, the percent of financial aid as a portion of tuition and fees has climbed nearly 4 percent in the past decade – from 10.92 percent in 2001-02 to 14.85 percent in 2011-12.
While families are stretching their resources and making sacrifices to pay for a quality private school education for their children, schools are doing a different kind of reaching. Locally, they are targeting students impacted by belt tightening in public school systems, who would benefit from smaller class sizes or single sex education.
Independent secondary schools, like their collegiate counterparts, are also reaching to families in other countries, such as China, to fill classrooms. SSATB’s Trends in Admission: International Report, released at the end of March 2012, discusses the many ways schools are taking advantage of foreign interest, from satellite campuses abroad to expansion of recruiting efforts in different areas of the world.
Higher Ed Trends
Moody’s Investment Services’ recently released report (January 2012) indicates that while higher education tuition revenue continues to climb annually by about five percent, discounts also increased at more than half of the colleges surveyed. Universities with strong reputations, however, were able to lower their discount rates. Interestingly, the report projects that weaker private colleges, or those with smaller enrollment and endowments, will face "significant competition from lower-priced public higher-education alternatives" and as a result be limited in terms of increasing tuition revenue.
A new report from the Government Accountability Office (GAO) on financial trends in higher education indicates that both public and private nonprofit colleges are relying more on tuition and fee revenue as public spending on higher education declines. The report says that from the 1999 to the 2009 fiscal years, tuition and fees rose between 29 and 40 percent at private institutions. Institutions are looking to fill the gap with out-of-state and foreign students and fundraising, as well as government-funded research and staffing and programming cuts.
If higher education is the bellwether for what private secondary schools can tolerate in terms of tuition increases in the face of declining incomes and enrollment, it is worth looking at the steps a handful of private colleges have taken to compete with less expensive public universities. The National Association of Independent Colleges and Universities (NAICU) recently published a list of affordability measures being introduced by private, nonprofit colleges and universities in the coming year, including tuition cuts and freezes and significantly smaller increases, replacing loans with grants, fixed tuition guarantees, special scholarship programs, loan repayment assistance, and more.
Rather than increasing tuition, a number of schools have decreased tuition by as much as 20 percent. Furthermore, they are working to ensure students graduate within four years. As anticipated, the change has not only resulted in more students accepting the discounted private school offer over a less expensive public college, but, in some cases, the schools saw increased alumni contributions to the annual fund – a welcome side effect. Whether secondary schools will jump on the affordability bandwagon remains to be seen, but the aligning of the elements demanding affordability will require that schools continue to find new and innovative ways to ease the tension on resources already stretched to the limit.
"Bracing for $40,000 at New York City Private Schools," Jenny Anderson, The New York Times, Jan. 27, 2012.
"Tuition Discounting: Not Just a Private College Practice," CollegeBoard.com.
Financial Trends in Public and Private Nonprofit Institutions, GAO-12-179, Jan. 26, 2012.
"Examples of New Affordability Initiatives for 2011-12," National Association of Independent Colleges and Universities, Feb. 29, 2012.