Independent School Financial Sustainability: Past, Present and Future

1. Independent School Financial Sustainability: Past, Present and Future Independent Education Trustee Workshop Washington, DC September 30, 2014

2. Today’s Speakers Genevieve Madigan, Vice President, Professional Development and Research Jeffrey Shields, FASAE, CAE President and CEO

3. Program Goals • Discuss the financial climate for independent schools leading up to, and including, the economic downturn in 2009 • Explore current data specific to the Washington, DC, region from the most recent NBOA Business Office Survey, in addition to other sources • Share insights on future challenges facing independent schools

4. Before the Economic Climate Changed…(circa 2008) • Tuitions up 30% (real dollars) over 10 years • Overall staff up 32% over 10 years • Student: teacher ratios getting smaller • Financial aid grant dollars up 38% • Enrollment up 20%

5. Different Ideas “New Normal” • Charge only what people can pay • Design your program to that revenue number “Full Steam Ahead” • Charge what it costs • CPI + 2 or more when needed

6. NAIS: The New Normal • Increase enrollment without increasing staff • “Sunset” an old program for every new one • Right size: re-think class size, workload, # of teacher specialists, assistants, school size • Devote 1/3rd of each fundraising dollar raised to endowment

7. ISM: 21st Century Model • Decide whether you are a price, product, or process school (you can’t be all 3!) • Acknowledge that the 20th century “factory” model of education will not prepare students for the 21st century • Design a 21st century school that individualizes learning using technology • Dedicate 2% of your budget to faculty professional development

8. 2013 NBOA Business Officer Survey: In response to the economic decline, what strategies did you implement? 26.4% were going to increase the average class size but only 11.7 % did. 58.8% were going to decrease planned salary increases but only 32.3% did Most popular Strategies- • Increase average class size • Increase teaching loads • Increase employee contributions for benefits

9. Strategic Reactions Increase Number of Students Per Classroom PlannedImplemented ‘10 Survey 26.4%11.7% ‘11 Survey 19.9%10.7% ‘12 Survey 16.2%11.6% ‘13 Survey17.9% 9.9%

10. Strategic Reactions Increase Teaching Load PlannedImplemented ‘10 Survey 26.6%12.8% ‘11 Survey 18.4%10.9% ‘12 Survey 14.2%8.1% ‘13 Survey 14.8% 9.1%

11. Strategic Reactions Increase Employee Contribution for Benefits PlannedImplemented ‘10 Survey 17.5%11.7% ‘11 Survey 20.7%12.7% ‘12 Survey 13.5%13.2% ‘13 Survey18.1% 8.3%

12. Strategic Reactions Same goes for: • Reduce Faculty FTE • Reduce Staff / Admin FTE • Decrease Planned Salary Increases • Reduce Salaries • Reduce Benefits Source: NBOA Business Office Survey 2009-12

13. 13 Years of Tuition or…?

14. There is NO Silver Bullet

15. The Future…?

16. Tuition Increases: CPI versus Reality Average yearly CPI increase for the past 12 years is 1.96%. Has your school had a tuition increase in any given year that was less than 2%? It’s not just about affordability, but about managing expectations. Source: NAIS and US Bureau of Labor Statistics

17. Increase in FTEs Source: NBOA Business Office Surveys 2008-12

18. Independent School Revenue Streams In general, all operating revenues fall into one of four buckets, and you only have direct control over one of them- tuition. • Tuition • Fund Raising • Endowment • Auxiliary Services

19. Independent School Expenses Greatest % of your budget, in descending order (typical school) • Compensation and Benefits • Facilities • Financial Aid (actually a revenue offset, but for our purposes we will discuss it here) • Technology • Equipment and Supplies

20. Demographics • Tuition • Enrollment • Financial Aid AN OVERVIEW OF DATA FOR YOUR SCHOOLS

21. Demographics- An example What are the trends in terms of students for your market? “Kindergarten bust or Middle School explosion?” What are the income levels for your market? Where are the families who are most likely to attend your school? Source: NAIS Demographic Center

22. Tuitions Continue to Rise NAIS National Averages IE 2013 Averages • NAIS Average Median Boarding tuition, 12th grade: $46,775 • Median Day Tuition, 9th and 12th grade median: $22,700 • Median Boarding Tuition, 12th Grade: $48,825 • Median Day Tuition, 9th and 12th grade median: $33,128 Source: NAIS Facts at a Glance

23. Tuition Reliance: National Perspective

24. Tuition Reliance: Washington, DC, Metro Area

25. Trend is going in the right direction, but…..

26. The total number of students in independent schools remains unchanged.

27. Financial Aid • US Schools • 35.9% Remained the same • 47.3% Increase • 9.1% Decrease

28. Financial Aid: How has the 2013/14 financial aid allocation ratio changed compared with prior years?

29. Financial Aid Metrics

30. Financial Aid: Mid Atlantic Region National Source: NAIS Facts at a Glance

31. Do you offer Full Financial Aid Awards?

32. Highest Value of Partial Award(if full awards are not provided)

33. Merit Based Financial Aid Enrollment

34. Tuition Remission Enrollment

35. Remission: The Details

36. Financial Aid: Allocation

37. DEBATE THE PROPOSITIONS

38. Debatable Propositions • Purposely Controversial • Can take a stand: for or against • Spark new thinking around both long-held beliefs or revolutionary concepts • Eradicate “cherished theories”: things you believe, but have no evidence to support

39. For example… 1. The value of the smaller class experience is not as great as the cost.

40. or… 2. Financial aid should only be used in service of mission, not to increase enrollment.

41. and… 3. Online learning can replace the personal connection between teacher and student in the traditional classroom.

42. how about… 4. Fund raising activities should be strictly for capital improvements only – not to close the gap between operating revenues and expenses.

43. HOT TOPICS IMPACTING INDEPENDENT SCHOOLFINANCIAL OPS • Value Added Costs • Role of the Board • Full-Pay International Students

44. Added Value Costs How do we add value without adding expense? Read More About It: The value question for independent schools by Terry Armstrong www.claytonchristenseninstitute.org

45. Role of the Board • What is the role of Trustees in enrollment management? Read More About It: Boards and Enrollment Management In Schools: Interview with Dr. William Mott by Rick Newberry enrollmentcatalyst.com

46. Full Pay International Student Enrollment • Implications from mounting pressure to enroll more full-pay international students? Read More About It: What China Means to American Boarding Schools by Trip Darrin admissionsquest.com Net Assets Magazine May/June 2012

47. Is your school tracking these FIVE financial indicators? • The gap: • the cost to educate a student at your school and net tuition as well as Gross Tuition vs. Net Tuition (NBOA Financial Position Survey) • Financial Aid and Tuition Remission as a % of gross tuition revenue (NBOA Business Office Survey, Financial Position Survey and school’s own data) • Expendable Financial Resources:the“reserve” which a school has on hand to cope with a short-term financial shock. Expendable financial resources provide a way for a school to invest in new programs or facilities. (NBOA Financial Position Survey) • Market Demographics (NBOA and NAIS) • FTE / Student Ratio (NBOA and NAIS)

48. Who Is… • Over 1,150 US member schools – and growing! • Canadian schools • For-profit companies • Other non-profit groups • Retirees • Headquartered in Washington, DC • 13 FTE (distributed staff model) • www.nboa.org

49. Tuesday, October 7, 2014 – 8:30am – 3:00pm Holton-Arms School, Bethesda, MD Register at: www.nboa.org/events/business-office-now/

50. Business Office NOW from NBOATuesday, October 7, 2014 – 8:30am – 3:00pmHolton-Arms School, Bethesda, MDRegister at: www.nboa.org/events/business-office-now/ In ONE DAY your business operations staff will have the answers to the following questions for your school: • How can my school develop a more sustainable financial future? • What will our school’s financials look like in 10 years? • How do our investments in IT compare with other schools with the same budget size and enrollment? • How can we recoup more of our costs from our facilities rentals? • What are the most pressing legal issues that my school should be aware of in human resources? • What is the future of online learning for independent schools?