Head of School Podcast: The Role of Price [S1.E5]

June 3, 2020 Hans Mundahl

My daughter announced in sixth grade that she wanted to attend an all girls boarding high school. In the moment I was a little shocked, though looking back I probably shouldn’t have been. I mean I’ve lived at, worked at, lead or served independent schools in one way or another for almost 20 years. But when our daughter made this announcement I felt it was time for a little bit of cold hard independent school admission reality.

“Listen, kid,” I said, “There are two kinds of boarding school families, and we’re the other kind.” She laughed, I laughed, and then I said, “no, really, you need to get straight A’s, play three sports, and help little old ladies across the street.”

I understood that if my daughter was a straight A, three-sport, full pay boarding girl we would be having different kinds of conversations with schools in the admission process. But because we, like something close to 90% of all Americans, can’t afford to pay full tuition, we would be having a conversation with each of her schools about price. That conversation would begin with our first contact with a school (check that ‘yes’ box on the inquiry form, I’ll be applying for financial aid thank you very much) and continue right through decision day.

No topic gets more attention across enrollment professionals, heads of school, and board members than price. And given that tuition is what universally separates independent schools from public schools in the educational market there is no enrollment management lever more powerful than price.

Welcome to EMA’s Head of School Podcast: where we cover the most important enrollment management topics tailored for heads of school. In every episode we’ll cover a couple of high level topics along with a question or reflection you can bring back to your team. I’m your host (and recovering head of school) Hans Mundahl. Let’s get started.

It’s easy to think about price from the supply side of that ol’ supply and demand equation. You have X number of seats or beds that you can fill with students and you need Y number of teachers, pencils, and books to serve them. Divide your total expenses by the number of students enrolled at the school and boom - there’s your price, right?

Probably not. There’s a big difference between a family’s ability to pay and their willingness to pay and their willingness to pay depends on a number of factors from how much they value what you are offering, to the quality of alternatives, to how many children they have, to how much they value that annual family vacation to France. 

There is no single variable that can be isolated which predicts the effects of a tuition increase on enrollment demand but highly selective institutions have an easier time making a high tuition / high aid model work because they have the prestige to attract many full-pay students who are also academically well qualified.

But most independent schools don’t fall into this category and can’t fill their school only with full-pay students. So what do you do? I’m not telling you anything new to say that the way most schools solve this problem is by agreeing to collect less than full tuition from additional students and making up the difference through annual giving.

When we think about tuition discount rates and pricing the devil is in the details. Traditionally there have been two approaches: high tuition / high aid, and low tuition / low aid.

With a high tuition / high aid model:

  • The price is closer to the actual cost of education because most students are subsidized
  • Because there is a bigger gap between the published tuition and what many students pay there is more revenue available to use for financial aid
  • A higher ‘sticker price’ might be associated with a higher quality

But this model also has limitations:

  • High income / low need families may need help in understanding why they are paying a higher price
  • A higher sticker price may lead to sticker shock and fewer applications from tuition capable families
  • Targeting aid and identifying truly eligible families can be a complex undertaking

With a low tuition / low aid model:

  • There is a more equitable subsidization of all students
  • The school appears more affordable to first time independent school shoppers

But there are also limitations with this model:

  • Some families with a higher ability to pay are contributing less than they are able to the school
  • Low price may be associated with a lower quality
  • The long term effects on applications and financial sustainability may vary by institution

Whether we call it financial aid, tuition assistance, merit aid, discounting, preferential packaging, tuition remission, or indexed tuition getting the math right on this is mission critical.

We talked about getting the math right with John Lewis, Head of school at the Gunston School.

A recent study of 54,000 college students found that cost was the leading reason students forgo their top-pick school. In the independent school world admission directors report that tuition is a major barrier to recruitment. 

And a recent analysis found that small colleges most at risk of going out of business share the following characteristics:

  • Enrollment of fewer than 1,000 students
  • No online or alternate revenue programs
  • Annual tuition increases greater than 8%
  • Tuition discounts higher than 35% AND
  • Depending on tuition for more than 85% of total annual operating revenue

Um, does that sound like lots of independent schools?

The good news is there is real innovation happening in this space:

  • More and more schools are taking an enrollment management approach rather than an admission approach and
  • Actively engaging their boards in long-term financial modeling
  • A net-tuition revenue approach that considers not just ‘full-pay’ and ‘aid’ families but instead considers a spectrum of tuition-capable families is an important step, as is
  • Containing cost and controlling tuition increases with some schools even
  • Electing to reduce their tuition and lower their discount rate

Whatever the approach you take tuition discounting must be practiced with care, and leadership structures must be cultivated that enable long-term financial planning. Make sure that at your next board meeting you have a conversation about your tution next year, the year after that, and the year after that.

Thanks for listening to episode five of EMA’s Head of School Podcast. In episode six we’ll look at the enrollment management leader.

  • Today’s episode is based on EMA’s special report What Every Head Needs to Know About Enrollment Management. You can find the full report at www.enrollment.org. 
  • This episode was produced by me, Hans Mundahl, with help from Peter Baron.
  • Check out our other show The Enrollment Management Spectrum Podcast for long-form interviews with scholars, practitioners, and experts in the enrollment management industry. 

Before we close here is a question you can explore with your team:  What percent of your school’s operating revenue is dependent on tuition? Who owns how this number changes over time?

About the Author

Hans Mundahl

Hans Mundahl is the Director of Professional Development at EMA. He has been an educator since 1995 when he first stepped into the classroom as a Fulbright exchange teacher in the former East Germany. Since then Hans has done just about every job possible at an independent school from teacher to administrator. Most recently Hans was the head of school at a K-8 day school in central New Hampshire. Hans’s spare time is usually spent with his family but he is also passionate about the outdoors and protecting the environment.

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Previous Podcast
Head of School Podcast: How the Customer Has Changed [S1.E4]
Head of School Podcast: How the Customer Has Changed [S1.E4]

What every head needs to know about enrollment management.

Next Podcast
Head of School Podcast: The Enrollment Management Leader [S1.E6]
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What every head needs to know about enrollment management.