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Every year, independent schools must decide how much tuition they should charge. Many increase tuition annually as standard operating procedure, but more and more, schools are questioning this strategy. Schools often reevaluate tuition price when they are not able to maintain a desired level of net income, when they are giving increasing amounts of financial aid to attract and retain students, or when enrollment has been declining or not increasing. Schools also may reevaluate pricing when they are not attracting the mix of students they want—including a geographically, demographically, or socioeconomically diverse pool or desired levels of some other student or family characteristic.As the pandemic starts to wane, independent schools will have to reexamine tuition with new considerations in mind. Some newly enrolled students may return to their public schools, and some families may no longer be able to afford tuition because of pandemic-related financial stress. Programming, which for many schools has gone virtual, may inform new teaching and learning styles. And as a renewed focus on diversity and belonging takes hold, schools may be looking to build an inclusion budget. Taking a closer look at tuition level, structure, and discounts, and the way tuition is described, can help schools set their prices.
Tuition Level
For most independent schools, tuition is set by deciding on a percentage increase each year. Deciding how much to increase tuition usually involves looking at the school’s budget and its revenue needs and the tuition of peer and competitor institutions. Boards often evaluate the school’s price point relative to other schools and consider how they want to position their institution. They look at inflation and other macroeconomic factors. Many schools also consider whether they want to change their allocation of financial aid.This annual decision can lead to spirited conversation among boards—some members feel that families can easily afford a tuition increase (and thus an increase in excess of inflation can be justified in order to keep the school competitive and to maintain its quality), and others may be concerned about the school’s affordability and accessibility. Schools often compromise with an increase slightly above the rate of inflation. According to NAIS’s Data and Analysis for School Leadership, between 2009–2010 and 2019–2020, inflation-adjusted day school tuition increased by 20.3%, while inflation-adjusted boarding school tuition increased by 24.1%. This is compared to an increase in the Consumer Price Index of 19.4% and an increase in median household income of 18.6% between 2010 and 2019.
Some schools decide to freeze tuition for a year or two if the board feels the price has gotten too high. A tuition freeze always puts pressure on the expenditure side of the budget, but it can sometimes have positive marketing results, help improve retention, and slightly reposition the school relative to its competitors.
When schools more seriously question the tuition level, an in-depth analysis of all options related to tuition should be considered. Critical questions to discuss should include: Is tuition too high, too low, or about right? Does the answer differ by grade or boarding versus day student programs? Does the tuition generate the revenue the school needs? Can the school attract the numbers of students needed with current tuition levels?
A school should consider all aspects of its pricing structure as well as the amount of financial aid it offers rather than just tinkering with the tuition level. Schools also need to understand that changing pricing and financial aid policies, levels, and structures will not necessarily fix revenue or enrollment problems if families in the market perceive that the school does not have a robust value proposition or is not providing a quality education.
Pricing Structure
Evaluating how tuition rates are structured—by grade, bundles, or discounts—is another approach.By grade. When schools charge different prices by grade, the price usually increases as students advance. The rationale for increasing tuition as students progress usually relates to the assumption that operations cost more in higher grades. Also, once students have entered a school, they are less likely to leave and thus less price-sensitive than when they initially enrolled.
Schools that charge one price for all or most grades may consider moving to a structure that increases the price as the student advances to further increase revenue. But schools with retention issues may look at how the price increases are impacting student retention. Schools also need to look at where they have the strongest market demand. This may be at traditional transition points (pre-K to kindergarten, elementary to middle school, middle to high school); schools may want to charge higher prices where demand is strongest. Schools that charge more as students proceed often find parents worrying not only about the price increase as their students move to higher grades, but also about the annual price increases, which most schools charge to cover salary increases, inflation, and other costs. These concerns have led many schools to flatten tuition structures and remove many of the step increases tied to grade or division transitions.
Bundled vs. a la carte. Independent schools differ in what they include in the cost of tuition depending on what is available. Some schools bundle everything together and charge one price, while others have a la carte pricing. For example, if a school offers transportation, lunch, before- and after-school care, and a variety of co-curricular activities, it may charge an all-inclusive price or charge separately for each add-on beyond the basic academic program.
Besides changing the demand for the various components beyond the academic program, schools that comprehensively bundle many components into their tuition will usually have a higher price than schools that choose a la carte pricing. This can make it more difficult for the higher-priced schools to compete in the marketplace as they have to argue that their price is the same and perhaps even lower than that of their competitors. Many schools that have higher tuition prices fear that parents will not look beyond the initial sticker price to understand what the price includes.
Many schools bundle some extras into their tuition. Transportation and after-school care are most often treated as add-ons, with lunch following closely behind. It is important for schools to analyze the impact of different bundling options on student demand.
Tuition discounts. Discounts can lower tuition for specific groups of people without lowering it for everyone. The most common discounts include sibling discounts for families with more than one child in the same school and tuition remission for children of faculty members. A sibling discount policy can put a lot of pressure on a school to accept a second or third child from a family even if the child doesn’t meet the school’s admission standards. Similarly, the pressure to accept children of faculty can be huge because the financial impact of not accepting the student might involve hiring a new faculty member.
A few schools offer a tuition guarantee or a tuition lock. This requires that a parent sign a contract with the school, and there is an agreement on the price, usually for the student’s attendance in a certain division of the school, such as lower school, middle school, or high school. The contract provides families with certainty about how much their child’s schooling will cost for the years that it covers, and it protects the family from unexpected tuition increases.
Description of Price
Most independent schools provide aid to a portion of students who cannot afford the full cost of tuition as well as some specifically targeted merit aid or aid to students with certain characteristics. How this aid is described can also influence a school’s prospects.Some schools have found that families do not even consider their school if they publish a price that the family feels is beyond its means. Other schools find that some families who cannot afford the full tuition price do not like the idea of seeking financial aid. Still other schools observe that some families mistakenly perceive they do not fit the profile of a family who would qualify for financial aid. To change the conversation, some schools have adopted creative ways to provide different price points—based on a family’s ability to pay—without using terms such as “financial aid” or “tuition assistance.”
Some schools refer to tuition that is “indexed” to family income, while others say that the school’s tuition is based on a “sliding scale” relative to what a family can afford. Other schools talk about “flexible tuition” based on family circumstances or “variable tuition” rates. Many of the schools that have recast their tuition policies using these terms have experienced positive effects on enrollment and increased interest in the school from a diverse set of families.
Tuition Rethink?
Tuition is but one variable that influences whether families will choose to send their children to independent schools. It is very important to many families, and the way tuition is described can influence whether families even consider a particular school.Most schools annually set tuition for the following year. As they make these decisions, it is worth considering whether and how rethinking the tuition level, the pricing structure, and the way the school describes the cost of attendance could affect admission and enrollment prospects.
Go Deeper
This article was adapted from “Three Considerations for Independent School Tuition Setting,” part of NAIS’s new Reimagine Tuition series. This research-based collection includes three reports that provide guidance and recommendations to help schools consider tuition in a new light. In addition to the report from which this article is adapted, the series includes two other reports:
- “A Decision-Making Process for School Leaders” by Mark J. Mitchell explores how to establish or reconsider tuition strategy.
- “Is a Tuition Reset Right for Your School?” by Lucie Lapovsky outlines how to proceed with a strategic reset and provides case studies of seven schools that have recently reset tuition.