COVID-19 Considerations: Independent Schools and the PPP Loan Application Decision

As independent schools work to navigate the lost income and uncertain future caused by the COVID-19 pandemic, many have applied for loans through the Paycheck Protection Program (PPP). Each school’s situation is unique, so boards and school administrators must conduct careful analyses of needs and available assets. There is no one-size-fits-all solution for all schools.
 

The Independent School Sector

  • 1,600 independent schools in the United States belong to the National Association of Independent Schools (NAIS). These schools employ 700,000 people, including teachers and administrators, as well as coaches, food-service workers, school nurses, bus drivers, counselors, security staff, and facilities crews.    
  • Independent schools are 501(c)(3) nonprofit organizations that are governed by boards of trustees. Each independent school has a unique mission and educational approach.
  • Independent schools’ financial situations also vary a great deal.
    • On average, tuition covers just 76.6% of the cost to operate a day school and 52.4% of the cost to run a boarding school. Generally speaking, the remainder of the budget for many schools is made up from fundraising, endowment income, and auxiliary programs, such as after-school care, camps, and events.
    • On average, salaries and benefits for faculty and staff account for 70% of a school’s expenses.  
  • Independent schools are small nonprofits that have a big impact on their local communities. They not only educate students but also employ a significant number of people.
  • In some areas, independent schools are the largest local employer. These schools are engines for economic activity. They draw people from around the area and, in some cases, from around the world, to learn and work at the school. This helps local businesses thrive.  

About the PPP

  • The PPP is intended to help organizations maintain their employment levels even though they’ve lost income during this unprecedented crisis.
  • Schools that have decided to apply for or accept PPP funds must be able to demonstrate need.

Factors that Affect Independent Schools’ Decisions

  • Independent schools’ financial situations vary dramatically. Views on whether or not to apply for the PPP also vary. Some schools decided not to apply for the PPP. Other schools applied and are considering whether to accept the loan. And some have applied and received money through the PPP.
  • Schools that decided not to apply often have strong financial reserves not affected by the crisis or a strong culture of philanthropic support to help the school weather the loss of income.
  • Some schools determined that the challenges associated with administrative compliance measures outweighed the benefits for the school.  
  • Schools that decided to apply for the PPP often have experienced lost income from fundraising, after-school care, camps, etc.
  • For schools whose budgets have been severely affected by the virus, the ability to sustain payroll may be in jeopardy. Many independent schools decided to take the funds because they would have to layoff or furlough workers, or decrease wages, without the loans. These employees include teachers—who enable students’ parents to work during the day—and school nurses, counselors, coaches, janitors, security personnel, and facilities staff.
  • Many school employees are working hard to deliver education to students remotely. Employees whose work is currently not possible still need paychecks, and keeping staff employed will allow schools to reopen their campuses when it is safer to do so.
  • Employment stability helps the broader local and national community as well.
  • A school’s size or reputation does not necessarily translate into liquidity. Some schools have endowments, but these are typically restricted funds.
    • For example, a standard endowment is an investment account created by, or contributed to by, donors that is not fully expendable on a current basis. Many endowments are restricted in how they can be used, such as being expressly designated for a specific charitable purpose. Certain restrictions must be honored in perpetuity, absent legal measures. Generally speaking, an endowment cannot be repurposed to cover a school’s budget shortfalls or emergency needs, except under extreme circumstances, such as bankruptcy. However, some schools create board-designated endowments (also called “quasi-endowments”), which are subject to similar restrictions, but they can be modified by the board as needed.  
Nothing herein constitutes legal advice.