How School Leaders Make Decisions About Tuition and Compensation

‚ÄčEditor’s note: This is the first in a two-part series examining tuition trends in independent day schools, including schools’ efforts to cut costs and generate revenue. Independent school professionals William Daughtrey, Will Hester, and Kevin Weatherill authored this series, which is distilled from their study "Tuition Trends in Independent Day Schools” at Vanderbilt University’s Peabody College, conducted in partnership with NAIS.
 
Have independent schools reached a price break point? Many believe they have, prompting widespread discussions about how to control school costs and more clearly identify the value of an independent school education. Press coverage from The Atlantic to The New York Times emphasizes concerns about independent schools nationwide, including the rate of increase in tuitions and financial aid budgets and enrollment declines. The media have suggested that independent schools could meet the same fate as many private colleges.  
 
NAIS articulated the challenges our schools face with the “Value-Proposition Equation.” Simply, as the price of the education we offer increases, the perceived outcomes must also increase for families to see the value of sending their children to independent schools. School leaders can then choose to maintain or enhance value by putting downward pressure on price, or by increasing perceived outcomes.

Value = Perceived Outcomes/Perceived Price
In our study on behalf of NAIS and Peabody College of Vanderbilt University, we sought to better understand the tuition and financial aid trends at independent day schools nationally and to hear directly from school heads about how they are responding. To that end, we reviewed 25 years of historical quantitative data, surveyed 993 school leaders (heads of school and chief financial officers), and interviewed 26 of those leaders.
 
Below we share our analysis of tuition, financial aid, and compensation trends as well as school leaders’ feedback on the key factors they consider when setting tuition.

The Relationship Between Tuition and Perceived Value

The majority of school leaders do not believe they can effectively maintain or enhance their schools’ value by curbing tuition increases, according to our interviews and survey responses. One school leader captured the sentiment of many respondents: “If you look at schools who price the way we do … they focus on value and enhancing value. They don’t focus on the price. They operate on the assumption that people will respond to the value proposition in a more powerful way.”
 
School leaders who responded to our survey overwhelmingly reported that they set tuition based on what is required to deliver the school’s educational program, not on inflation. In fact, 66 percent of heads of school and 77 percent of chief financial officers disagreed or strongly disagreed with the statement, “We can deliver on our mission and remain competitive by limiting annual tuition increases to CPI.” Instead of setting tuition so that increases do not outpace CPI, the majority of school leaders agree or strongly agree that they set tuition “sufficient to deliver our best educational program,” “based on what we believe families can afford,” and “in relation to the tuitions of peer schools.”
 
School leaders also believe the overall educational program, not affordability, is the key differentiator in the marketplace, according to the survey responses. The importance of financial variables, namely “low tuition” and “the availability of scholarships and/or financial aid,” were consistently ranked below educational variables such as the “quality of the educational experience” and the “unique offerings of the school.” Ninety-eight percent of heads of school responded that the “quality educational experience” was “very important” to attracting and retaining families over the next five years.
 

 
When we interviewed school leaders, we asked them to identify the key challenges for their schools in the next five years. Most were not concerned about price as much as they were about the value of the experience. “It’s not a financial challenge,” one head of school noted, “it’s a value proposition challenge; it’s about making sure what we’re offering is really worth it.”

Historical Tuition and Financial Aid Trends

To understand just how much tuitions have risen in real dollars (adjusted for inflation), we took schools’ highest reported tuitions across our 25-year DASL data set — the 1988-89 school year to the 2013-14 school year — and adjusted them to 2013 dollars. We found that almost all schools doubled their tuitions in real dollars between 1988 and 2013.
 
Large increases in posted tuitions have not necessarily translated into equal gains in actual operating revenues. Financial aid expenses, which for the purpose of our study include all forms of need-based and merit aid as well as all tuition remission, have been rising faster than gross tuition and fees. Over the 25-year period — 198889 to 201314 — the average financial aid expense per student rose, in real dollars, from $1,067 to $3,239, an increase of 203.6 percent.
 
This means that in the same period that tuitions doubled, financial aid expenses tripled. The share of gross tuition and fees devoted to financial aid expenses jumped nearly 5.5 percentage points (from approximately 9.5 percent to 15 percent) between the 198889 school year and the 201314 school year, and nearly 4 percent (from approximately 11 percent to 15 percent) between 200304 and 201314 alone.

More Resources Toward Administrative Compensation    

Since personnel costs account for 7080 percent of schools’ operating budgets, school leaders frequently report that decisions about tuition increases are made to ensure adequate compensation for faculty and staff. When we dove into the compensation figures schools reported to DASL, we found some noteworthy trends.
 
Teacher salaries have increased at rates well below the rate of tuition increases. Total teacher salary spending per student increased from $4,652 to $6,841 from 198889 to 201314, a 47 percent increase above inflation over the past 25 years. This average annual increase of 1.6 percent per year over 25 years is significantly below the overall growth of school income or expenses, challenging the notion that faculty compensation is the primary driver of tuition increases.
 
However, when we considered the total salary spending for all employee categories — faculty, administrators, and staff — we found that the average per-pupil spending has increased 74.5 percent after inflation over 25 years (from $6,907 in 198889 to $12,054 in 201314). This annualized increase of 2.3 percent more closely reflects the total growth in net-tuition revenue over the same period.
 
Schools have dedicated an increasing share of their resources to administrative roles over the past 25 years. Teacher salaries as a share of total spending have fallen from 41 percent to 32 percent while administrative salaries have risen from 10 percent to 14 percent over the same period. Looked at another way, for every dollar spent on teacher pay in 1988, schools spent only 25 cents on administrative pay. By 2013, that ratio had significantly shifted: For every dollar spent on teacher pay in 2013, schools spent 45 cents on administrative pay.
 
Our data set did not allow us to clearly identify whether the increase in spending for administrators occurred because of increased salaries for administrators or because of an increase in administrative positions. Nonetheless, there has been a clear shift from faculty pay to administrator pay. Growth in administrator salaries has significantly outpaced spending for faculty and staff. Average administrator salaries increased 165 percent (in real dollars) between 198889 and 201314, compared to a modest 47 percent increase in faculty salaries. The 165 percent increase over 25 years represents a 4 percent annualized increase above inflation.
 

The Tension About Tuition and Salary Increases

The challenge of finding the right balance between limiting tuition increases and compensating faculty was clear in our interviews. “You’re either going to balance things on the backs of faculty or families,” one head of school said. Indeed, the school leaders we interviewed noted that faculty compensation was top of mind as they considered tuition increases.
 
When asked how much they expected tuition to increase for the 2016-17 school year, 81 percent of heads of school and 89 percent of chief financial officers indicated next year’s tuition would increase at a rate equal to or higher than inflation as measured by CPI.
 

A Look Ahead

The simultaneous need to provide greater value to families and to increase faculty compensation is at the crux of conversations about the rising cost of independent education. School leaders led us to believe the tension between tuition and salary increases will continue, with a clear eye on the need to maintain or enhance the value of the experience. In our final post, we will explore school leaders’ responses to the rate of tuition increases, and report on efforts to cut costs and increase auxiliary revenue sources.
 
NAIS members can read the full study.

Discussion Questions

What data do you have to indicate what school families value most about your school? What do these data suggest about the school’s budget and/or business model?
 
Are there creative ways your school can contribute to overall compensation outside of increases to base salaries, health, and retirement benefits? For example, could more flexible work schedules, child care subsidies, or increased professional development funding as alternative forms of compensation slow the pace of base salary increases?
 
Has the share of compensation devoted to administrative salaries at your school followed the national trend? If so, how do you measure the impact of the increase to ensure it translates into a better, more valued educational experience?
Author
Kevin Weatherill

Kevin Weatherill is head of the upper school at Spartanburg Day School (SC) and former head of the upper school at St. Martin's Episcopal School (LA). He previously served as coach, English teacher, and director of college counseling in several independent schools. The three met in graduate school at Vanderbilt University while pursuing their doctorates in educational leadership and policy.

Will Hester

Will Hester is a teacher and choral conductor living in Chicago. He most recently served as director of choral studies and leadership team member at the Nashville School of the Arts; he previously served as choir director and AP Music Theory teacher at the Kinkaid School (Texas) and the Ensworth School (Tennessee).

William Daughtrey

William Daughtrey is co-director of the upper school, English teacher, and director of summer programs at University School (Ohio). Prior to joining the faculty at University School, he served as assistant dean of students, director of outdoor education, and English teacher at Woodberry Forest School (Virginia).

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