The Sustainability of Small Schools

Fall 2022

By Scott Collins, Kristine Varney

This article appeared as "Small and Mighty" in the Fall 2022 issue of Independent School.

Editor’s Note: The print version of this article included inaccurate information about the authors’ research. The authors completed their research as part of their doctoral work in Educational Leadership and Policy at Vanderbilt University. Read a full summary of their study, “The Sustainability of Small Independent Schools,” here.

“Small schools are magical places,” says Briel Schmitz, now entering her 21st year as the head of Spruce Street School (WA). And while she says the benefits of being small are clear—such as the ability to offer small classes and personalized instruction—she also knows all too well how size presents unique challenges—the inability to provide growth opportunities for personnel or take part in competitive benefits programs, for example. Still, given the challenges, Schmitz says she wouldn’t trade her small school for a larger one. “I think that small is amazing, and there’s really a lot of power in it. I think we’re small and mighty.”

Small schools—those with enrollments of 200 or fewer—make up about 30% of NAIS member schools and occupy an interesting niche in the marketplace. Smaller schools often have an easier time attracting families that want individualized instruction in a close-knit environment where every student is seen, heard, and valued. Smaller schools may also be more flexible and adaptive than larger institutions. But these schools must work hard to clearly define what sets them apart from other schools in their community, whether it’s taking advantage of the outdoors, forming community partnerships, offering unique class options, or having a different school philosophy.

And while the number of small NAIS schools grew by 30% over the past 15 years—with a total of 473 small schools reporting data in DASL in 2021—almost 38% of the small member schools experienced a decline in enrollment of 10% or more from 2020 to 2021. Enrollment declines are among the many challenges small schools face—even losing a few students can meaningfully impact a school’s operating budget—and without the abundant resources of their larger peers, they may struggle to stay afloat. In a 2016 study, “Tuition Trends in Independent Day Schools,” researchers found that the smallest schools were significantly less likely than the largest schools to report “very good” or “good” financial health, along with a number of other less favorable conditions. 

Given the value and place small schools have in the overall independent school market, and the changes the pandemic has ushered in, we set out to better understand the landscape of small schools, their most pressing challenges surrounding sustainability, and the approaches, activities, and strategies that have worked in terms of supporting sustainability. From the summer of 2021 to the spring of 2022, we conducted quantitative and qualitative research, analyzing DASL data along with survey data from 198 heads of small NAIS member schools and conducting interviews with five of those heads. (See the “Case Study” sidebars throughout this article to hear more about their schools.) We identified six key challenges to small-school sustainability and formulated recommendations based on promising approaches.

The Landscape

According to DASL, small NAIS schools are most prevalent in the West, Mid-Atlantic, and New England, which are also the top three geographic areas for NAIS member schools overall. A higher proportion of small schools are at the elementary level—offering one or more of grades pre–K, K, and 1–8—than the overall NAIS population, 60% of small schools compared to 38% overall. About 21% of small schools are secondary—offering grades 9–12—and 19% are both. About 82% of small schools are day schools, and 90% are co-ed. Approximately one in five small schools serves students with learning differences.

Roughly 22% of small schools have some religious affiliation. Episcopal and Quaker Friends schools account for more than half of religiously affiliated small schools. Only 6% of small schools have enrollments below 50 students. The most common enrollment ranges are 125–150, 150–175, and 175–200 students, with each category representing about 20% of small schools.

Enrollment Trends

Small school median enrollment from 2007 to 2022 shows an overall decline. While the data for all NAIS schools shows that enrollments overall have rebounded in 2022 to pre-pandemic levels, this has not been the case for small schools, though 2022 median enrollment was slightly higher than median enrollment in 2021.

In the 2021–2022 school year, the difference between actual and target enrollments for small schools skewed toward being under-enrollment, with 51% of schools being under-enrolled by more than 5%; 45% at target (within 5% of their target enrollment); and 4% above target. This represents an improvement from the 2020–2021 school year, when 63% of schools were under-enrolled by more than 5%.

Even with declining enrollments, admission metrics for small schools have stayed relatively steady over 15 years. The median acceptance rate stayed between 70% and 75%, while the median yield rate has oscillated between 68% and 74%. The median attrition rate has remained between 12% and 14%. The proportion of students of color, however, has trended upward, increasing from a median of 18% in 2007 to 28% in 2021.

The median number of employees in small schools increased from 2007 to 2021 across all categories. The median number of administrators increased from five to eight; median number of staff members rose from eight to 11; and median number of faculty members rose from 17 to 18, hitting a high of 22 from 2013–2015.

Financial Trends

Among the most notable financial trends is that inflation-adjusted faculty salaries are decreasing overall. For many small schools, yearly salary increases have not kept pace with the inflation rate in the 15-year period from 2007 to 2021. In that same time, median tuition has risen slightly above the rate of inflation; in the past five years, however, the median tuition value has not risen above inflation levels.

In terms of small school budgets, some are operating at a loss, while others are able to more than cover their operating expenses with the operating budget. About 45% of schools operated in a deficit in 2021, with an operating income smaller than their expenses, and the remaining schools operated with a surplus. Salaries are, of course, a major component of operating expenses. For the majority of small schools (65%), salaries make up more than 70% of the operating expenses. Tuition dollars cover a significant amount of the operating income for small schools. For 50% of small schools, net tuition revenue accounts for more than 80% of their operating income. Tuition revenue is less than 50% of operating expenses for only 11% of small schools. This reliance on tuition dollars in small schools underlines the importance of meeting enrollment targets.

Sustainability Challenges

In our research, we asked small-school leaders how they define sustainability, and although they all had different answers, it’s clear that they all would agree that sustainability is the major challenge and has been for at least the past decade. Even if they aren’t necessarily talking about it in the same way, 69% of small-school leaders reported talking about sustainability monthly or weekly with their leadership teams. A few small-school leaders reported having experienced a moment where they faced the possibility of their school closing. Another head reported conversations with the board early in their tenure about whether the school would make it. While many have seen positive impacts due to the pandemic, they know this progress may be fleeting if they don’t put long-term plans into effect.

Although no single definition exists, we define sustainability as having access to the resources, financial and otherwise, necessary to achieve the organization’s mission in both the short and long term. The most common challenges to sustainability we found small schools wrestling with include balancing tuition increases and competitive salaries, building endowment and managing debt, meeting enrollment goals, and maintaining facilities.

Challenge 1: Tuition. One head of school we interviewed said, “Anytime I see the long-term projections for tuition, it’s frightening. And we all wonder, Is that sustainable? Will it just go on forever? I’ve been in this business a long time, and I don’t see any other way except for tuition to keep going up.” Data indicates median tuition is not rising at pace with inflation, and yet yearly increases are a primary concern for school leaders. This makes sense given the fact that net tuition revenue accounts for more than 80% of the total operating income for half of small schools. As costs rise each year, school leaders feel they have no choice but to raise tuition levels. But they still worry about whether such yearly tuition increases are sustainable as a long-term solution.

Recommendation: Adding auxiliary revenue sources—renting facilities such as the gymnasium or auditorium to outside organizations or adding programs (preschool, summer camps, etc.) using existing spaces on campus and current teachers—can not only offset some operating expenses, but can create new opportunities to market and increase enrollment. If possible, schools should leverage the assets they have while using few additional resources.

Challenge 2: Faculty salaries. One school leader we spoke to defined sustainability as “the ability to pay [salary/benefits] everyone what they are worth,” which can often be a challenge. In fact, 37% of the school leaders surveyed felt “not very” or “not at all capable” of offering competitive salaries and benefits to their employees. During the pandemic, some schools had to freeze or even lower teacher pay.  

Over the past five years, increases in median faculty salaries have not kept pace with inflation. It is difficult to attract and retain highly qualified teachers when salary bumps don’t cover the cost-of-living increase. A number of school leaders cited rising housing prices and the cost of living in their areas as a primary sustainability-related concern. The tension for many school leaders between tuition increases and the ability to recruit and retain qualified teachers, through competitive salary and benefit packages, is clear.

Recommendation: Despite being interested in entering into consortium agreements with other small schools in their geographic areas, many small-school leaders lack the bandwidth to make these agreements a reality. But taking valuable cost-saving measures such as obtaining health care, benefits, child care, and plant management services through a consortium agreement could free up resources to put toward competitive salary and benefits packages.

Challenge 3: Financial planning. Understanding how tuition and salary increases might look in the long term is often part of a school’s broader financial plan. Leaders mentioned needing “a long-range strategic financial plan” and “robust financial planning” as primary components of sustainability. But at many small schools, these plans either don’t exist or aren’t well maintained, often due to a lack of bandwidth because leaders are addressing more immediate needs.

Recommendation: Financial records, meeting memos, and leadership team notes from schools that are no longer open indicate that their leadership rarely planned for the future and their short-term and small-picture thinking likely led to their demise. Financial planning may look different at small schools, and heads at these schools should focus on working with the board to create a five-year plan and eventually a 25-year plan.

Challenge 4: Endowment, debt, and cash reserves. Many small-school leaders shared fears about their ability to build their endowment. Some have used their endowment to pay off loans that had come due. Debts and debt ratios can also have a large impact on a small school’s financial picture. 

Recommendation: Schools with cash reserves, healthy endowments, and low debt can be less dependent on tuition to meet operating costs. It’s important to know the school’s range of manageable debt so that borrowing money for various projects can be limited. School leaders should seek out specific training or mentorship in how to begin building an endowment. One leader reported, “We started an operating reserve with $1,000 in each account—you’ve got to start somewhere.” 

Challenge 5: Facilities. Not all leaders we surveyed were in agreement about the importance of renting versus owning their space; while owning was seen as an important long-term goal, several leaders cited positive effects of renting in the short term, most notably the lack of maintenance costs. 

Given the financial challenges, it’s no surprise that schools struggle to allocate proper resources to expand or even maintain their facilities. As deferred maintenance needs become more pressing, leaders are forced to make difficult decisions about which projects to prioritize and how to cover the costs.

Recommendation: For long-term sustainability, schools should look to own their buildings and facilities. Young schools or schools that do not have deep reserves or rainy-day funds to help with immediate threats and facility maintenance should consider renting until building up a reserve. Facility ownership also generates a potential revenue stream (renting out the facility).

Challenge 6: Enrollment. Not meeting enrollment targets can feel like a make-or-break situation for many small school leaders. As one head put it, “We’re a small enough school where [losing or gaining] a handful of kids will make a difference.” Overall, median enrollments are down for small schools across school levels, though a lot of this can depend on the local market. Some schools find themselves with primarily independent school competition, while others are competing mostly with public schools. Still, regardless of the overall trends in enrollment, this is a problem that many individual schools are dealing with.

Recommendation: Many small schools are learning environments where students are known, valued, and seen, but without a clear understanding of their mission and value proposition, it can be difficult to meet enrollment—and therefore financial—goals. In addition to understanding how they’re situated within the marketplace, schools must be able to clearly articulate their value proposition to families. “You have to have a great understanding of your school and what you’re able to offer and what you’re not able to offer,” one respondent said. “Stay true to your core and your mission.” Another head of school said, “We messaged very well on what we were going to do, and we delivered at a really high level.” 

The Long-Term Outlook

When asked about the effect of the pandemic on sustainability challenges, nearly half of school heads surveyed said that they believe the pandemic improved their situation. Many schools were able to attract families with the promise of small, in-person classes. With an increase in enrollment, schools were more likely to meet their operating budget needs. Grants and PPP loans also offered schools some financial relief. One leader says the pandemic improved their school’s sustainability challenges “by clearly displaying the value of the school’s educational approach and effectiveness, both online and in person.”

About 25% of respondents said the pandemic worsened challenges. For those schools, some responded that enrollments decreased because families were being more conservative with their money; other responses included a decline in campus visits and capacity constraints with COVID protocols. Several school leaders who elaborated on negative pandemic effects cited the decrease in the international student population as the primary contributor.

But overall, the pandemic showed school leaders the importance of being nimble in an ever-changing world. As social, political, and economic circumstances change, schools might need to change and adapt. As one school leader said, “I would define [sustainability] as having the resources to provide relevant and meaningful learning opportunities over a long period of time while having the capacity to challenge the status quo and reimagine program, facilities, and organizational models as the world continues to shift.”  

While we cannot anticipate how exactly the world might change in the next five, 10, or 50 years, we can predict that these sustainability challenges will likely still exist—unless there are fundamental changes to the independent school business model. And perhaps these small school leaders will be the ones who will change the status quo and lead independent schools into the next era.

Case Study: Spruce Street School (WA)

Spruce Street School, which serves 107 students in grades K through 5, has faced a number of sustainability challenges through the years but is currently in a strong financial position. Compared to other markets, Spruce Street School gets a higher proportion of its competition from other independent schools, with about 35% of Seattle elementary school students attending independent schools. Briel Schmitz, head of school, believes Spruce Street School’s commitment to serving diverse learners and creating a welcoming community for both students and parents sets the school apart from its peers.

One of Spruce Street School’s major challenges to sustainability has been the physical facility. When Schmitz arrived, the school did not own a building and had no lease agreement for the space they were occupying. She says a strong program sustained the school through those challenging years, but getting the school on good financial footing in the early years of her tenure was difficult. Schmitz and the board signed a 25-year lease on a new building, but more importantly, they made financial choices that would enable them to purchase their own facility in the future. This required a 25-year financial plan, which Schmitz helped create. And indeed, Spruce Street School purchased a new permanent facility in 2019, which they will move into in 2030. Schmitz also helped create a dedicated financial aid fund to ensure access to the school is a priority, but raising tuition feels unavoidable. 

Case Study: Upland Country Day School (PA)

Upland Country Day School (UCDS) is a PK through grade 9 elementary school with an enrollment of about 185 students. When Head of School Dan Hickey started in 2017, the school had experienced a lot of enrollment ups and downs, going from around 220 students pre-2008 to a low of 120 just prior to Hickey’s tenure. 

He says the net impact of the COVID pandemic on the school was a positive one, as families seeking a small in-person schooling experience fled the popular public school system. Many of these families were entertaining independent school as a viable alternative for the first time, and it brought valuable tuition revenue to the school. “Each year, our tuition increases and public schools stay free. So that discrepancy grows every year. But there’s a little bit of a reckoning now with COVID, and people really understanding and prioritizing a certain type of education, one that’s healthy, that’s outdoors, that’s reliably in person. Some people are kind of resetting their expectations.”  

Hickey cites building the school’s endowment and balancing small class sizes with the need for tuition dollars as some of the school’s major challenges to sustainability. In terms of promising approaches, UCDS recently added auxiliary programs as well as a preschool program. While adding the 3-year-old preschool program was a “no brainer,” creating an important feeder into the pre-K program, Hickey says that auxiliary programs are not a major source of revenue. “It’s an opportunity for some good marketing and to add a chunk of change to the operating budget, but it's not a golden egg,” he says, acknowledging that in small schools especially, it’s hard to find team members who have the bandwidth to add a new program or to create a new consortium agreement. These initiatives have great promise but are just too time-consuming to pursue in the day-to-day, he says, which is why UCDS hired someone to manage the auxiliary programs, with the hope that the increase in revenue would pay the additional salary and then some.

As for where schools should focus their sustainability efforts? “My own personal belief,” Hickey says, “is that you’ve got to get your own school as good as you can, that the growth and the stability emanates from the inside out.” Focusing on improving all aspects of the program has helped UCDS reach a better position, and Hickey looks forward to keeping the school on its positive trajectory.

Case Study: Maybeck High School (CA)

Maybeck High School, located in Berkeley, serves 120 students in grades 9–12 with an average class size of 12 students. Maybeck was founded in 1972 by teachers who wanted to create a space where they had the autonomy to choose what to teach and how to teach it. Bill Webb has been the school director for the past nine years and is proud that the school has maintained its unique philosophy for 50 years. “We trust the teachers to work together to create their own work,” he says, “and then my job as the administrator is to support them and not tell them what to do—and that’s pretty neat.” Maybeck’s small size helps it build relationships and offer different opportunities and activities than other schools. For example, the entire school community goes camping, studies art in New Mexico, and travels to Peru to hike Machu Picchu. 

For Webb, sustainability means “the security of knowing you’re on firm ground.” As a school, Maybeck has a clear identity and does not waver. Leaders at Maybeck have a clear sense of what the school can and can’t offer, which translates into great teachers, innovative classes, and amazing out-of-classroom opportunities. The school also prioritizes having enough money in the bank to invest in teachers and programs rather than accruing debt maintaining expensive buildings and athletic fields.

One of the major challenges that leaders at Maybeck faced during the pandemic was continuing to invest in teachers by increasing salaries without raising tuition when families were not only struggling because of COVID but also because of the high cost of living in the San Francisco Bay area. But while the public school system was unable to hold in-person classes, Webb was able to pivot quickly and have classes meet outside on the lawn. This, plus Maybeck’s smaller class sizes, were major benefits that ultimately allowed the school to bring students back earlier.

Webb has done several things to help ensure Maybeck’s sustainability, such as renting space to avoid accruing debt and burdening families with capital campaigns. The school has also tapped into a wider applicant pool by intentionally focusing on areas and communities where they were not previously recruiting. They were also able to add staffing to offer certain mission-connected classes every year instead of every other year. 

Case Study: Telluride Mountain School (CO)

Telluride Mountain School (TMS), now almost 24 years old, started with a dining room table discussion about building a school program that could capitalize on learning through hands-on experiences and taking students outside the classroom. The school, which currently serves 134 students PK through 12th grade, takes advantage of its remote location and accessibility to the outdoors to offer experiential learning through skiing, backpacking, biking, hiking, camping, and climbing. 

Andy Shoff, who has been with the school for 19 years, the last four years as head of school, defines sustainability as “the ability to advance your mission and institution despite a sustained financial downturn.” During the pandemic, TMS experienced a major increase in enrollment, especially in the lower grades, as families were looking for an outdoor experience, smaller class sizes, and a community that would know their children. Leaders were able to effectively communicate what they could provide and to execute at a high level. Sharing resources, programs, and ideas through networking with the Association of Colorado Independent Schools also helped the school save money.

Shoff believes TMS faces the same challenges as larger schools, just on a smaller scale, which include providing competitive salaries due to the high cost of living and soaring housing prices. The school also must deal with a fluctuating economic market as it searches for full-pay families. To manage these challenges and handle any potential downturn, TMS leadership and board members created a plan to build cash reserves with a goal of having 25% of the annual operating budget set aside at all times. They eliminated any debt before starting a new project and secured funds before moving forward with projects. In addition to having cash reserves to help with any short-term downturns, TMS established an endowment to help ensure long-term sustainability. Shoff is hopeful that these measures will sustain TMS into the future.

Case Study: Peconic Community School (NY)

Founded in 2012 by Kathryn Casey Quigley and her sister, the Peconic Community School (PCS) is a PK through grade 8 co-educational day school serving 115 students. Quigley and her sister, both co-executive directors, set out to create a school that is student centered and project based, that gives plenty of autonomy to teachers, and where all individuals are trusted, valued, inspired, and respected.

For Quigley, sustainability means “having both the financial and human resources to operate the school over a long period of time.” PCS got off to a good start because it was the only private school in the area, which enabled growth. Part of their approach to sustainability now is thinking about how the school would be able to continue to thrive if Quigley and her sister were no longer there. Quigley says PCS knows its market, and the location caters to a large population of second-home vacation families looking for summer programs, so it continues to expand its summer programs to help offset yearly operating costs. 

The pandemic had a positive impact on PCS, as New York City residents moved east in search of less population density and more space. Many of these families had been in independent schools previously and were used to smaller class sizes as well as the cost of private school education. PCS’s enrollment grew by about 40 students. The costs associated with providing financial aid decreased because the new families were accustomed to paying much higher tuition in the city and able to pay the PCS full tuition.

One challenge that Quigley has encountered at PCS is the rise of tuition due to salaries and the cost of programs. Although necessary, explaining these increases to families is a difficult task. Over the past 10 years, tuition has nearly doubled, which is connected to recruiting and retaining talented teachers. In addition, PCS is a young school, which means it doesn’t yet have a large network of alumni for fundraising. But the school plans to grow fundraising efforts in order to offset/decrease the need for yearly tuition increases.

Scott Collins

Scott Collins is assistant director of admissions at University School of Nashville in Tennessee.

Kristine Varney

Kristine Varney is director of instruction at Norfolk Collegiate School in Norfolk, Virginia.