Addressing the Enrollment Challenge: A Tuition Guarantee Program

Winter 2020

By Melinda Madurai, Julie McLeod

At Good Shepherd Episcopal School (TX), our team seemed to have the same conversation, chasing the same questions, every year. Is our tuition affordable? Is there an upper limit to what families are willing to pay to educate their children? Will our community abandon the private school option or defect if there’s another tuition increase? Tuition increases are outpacing families’ earnings increases—is this business model sustainable?
Our board of trustees and finance committee understood that as an independent school we did not follow a manufacturing business model where we could, or even should, find efficiencies and reduce costs with each child we educate. They also understood that the service industry wasn’t quite the right comparison either. Education is a labor-intensive profession unlike any other, requiring a different business model altogether. As a school, however, we believed we could take inspiration from other models to address the needs of the school, the costs of educating children, and the realities of our families’ pocketbooks.

The Starting Point 

Three years ago, our business model was much like the majority of independent schools. We had a traditional enrollment contract model: Our contracts were for one year, and every family made a decision each year whether they wanted to continue their relationship with our school.
The largest expenses were (and still are) salaries and benefits, which make up about 70% of our full budget. To give raises to faculty and staff members—which are required if we want them to stay—we had to raise tuition. Each year, the finance committee and board of trustees voted on a tuition increase, which in the past had some variability, but more recently, has stayed consistent at 4% so families would know what to expect. That helped, but sideline conversations among parents would heat up in January as reenrollment contracts went out. They’d express concern about the increasing costs and the strain on the family budget.
In the past six years, we started creating alternate streams of revenue including extended day, after-school lessons and classes, and summer camps. They have been successful for both our presence in the parent and educational communities and have added more than 8% to our annual revenue. In the past eight years, we’ve also been intentional about growing endowments that, while modest compared to many schools, can fund a portion of our outdoor program, tuition assistance, and professional learning.
Despite our efforts with alternate revenue streams and endowments, we still faced affordability issues. We worked on messaging to parents, communicating the school’s value proposition, and still, the annual increases created a challenge. Our student retention rate wasn’t consistent, and parents’ ongoing anxiety over tuition rate setting and reenrollment was creating negativity in our community. We knew a new tuition model was necessary, and our strong financial footing meant that we had the opportunity to consider a new tuition model.

Sticking to Our Mission 

When asked about our school in a recent survey, current and past parents, as well as alumni, cited our strong community as a significant benefit and differentiator. We believe in the research that identifies strong communities as places where stronger learning occurs, including improved academic motivation and social-emotional competencies. We strive to create the feeling of partnership with our families, through communications, active listening, and more, so that we all feel we are playing on the same team. This high value that we place on community means that we are invested in each other emotionally. It also means that stability—or high retention of students and faculty—is of utmost importance.
We wanted to find a tuition model that offered a clear financial benefit to every family and created true financial partnership. We wanted to identify ways to change the trajectory of tuition increases while still supporting salaries, benefits, and needed program changes. We researched continuous, or evergreen, enrollment contracts, in which student enrollment is automatically renewed each year unless otherwise decided. Also on our radar: sliding scale tuition, or indexed tuition, in which families pay what they can. But these models didn’t seem to fit our school. 
Looking at other business models, we found inspiration from the computer software industry. Adobe and Microsoft Office served as good case studies for our school. In the past, each company charged a lot for their products. Consumers would purchase software once and hang onto the license for years because it was so expensive. There were additional charges to download the software to more than one device. But with these products’ new models, customers pay a small monthly fee for a subscription that allows them to download the software to multiple devices, use apps on additional devices, receive all software updates, access several different software packages, and feel like they are part of the user community. Our school’s business officer worked on financial modeling with this structure—and our mission—in mind, and we worked to get buy-in from key board and finance committee members.

The Tuition Guarantee Program 

After a year of developing a new tuition model, Good Shepherd rolled out the Tuition Guarantee Program during the 2017–2018 reenrollment season. Families can now choose from either the standard annual contract they have known for years or a divisional contract, which allows them to commit to the school for the duration of the time that their child is in a particular division. (We have three divisions: early childhood is pre-K through primer, lower school is first through fourth grades, and middle school is fifth through eighth grades.) By committing to Good Shepherd with a divisional contract, families are saying they will not leave the school. In return, we lock in tuition at the current rates until the child completes the division. When children change divisions, tuition resets at market rates, and families can again opt for an annual or divisional contract.
Our “subscription model” removes the potential decision of changing schools every year but in a way that promotes strong commitment and loyalty. And the opt-in component means that there’s choice (parents can still choose to get a tuition increase every year). Families who opt into the guarantee program in pre-K and stay through eighth grade, using our current 4% annual tuition increase, can save more than $25,000 per child on tuition during their approximately 10 years at Good Shepherd. When compared to neighboring schools, parents can save more than $60,000 per child from pre-K through eighth grade by choosing a Good Shepherd divisional contract. Meanwhile, the school is willing to forgo some additional income because we value the community and our relationships with families. Though our revenue growth trajectory has flattened, it is not flat; we always have families who are changing divisions when tuition resets and new families who come in at market rates.
Rather than focusing on replacing students who are leaving, we are keeping more of our existing student community and building from that solid base. In our first year, we had 61% of families who opted into the divisional contract. In the second year, we had an additional 32% of current families who were on an annual contract switch to a divisional contract, and we had new families opt in as well. We currently have 70% of our students who are committed to the school long term. In the past two years, we’ve had our best student retention rates in the history of the school, and parents report feeling less pressure around the tuition increases and feel the sense of community. We’ve also had high faculty and staff retention—happy parents and students mean happy teachers.
With the divisional contract, we also have gained an additional data point that could alert us to possible issues at a particular grade level when the percentage of students on these contracts might be low. By choosing a standard annual contract, a family gives us an early warning sign, and we are able to inquire, listen, and try to head off unnecessary attrition.
As with any contract, there are provisions for early termination. All student enrollment contracts are a legal and binding financial obligation and therefore include a termination clause. If a student changes schools prior to the end of their annual or divisional contract term, there can be costs associated with that decision depending on the timing of that notification. But in keeping with our focus on community and what’s best for students, we’ve included language specific to our divisional contracts to allow for release from any future financial obligations for the contract term under certain circumstances. For example, if a parent’s job relocation pushes students outside of a 35-mile radius from the school or a student is identified with a learning difference that the school cannot accommodate, a student could be released from ongoing financial obligation.

Looking Ahead 

As we enter our third year of the Tuition Guarantee Program, we’ve learned some lessons, particularly about how we reach out to prospective and young families. While new families leverage websites to learn about schools, our data shows us that they do not always dig into every page. Last year, we found that, even after enrollment, there was some confusion with our new families about what the Tuition Guarantee Program would do for them. We are working on ways to make sure prospective parents understand the program earlier in the admission process. For example, at our prospective parent events and at our student testing times, we have carved out time for the CFO/COO to talk about the program.
Our enrollment in pre-K—the entry point to save the most money in the program—was very healthy in the 2018–2019 school year, but we continue to be diligent about connecting with pre-K prospective parents to help them understand our program as the pre-K market is extremely competitive in our area. We’ve also collected data from prospective families about their needs and desires—we’re exploring pre-K options for a modified full-day offering.
As we continue to refine the tuition program, it is critical to ensure the program continues to be mission-focused. Without this aspect, we lose the reason families would want to commit to our school. We hope any future adjustments reinforce the commitment to the community that helps us all feel as though we are playing on the same team.

Tuition Guarantee Program Goals

Good Shepherd Episcopal School (TX) created a new mission-aligned tuition model to achieve these goals:

Create a financial partnership. We have a great educational partnership with our families, and we want to extend our partnership financially as well. We are all in this together.
Gain stability in our enrollment. We want to increase our student retention rates so that we don’t have to find new students every year.
Gain predictability in our future revenue stream while being willing to forgo some additional income because we value the community and the relationship we have with our families.
Remove some of the uncertainty in our families’ planning and budgeting. Armed with the knowledge that tuition would not change for a fixed period of time, we feel that this model could be a game-changer.

Reading & Resources 

Melinda Madurai

Melinda Madurai is chief financial officer/chief operating officer at Good Shepherd Episcopal School in Dallas, Texas.

Julie McLeod

Julie McLeod is head of school at Good Shepherd Episcopal in Dallas, Texas.