I’m beginning to get a bit of a rep as the “doom and gloom” guy around our schools! However, at the risk of further enhancing this negative reputation, I want to spend a little time in this month’s letter to talk about the current financial crisis and its potential (and current) impact on our schools.

We have been living above our means for a while now. Over the past five years, we have increased our tuitions at more than three times the rate of inflation. When a family sends two children to the majority of our day schools they are faced with tuition and other charges of $35,000 – $50,000 after-tax dollars per year. This morning’s paper announced that we have officially entered a period of “deflation”, that is a drop in the cost of living coupled with a noted decline in the purchase of big-ticket consumer items. People are holding on to their cash and adopting a wait and see attitude. So, what does that mean for us?

To begin with, we are the biggest ticket item that most of our parents buy, aside from their house. Ten years of schooling right now might cost a family over a quarter of a million dollars per child. And, as we should never forget, that is for a consumer service (elementary and secondary education) that they can get right down the street for free!

In many of our schools, tuitions for this year were paid up front before the current credit crunch hit. As a result, we don’t know yet what we might be facing come re-enrolment time in January/February. American schools have seen a considerable drop in student numbers this fall as they come to the shocking realization that a high percentage of their parents were paying for schooling on lines of credit borrowed against the equity on their homes. As the value of their real property declined, so did their available credit. We are seeing the beginning of a decline in property values on this side of the border too. The question is, how many of our parents are in the same boat? Interestingly enough, as most prices went down this month, the mortgage rates went up. Recognizing that the over-extension of consumer credit is a growing problem, banks are beginning to tighten things up.

Another source of our tuition and advancement dollars is beginning to dry up as well. For about fifteen years, around five percent of our fundraising monies came from the grandparents of current students. Sometimes it was a legacy contribution, but often it was just that the older generation had a little more disposable income to share than did their adult children. In the last few years we have seen that percentage decline to around 2.5% with a corresponding increase in the number of grandparents directly paying student tuition instead. As a result we entered the 2008-2009 school year with around 8-10% of our fees on average being paid by retired seniors. Needless to say, this is one of the groups that has been hardest hit by the current freefall in the stock market. What this will mean for their ability to pay next year is anyone’s guess, but you can be sure that there will not be the same level of financial support available as there has been in the past.

Obviously, individuals are not the only ones who are losing money in the markets. In recent years, more and more independent school boards have begun to move away from raising funds for bricks and mortar and have instead been focusing on building endowment. Conventional thinking has been that a large endowment, as a source of funding for bursaries and scholarships, would be an effective hedge against declining enrolment and rising tuition rates. As Pat Bassett said at the Heads and Chairs conference in Saint John last month, we have been building a future based upon schools full of the “richest of the rich, and the brightest of the poor.” Whether or not you embrace this philosophy, there is no question that the endowment business ain’t what it used to be! Not only are we going to be faced with a tighter and more competitive market in which to raise funds, our existing nest eggs have undergone a considerable downward “correction” in their value. At the end of September, before things really got bad, Queen’s University had already lost over $100 million of the value of their endowment portfolio (about one sixth its worth). York University experienced a similar percentage drop, losing around $45 million. Are our schools any different?

So, where are we? I think that we can safely project that there will be a softening of demand for our schools for the foreseeable future. Does this mean a 10-20% drop in admissions numbers as some have projected? Perhaps, but more likely it means a further watering down of our definitions of “mission appropriate” as we strive to keep our numbers at a workable level. Does it mean that we will see some form of scholastic Darwinism as some schools continue to succeed while others flounder? That is also a possibility, but it does not mean that the overtly “strong” will survive while others close their doors. As any student of natural selection knows, “survival of the fittest” does not depend upon current strength, but rather favours future adaptability.

My friend Ron Goldblatt, Executive Director of the Association of Independent Maryland Schools (AIMS) wrote the following to his Heads of School last month:
“While the economy, like life, moves in cycles – it will eventually recover – getting from here to there is going to be challenging. Moreover, to the extent that the current crisis heralds structural changes in the credit markets and consumer behaviour, our schools may not only have to develop short term strategies, but also rethink their long-term business models. We may now have no choice but to rethink the prevailing paradigm for how independent schools will thrive in the future.”

Accepting what Ron has to say, what might those short term strategies look like?  To begin with, we already have an excellent model in place to look at, ourselves – five years ago. Remember John Raulston Saul warning us to “beware the ambitions of growth”? Well, we didn’t. We have grown ambitiously in areas that have radically increased our costs. Faced with changing demographics, many schools cast a wider net for students and, as a result, found that they needed to add greater internal supports to meet their needs. Increased numbers of learning resource teachers, counsellors, full-time administrators and reduced teaching loads for faculty have seen a 14% decline in our pupil teacher ratios over the past five years without having any effect on class size and the basic delivery of programme. Tough times call for tough choices. Can we restructure how we deliver our supports to students in order to make do with fewer staff? There would appear to be some wiggle room there. We were able to deliver excellent programmes in 2003 at a 25% lower tuition. Given the current deflationary cycle, could we cut our costs by 10% and pass that on to our consumers? Faculty and staff retirements and natural attrition should account for most of this kind of downsizing.

A second strategy might be to embrace declining numbers rather than fighting them. Have you had an honest strategic discussion at either the administrative or board level about your range of “optimum” sizes? Is it feasible to scale back your admissions to phase in a reduced number of sections at each grade level? A strategic decision to reduce your enrolments is a far more stabilizing and cost effective approach than letting yourself be buffeted by market forces and giving the impression to your community that you are in “crisis”.

There are other administrative “norms” that you might consider tweaking as well. Re-examine your tuition payment model. In the current climate, many families who will have difficulty finding a large lump sum payment might be able to manage reasonable monthly instalments. For schools that already have this type of plan in place, eliminate whatever penalties (or early payment incentives) that currently exist. If you have an “admissions/registration” fee for new students, look at allowing families to pay it over two or three years rather than demanding the cash up front. Finally, take a hard look at mandatory additional fees – required lunch programmes; technology fees; athletic fees; etc.

For those schools that are fortunate enough to still have some flex for scholarships and bursaries, revisit how you can get the most bang for your buck. Will ten $4,000 bursaries make a critical difference for some of your existing middle class families versus two full $20,000 scholarships for new students?

Take some time to explore alternative sources of hard revenue to reduce some of the payment load on your parents. Are there “profit centres” that could be developed as part of a community outreach to your current “non-customers”? Renting the gym, rink, theatre, or playing fields to community groups; creating after-school, weekend and summer enrichment programmes to serve non-students; running professional development for local teachers, are just a few of the highly-successful options already in place in a number of our schools.

To some extent, Canadian independent schools are like the “big three” auto companies. We have tried to ignore changing market realities and have instead focused on how we can do the same old thing, in the same old way, but just do it a bit better. That time is past. The winds of change are blowing hard on our industry and I don’t expect that there will be any government bailout coming our way. The future of each and every school will depend not on the size of its endowment or its status and reputation but on the quality of the learning environment that it provides; its flexibility in meeting the challenges of the present; and, its vision for the future.

Dr. Jim Christopher
Executive Director