Net Tuition Revenue NAIS

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					          Net Tuition Revenue:
     Practical Techniques to Maximize
       Enrollment and Financial Aid
                       Part I

      TABS Conference - Washington, D.C.
             December 3, 1999

      Scott Looney                    Matt Berg
       Director of                    Director of
Admission & Financial Aid       Administrative Services
   Cranbrook Schools             Cranbrook Schools
          Net Tuition Revenue and
          Admission Accountability

l   Review independent school tuition and
    enrollment trends.
l   Examine the philosophy behind NTRA.
l   Examine the price vs. demand dynamic.
l   Explain the Implementation of NTRA.
l   Demonstrate NTRA budgeting.
    The Legacy of Deferred Maintenance

l    Around 1980 schools began to address the
     issues of deferred maintenance and faculty
     salaries.
l    Tuitions were raised to cover the increased
     costs associated with improving physical
     plants and increasing teacher salaries.
l    Income from sources other than tuition did
     not increase.
Rise in Boarding Tuitions
Boarding Affordability Index
Rise in Day Tuitions
Day Affordability Index
                    Demand vs. Cost
l   From the 1999 NAIS public opinion poll: “If cost were
    not a factor, which would you chose for your child?”
    Responses: 39% public, 30% independent, 28%
                      public       independent
    parochial school (total private =58%).
                                    =58%)
l   In a 1995 survey, “57% of parents with children in public
    school said they would switch to private school if they
    could afford to do so.” API
l   In 1971 62% of parents felt that the public school system
    was preparing their children better than they were
    prepared, in 1994 only 42% of parents felt that way.
l   Parent’s confidence in the public school system is
    declining quickly, and demand for private education
    seems to be increasing.
Ratios per Enrollee 1989 -1997
    Enrollment Growth
by School Type (1988-1998)
                                                            *from "Liberal Arts Colleges:
                                                            Thriving, Surviving or Endangered?":
                                                            David W. Breneman
                                                            The Brookings Institution



              Enrollment Demand, Price and Revenue*
                     Demand
                                                                  High Tuition
Price




                                                              Tuition
          Tuition
          Revenue
                                                                    Low Tuition
         (High Tuition
           Tuition Revenue
        Low Enrollment)
            (Price X Enrollment)
                Tuition Revenue
          (Low Tuition, High FP Enrollment)


  0                 Low FP         Full Paying High FP                 Enrollment
                    Enrollment     Students    Enrollment
                  Optimal Enrollment




  Full Paying
Tuition Revenue
                        Unfunded
                        Aid




           FA Revenue
Full Pay
Revenue
               Unfunded
                Unfunded
Full            Student
               Student Aid
Pay             Aid
Revenue   FA
          FA
          Revenue
          Revenue
        Admission Accountability
l   QUALITY and composition of Student
    body: Academic, Diversity, Extracurricular.
l   QUANTITY - Enrollment at optimal level
    (capacity).
l   REVENUE -Net Tuition Revenue.
       Financial Aid is not real money...

l   Financial Aid is potential revenue lost.
                                           lost
l   Unless a school is turning away qualified full
    paying students, in order to make a space for a
    student receiving financial aid, there is no
    revenue lost by admitting students who receive
    aid.
l   In fact, financial aid students are a valuable
    source of revenue!
     Is the glass half empty or half full?
l   Net Tuition Revenue = the tuition remaining
    after the marginal cost of educating that student
    (receiving aid) is subtracted from tuition paid.
l   Tuition = $20,000 but family only pays school
    $10,000 and the additional marginal cost to
    educate that child is $2,000. Net tuition revenue
    is $8,000.
l   So, this student could be viewed as a $10,000
    loss (traditional F/A accounting) or a $8,000
    gain (net tuition revenue accounting).
    Students on Aid are a source of income,
           not a cost to the school.
l    Look at the tuition revenue (beyond
     marginal costs) generated by students on
     financial aid.
l    In most schools, the revenue generated from
     families on financial aid is significant.
     Cranbrook Upper School
Financial Aid Revenue as % of Total
Traditional vs. NTR accounting
     Boarding vs. Day Costs
Boarding Tuition           $21,500
less:
                food        (1,200)
                activities   (250)
net                        $20,050

Day Tuition               $14,500

Difference                $ 5,550
              Faculty Cost

Cost of teaching an additional section:   $6,000

Number of students per section               10

Contribution required per student to
break even on additional section.          $600
Budgeting Scenarios
    Spending more aid is fiscally responsible...
“Capping the amount of unfunded student aid is not an
 option (for schools under capacity). And yet, that is
 precisely the type of move that college officials are
 tempted to try, ignoring the logic of the downward
 sloping demand curve. Capping unfunded student aid
 at some arbitrary percentage of the expense budget,
 unrelated to the demand curve, could result in lower
 enrollments and a loss in net tuition revenue.”
                       David W. Breneman
                       Liberal Arts Colleges: Thriving,
                       Surviving or Endangered?
               How do you move towards
           Net Tuition Revenue accountability?
l   Prepare:
    1) revenue, enrollment and financial aid histories;
    2) a financial analysis of the potential impact;
    3) a budgeting system.
l   Work to get all constituencies (Admission, Business
    Manager, Head, Board) to understand concept. Assure
    them that this will make admission more financially
    accountable.
l   Supply Head and Board with information necessary to
    accept tuition revenue and let go of traditional financial
    aid accounting.
                 Challenges of
       Net Tuition Revenue Accounting
l   Accurate accounting of both tuition revenue and
    financial aid.
l   Realistic two or three year enrollment and
    financial aid projections.
l   Establishing the school’s true capacity, without
    increasing the fixed costs.
l   Establishing the marginal cost of educating one
    additional student at your school.
l   Getting the Admission/Financial Aid Director,
    Head, Business Manager and the Board to fully
    understand the concept and ramifications of
    NTRA.
                   Budgeting
l   Spread awards across grades, don’t commit too
    much aid to younger students.
l   Don’t spend too much of future years’ budgets.
l   Have F/A goals or limits as to how many full,
    half, small, etc.... awards to be given.
l   Create a system to track tuition revenue and F/A
    numbers accurately.
l   (Go to spreadsheet).
    True of independent schools as well...?
“Across the country colleges are raising their sticker prices
 (tuition, room and board) yet they’re losing money. In
 relative terms, it costs students less to attend college than
 it did a decade ago because of increased financial aid.
 The long-term problem is that we have invented a form
 of education that’s too expensive. Collectively (liberal
 arts colleges) must decide how to deliver quality
 education we now deliver, for less money.”
                          Robert Zemsky
                          Founding Director
                          Institute for Research on Higher Education
                          University of Pennsylvania
Challenges of Net Tuition Revenue Accounting
l   Accurate accounting of both tuition revenue and
    financial aid.
l   Realistic two or three year enrollment and financial aid
    projections.
l   Understand the difference between PROJECTIONS and
    GOALS
l   Determinng the school’s true capacity, without
    increasing the fixed costs.
l   Determining the marginal cost of educating one
    additional student at your school.
l   Getting the Admission/Financial Aid Director, Head,
    Business Manager and the Board to fully understand the
    concept and ramifications of NTRA.
                   Suggested Reading
l   Liberal Arts Colleges: Thriving, Surviving, or Endangered? (Chapters
    2 - 4), David W. Breneman, Brookings Institution, 1994.
l   Access and Affordability. Peter Aiken, NAIS, 1994
l   “A New Equation for Tuition and Aid Policies”, Arthur M. Hauptman,
    Priorities Newsletter, Number 8, Spring 1997, Association of
    Governing Boards of Universities and Colleges
l   “Liberal Arts Colleges…Economic Challenges”, University of
    Pennsylvania Homepage, (http://slab.mtholyo…960412/experts.html)
l   “Student Aid: Price Discount or Educational Investment?”, William G.
    Bowen and David W. Breneman, Brookings Review, vol 11 (Winter
    1993), pp. 28-31.
l   College Tuition Spiral: An Examination of Why Charges are
    Increasing. Arthur M. Hauptman and Jamie P. Meisotis, MacMillian
    Publishing 1990.
l   “Enrollments Surge Following Big Cuts in Tuitions Rates at Private
    Colleges”, Ben Gose, The Chronicle of Higher Education, August 9,
    1996.
          Net Tuition Revenue:
     Practical Techniques to Maximize
       Enrollment and Financial Aid
                      Part II

      TABS Conference - Washington, D.C.
             December 3, 1999

      Scott Looney                    Matt Berg
       Director of                    Director of
Admission & Financial Aid       Administrative Services
   Cranbrook Schools             Cranbrook Schools
       Financial Aid is not real money...

l   Financial Aid is potential revenue lost.
                                           lost
l   Unless a school is turning away qualified full
    paying students, in order to make a space for a
    student receiving financial aid, there is no
    revenue lost by admitting students who receive
    aid.
l   In fact, financial aid students are a valuable
    source of revenue!
     Is the glass half empty or half full?
l   Net Tuition Revenue = the tuition remaining
    after the marginal cost of educating that student
    (receiving aid) is subtracted from tuition paid.
l   Tuition = $20,000 but family only pays school
    $10,000 and the additional marginal cost to
    educate that child is $2,000. Net tuition revenue
    is $8,000.
l   So, this student could be viewed as a $10,000
    loss (traditional F/A accounting) or a $8,000
    gain (net tuition revenue accounting).
       Case study #1:Boarding/Day School, 300 Students
l   Situation:1) 20-25 students under capacity for several years; 2)
    long financial aid waiting lists of talented students; 3) late
    boarding student applicant pool; 4) high tuition dependency…
    very tight budget.
l   Strategy: 1) Attempt to fill as many spaces as possible with
    traditional financial aid accounting until August 15th; 2) on Aug.
    15th determine how many remaining spaces will likely not be
    filled before the opening of school; 3) meet the demonstrated
    need of those students who will advantage LFA in revenue and
    ability, without over committing for future years.
l   Results: 1) Average entering SSAT scores raised, AP scores
    increased dramatically, average GPA of attending students
    increased; 2) increased boarding enrollment by over 20 % in
    three years 3) produced a small tuition surplus each year of
    NTRA.
                Case Study #2: Cranbrook Schools
l   Situation: 1) Strong lower, middle and upper school day enrollment; 2)
    declining boarding student enrollment, at a 20 year low (low morale in
    boarding program with decreasing retention); 3) strong school financial
    position and tuition revenue; 4) Upper School 17 students from capacity.
l   Strategy: 1) Persuade Business Manager and Head to agree to tuition
    revenue equal to previous year…so, any revenue from those additional 17
    spaces is bonus money; 2) Second year increase US capacity by five
    students without increasing revenue goal (results in five new full
    scholarships.); 3) use additional revenue to fund boarding students; 4)
    unlimited number of boarding scholarships $5,000 and under (Day tuition
    + marginal cost of adding boarding student = $15,500).
l   Results: 1) All divisions enrolled to capacity; 2) boarding enrollment goes
    from 195 to 255 in two years (30%) increase; 3) average entering SSAT
    scaled score up 3 points (about 15 percentage points) and average entering
    GPA up from 3.4 to 3.7; 4) boarding student retention goes from 84% to
    92%; 5) tuition surplus generated each year, $80,000 first year, $350,000
    the second; 6) financial aid is no longer reported to the Board, only tuition
    revenue figures are reported…FA is irrelevant.
          Case study #3: Boarding/Day School
l   Situation:1) Rapidly increased enrollment from 150s to 230 using
    NTRA 2) Large number of new students receiving financial aid grants
    over $10,000; 3) Average net tuition was only slightly above half the
    total tuition cost; 4) Parents were paying only 43% of the total income
    figure budgeted by the school.
l   Strategy: 1) Reduce the number of “big” financial aid awards; 2)
    Increase the number of smaller financial aid awards; 3) Increase
    tuition revenue being paid by families, with goal of achieving an 80%
    figure by 1998; 4) If possible, also increase enrollment and improve
    student composition.
l    Results:
                       TABS Academy
                (9-12, Boarding/day school of 300 students
  Mission Statement:           At TA, we stress self-reliance, respect
  and diversity in a learning community. We believe in educating
  the whole child, with a strong emphasis on character
  development and spiritual growth. We offer talented young
  people the opportunity to develop their creative abilities in a
  wholesome community under the guidance of an exemplary
  faculty.

Enrollment Situation
  Ideal enrollment would be 300 students, but the highest
  enrollment achieved in the last 8 years is 280, by August 15th
  with current enrollment is sitting at 277, with no strong
  candidates in the pipeline. However, 29 students are on the
  Financial Aid waiting list.
TABS Academy Enrollment
    TABS Academy Financial Aid Waitlist

l   Trying to maximize enrollments, student
    quality, net revenue and diversity…who
    you chose?
l   Remember to balance your classes and not
    to mortgage future financial aid budgets too
    greatly.
l   TABS Academy entering students average a
    3.2 GPA and 50% on testing.
Calculating Spreadsheets
         Baseline
Calculating Spreadsheets
     Maximize GPA
Calculating Spreadsheets
   Maximize Revenue
          For Copies of this Presentation
l   Leave your business card with us
    (indicate paper, electronic or both)
                      or:
l   E-mail: slooney@cranbrook.edu
l   Phone:     248-645-3409
l   Fax:       248-645-3025
l   Mail:      D. Scott Looney
               Director of Admission & Financial Aid
               Cranbrook Schools -Office of Admission
               1221 N. Woodward Ave.
               Bloomfield Hills, MI 48304

				
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