Finance: Providing Flexible Tuition Policies
By: Timothy Dockery
My company is privileged to work with more than 2,000 private and faith-based schools in the critical task of collecting timely tuition payments. This provides a front row seat of the challenges schools are facing in confronting the economic crisis that is impacting millions of families. We are seeing a number of trends and challenges that you might be facing – or possibly should be anticipating.
First and foremost, parents continue to place an enormous value and priority on providing a faith-based education for their children. Most families do not view tuition as an optional or luxury item in their budget. They are not, for the most part, looking to withdraw their child, but they rather are looking for more flexible or accommodating ways to make their tuition payments.
What does this mean for schools? Old methods of tuition payment that have worked for years may need to be reconsidered. Here are some of the trends we are seeing.
1. A significant drop in the number of families who pay in full at the beginning of the year
We noticed a double-digit drop in one-time, full payments for our schools at the start of the 2008 school year. For schools that have already begun collecting tuition for 2009, this drop in single-payment families is continuing.
This impacts schools in two ways. They need to have the resources to manage billing and recording payments for a larger number of families than in years past. And, many schools have budgeted for either a large cash influx in that first month or have grown to count on the interest they earned from those upfront payments. For schools for which interest income, or “float,” is important revenue, the impact from the decrease in families paying in full at the beginning of the year is magnified by the substantial decline in interest rates.
As a result, we are seeing growing numbers of schools adding a small “payment plan” fee to the tuition bills for families paying in installments to offset that lost revenue.
2. A growing number of failed ACH transactions for families on auto-payments
For many years, tuition programs predicated on mandatory enrollment in an auto-debit program offered schools an almost guaranteed payment of tuition. Where a school had the ability to mandate enrollment in such a payment plan, collection rates often came in at 98% or higher. (This number may reflect the fact that schools removed a subset of families from such programs who had repeated failed payment issues and managed them in a different way.)
We began to see a significant rise in failed ACH payments in November, doubling from our historic average in just two months. In our conversations with parents, many had experienced a sudden drop in income from a job loss, bonus being cancelled, non-payment from a client or customer, or investment losses. This turned a predictable tuition payment mechanism into one that now required substantial management and follow-up by schools to contact families, work out the reason for the failed payment, and determine how to collect that payment and future payments in light of the family’s changed circumstances. Many families tell us that they cannot commit to having the tuition amount in their bank account on a set date given the vagaries of their employment and income. Because of the bank fees associated with a failed ACH attempt, they are asking schools to provide an alternative payment method other that scheduled ACH payments. Schools that have traditionally relied on an ACH-only tuition collection policy need to reconsider if that is the best option for families facing fluctuating income.
3. A need for greater flexibility on payments or extended payment plans
The sudden drop in income families are experiencing is leading to more and more families asking for the ability to spread tuition payments out over more months. This reduces the cash flow expenditure required for tuition each month. Just as we are witnessing in the housing market, where homeowners are seeking to modify monthly payment amounts, we are also seeing private school families reaching out to schools to request extended payment plan options. Most of the schools we serve offer a 9-month or 10-month plan. The ability to add two or three months on at the end, and reduce the monthly amount owed, has enabled many families to afford private school for their children despite reduced incomes.
We are also seeing a growing number of families whose payments fluctuate. They might need to make a small payment in January and February, and then apply a “catch-up” payment when they receive their tax return. This can challenge many schools that lack software and systems robust enough to make changes mid-stream to tuition billing and reporting, and, critically, to record those requests and follow through on presenting the modified billing appropriately to families.
There is no question that this is a challenging economy. But, it is heartening to note that enrollment in private schools has always trended up, despite the gyrations of our economy. Parents value and desire the faith-based education you are providing their children. By ensuring your tuition policies are flexible to accommodate the fluctuating economic conditions of your families, you can continue to fund your mission and educate children.
Timothy Dockery is senior vice president with Smart Tuition, www.smarttuition.com. He has 25 years of experience working with and for faith-based schools.
