Core Issues Difficult Economic Times Force Us to Address

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With stagflation likely to start in 2023, here are five core issues that Christian schools will have to resolve.

Let me start with the two conclusions of this article first. Conclusion #1: If you are not raising your 2023/24 tuition by 10%, with most of that going toward your staff, you are making a big mistake – a mistake that will become clear to you over time. Conclusion #2: Program quality will matter more than ever – and starts with how you take care of your staff right now.

Predicting Our Economic Future – No Crystal Ball Required.

Staying current with the news, and key economic thought leaders like Nouriel Roubini, Ray Dalio, Mohamed el Erian, as well as practically all captains of industry, it’s not hard to see what’s going to happen.

In May, 2023, the United States will be officially declared to be in a recession. Other countries, such as England, will already be there. As in 2008 / 2009, consumer confidence will dramatically decrease in the United States. Inflation of at least 5% will continue through the end of December, 2023. The Merriam-Webster word of the year will be … stagflation.

At the same time a recession is officially declared, thousands of Christian school boards around the country will be trying to determine who will and will not be coming back next year. They will be trying to understand if their 23/24 budget is in trouble – with strong suspicions it is.

To make budget adjustments adequately, these same school boards will need to know the net tuition value of the average student, enrolled, in process, and probable. Most will only have the number of students who are enrolled at the time when they meet.

Unfortunately, they will NOT know the economic value of their funnel – at least not know it very well. And their tuition income assumptions – using student counts – assumes a set amount for needs-based financial aid – another mistake (See Core Issue #1). Typically, Christian schools don’t have a very good way to estimate the impact of automatic discounts either. Many Christian schools aren’t even tracking them.

We know from group dynamics that if group members are uncertain or confused, decisions are more conservative. The confusion and uncertainty I am describing here means teachers will lose their jobs unnecessarily – fiscal decisions that are too fiscally conservative.

Equally problematic, losing these teachers often results in lower quality – the essential reason parents choose Christian schools in the first place. At a minimum, these cutbacks will at least diminish parents’ perception of the school’s quality. This will only exacerbate retention problems – adding internal fuel to the external economic fire. Some schools will be forced to close.

If that sounds like some sort of spiraling-down self-fulfilling prophesy, it is.

Please show me that your school management system will actually get you the net tuition value of the average student, enrolled, in process, and probable – in real-time. Let me translate “in real-time:” You can find out anytime, easily, where you are financially. Not after hours of putting it all together – hours that no one has time for, calculations that will not get done regularly.

I am working with a Christian school of over 750 students that uses a school management system everyone knows – and was amazed (but not surprised) that on top of that, they were using an Excel spreadsheet! And my school of over 1300? Ditto! Double data-entry? Absolutely. It’s the only way they can manage what they need to manage.

GraceWorks has worked all this out in our Enrollment Pro Dashboard – and if you are a school of 300 or less, it will almost certainly give you better real-time data of what’s happening with your net tuition income than your current system that costs thousands more. And your Admissions Director will be glad to use it – because it is easy.

Core Issue #1: Tracking Net Tuition Income Trumps Managing by Enrollment Number

Let me make the point here with a true story. A recently divorced mother showed up with her soon-to-be 1st grade son and told my administrator (a new client): “I’m recently divorced, and it was not good. My son desperately needs a strong male role model – and I have heard so many good things about your 1st grade teacher. We are struggling financially as you can imagine, but I spent several hours with my budget and can pay half of your tuition of $3,000. Is there any way you could accept my child?”

The administrator, who honored authority, replied: “I am sorry, but our financial aid budget is gone, and unfortunately I have to say no to your financial aid request.” (Note that the school had 1st grade openings even at the start of school.)

When the administrator brought that up at our tuition / financial aid training, I was shocked. I let it soak in with board members with a long, pregnant pause. Then I asked two straightforward questions:

First question: Did saying no to this family make sense from a MINISTRY point of view? That was easy – everyone on the board said: Of course not.

Second question: Did saying no to this family make sense from a FINANCIAL point of view? Another pregnant pause. Somebody meekly tried to make the case for fiscal controls, but everyone realized they had walked away from $3,000 in a class that had seats. And the school had walked away from a child who really needed it.

As clearly as I can say it: If meeting your tuition goal is a matter of enrolling ___ number of students, the only way that can work is you have to a set amount for all discounts – both automatic and needs-based. If you follow that discounts budget rigidly, then you end up in conversations and results like the above. And in perilous economic times, there will be more conversations like the above. So, you are forced to deal with this issue.

The only sensible conclusion is that you must manage the money you keep – not the money you give away. Fiscally, that means managing by net income must trump managing by enrollment level. Practically, that means tracking the net tuition income expected from each and every student – and you need to estimate the same for students in your funnel.

The only real problem with this is that most Christian schools – big or small – really don’t know how to do it practically and quickly. GraceWorks does – and we have worked it out for schools big and small.

Core Issue #2: Why we must reduce the cost to educate a child, and the correct way to do it.

If people have less money to spend, the only way they will end up at your school is if they pay less tuition. Sledgehammer solutions here include overly low tuitions and far-too-aggressive automatic discounts. If your teachers have already taken a 10% pay cut last year (due to inflation), you can’t afford to give a pass to people who would and could give you more tuition income – up to and even more than the cost to educate their children. In perilous economic times, we cannot afford to walk away from money we desperately need – starting with our teachers and staff.

The only correct way is that you have to be charging at least what it costs to educate a child. At a minimum. Keep in mind that most things you buy are sold at more than cost, value-priced if you will. And chances are, your school is worth more to most of your parents than it costs to educate their child. (If you want to know for sure, take our Comprehensive Christian School Survey.)

And yes, some of your families will not be able to afford this tuition level. For them, you will need an aggressive financial aid program. In difficult economic times, you will be giving away more financial aid. But don’t think for a second that this will be more than your increased tuition income. That has never happened in 16 years of working exclusively with Christian schools. Not one time.

Reflecting on the story above, the correct way to decrease the cost of educating a student is to fill classrooms. We have to find ways to say YES to families who are struggling with our full tuition amount.

All the other ways – staff cuts, dropping programs, cutting back in educational materials – all impact a Christian school’s quality, with is the CORE REASON people choose Christian schools like yours in the first place.

With ongoing inflation – which is highly likely easily through 2025 – there is a subtle version of this. If your teachers don’t get cost of living adjustments, some will reluctantly have to leave your school for a public school job. You know you will lose teachers if you don’t deal with this widening salary gap.

Try the thought experiment of kicking this can down the road a year. Instead of 9% inflation, now it’s 6%. But your teachers are so far behind from last year’s paltry 3% increase that you now need a 12% tuition increase to catch them up. How will your parents react to that? Particularly in the middle of a recession? Will they remember that you nobly kept tuition at 3% when jobs were plentiful and everyone knew that inflation was nearly 10%? Probably not. But you decide.

Core Issue #3: What is fair to our teachers in times of economic peril?

If we don’t keep up with inflation with our teachers, the issue goes beyond the practical issue of them leaving for a better-paying job. There is a spiritual issue as well. The spiritual issue is we risk God’s blessing if we ask people who are poorer to take care of people who are richer. That’s a big no-no in God’s kingdom.

Chronologically, the first written Old Testament book, Job contains that idea – see chapter 24. Ditto the last book of the Old Testament, Malachi – see 3:5. And many places in-between (e.g. Amos). Same with the New Testament – James was the first to be penned (James 5:1-6), and 1st and 2nd John, the last (see 1 John 3:17). Biblically speaking, from beginning to end, God hates it when the poor suffer at the hand of the rich. See Amos 5 – in warning the Northern Kingdom that they soon will be conquered and deported, God specifically cites this issue.

Here’s what I know: I have interpreted Christian school surveys since 2006. That entire time, we have only asked parents how much money they make – over 800 surveys now. Most of the time, school leaders are surprised at how much money their parents are making. Over the years, typically over half of respondents are in the top quartile of income, although of course, the numbers keep rising.

As I write this at the end of 2022, the top 25% of American households are making just over $129,000. The bottom 25% are making about $35,500, and the median (50th percentile) amount is just over $70,000. Now consider what your teachers are making.

The spiritual issue will only get worse as the economy tanks. It is widely known that both recession and inflation are far harder the less money you make. Think food and rent, for example. Your teachers are struggling much more than many of your parents. I do not see how that gets solved without a raise to your teachers of at least 10%.

In short, it is very clear that God cares about the inequities between rich and poor. We risk His blessings on our schools if we do not deal with this issue head-on.

Where the rubber hits the road here is when we ask people to pay less than it costs to educate their child. Remember that the cost to educate a child includes what you should be paying your teachers – a fair, living wage.

Core Issue #4: Parents and Tuition Increases in Times of Inflation

The other day Tammy and I found ourselves hungry after errands, and we ended up at Applebee’s.  I noticed my favorite charred salmon meal was $4 higher than the last time we ate there. Four dollars!

So… we walked out in a huff, and resolved never to go back to Applebee’s, right?

Nope. I made a comment about inflation to my wife, ordered it anyway, was glad for the food, and gave my usual 20% tip. That’s inflation. I wasn’t surprised. In fact, I would be surprised if the prices did NOT go up.

That’s where your parents’ heads are at. One difference though – Applebee’s 2022 Net Promoter Score is -15, and if you are an average Christian school, it is in the 50s. That’s 60+ points better on a 200-point scale.

Parents would expect you to raise your tuition by the amount of inflation. You’ll get a pass as long as they understand you are taking care of your teachers.

Core Issue #5: Vouchers are cotton candy.

Ask yourself this question: Why would the state of Arizona allow 1.2 million children to be eligible for school vouchers if the total capacity is no more than 15% of that? Texas and Idaho are next in line with the same idea – vouchers for every school-age child in the state. Easily 7 times more children than the capacity of all private schools in their states. Why would they do this?

It’s simple really – it’s all about charter schools, not private schools. The best book I can recommend to you on this topic is “A Wolf at the Schoolhouse Door” by Jack Schneider and Jennifer Berkshire. While many of their assertions about private schools are stereotypically wrong, their reporting on what is happening in the charter school world is more accurate simply because it’s more public.

We live in a world with huge surpluses of capital chasing returns. Huge amounts of money are available per child. While the average Christian school struggles to spend even $10,000 on marketing activities, Charter schools think nothing of spending $1,000 per child on marketing. Some even more.

So if you are in a voucher state, that’s what you will be competing with. And like you, they will assert they do character well, even though the best research says, “no, they aren’t.”

From a straight differentiation point of view, the correct response to this “Christian lite” is to be “Christian heavy,” taking on more of the characteristics of a discipleship school. However, based on who’s paying the bills, it will be hard for Christian schools to say no to families who would have been a no in their private pay days.

Plus, I know for a fact that vouchered families are often less discriminating in their views of program quality. The same program elements private pay families see as problems are just fine to vouchered families. Set up a consultation with me and I will show you the data.

In other words, accepting vouchers makes maintaining high quality and high Christian standards much more difficult. In the long run, we end up not looking very much different than the charter schools we suddenly find ourselves competing against. Like cotton candy, vouchers taste great at first, but eating it every day is problematic. There is a reason Hillsdale doesn’t accept public money.

The Bottom Line

The bottom line to all of this is that quality and Christian are job #1. No matter how perilous our economic times, we must prioritize these first. I believe that starts with taking care of our teachers, who took a 10% pay cut in 2022. We have no choice but to increase their salaries by at least that amount. Parents will not be terribly surprised that you increased tuition by 10% if you explain the why of it.