Recently, we explored a key financial idea — the concept of Full Cost Equivalents. If you haven’t read the article yet, you’ll want to do that before reading on. The following ideas require an understanding of FCE.
While reaching your enrollment goal is important, it is MUCH more important that you make your tuition goal. That’s why the Full Cost Equivalent calculation matters so much.
Everyone on your admissions and leadership team should know the Full Cost Equivalent goal. Example: We need 86 FCE’s to make our net tuition income goal, where the FCE amount is $9,100 each.
This is where your focus should be. If you focus on the number of students enrolled, you are making dangerous assumptions about the amount of average revenue you will get per child.
Here are the potential problems:
- What if new students today need more financial aid than say, five years ago?
- What if the amount of financial aid needed for current students is higher than it used to be?
- What if, as a voucher school, we have “high income” flight, meaning that many full-pay families are being replaced by lower-paying families?
- What if we underestimated the impact of our automatic discount program?
I have encountered all four of these issues – more than once – with various Christian schools. And that’s not even the biggest problem with tracking tuition income budget success via a student enrollment number goal.
Here’s the biggest problem. Using student enrollment goals as the ultimate measure of success, there is inevitably pressure to reduce the amount of financial aid given away.
Think of the disconnect here between this pressure to reduce financial aid versus what is going on with your families financially right now – with record high inflation and the distinct possibility of another recession. Or the disconnect between the thought of reducing financial aid overall and the need for tuition increases in the 8-10% range to take care of your teachers and staff.
Reducing financial aid awards to these families will increase the likelihood that they will simply walk away. Now matters are worse because overall you have lost the tuition income they would have paid. That is why you keep track of the tuition income you are getting first and foremost – not the amount you are giving away. That’s what the FCE system does for you.
The economics of our present and likely our immediate future will necessitate both aggressive tuition increases, and more financial aid being given away – not less.
The FCE system gives you a clean way to keep track of trends that will significantly impact your Christian school’s fiscal health. We can use the FCE system to readily understand financial aid trends that will make or break our Christian school’s fiscal future.
- Percentage-wise, are we getting more or less tuition income per student on average for new students compared to current students? (Consider the long-term implication if you answered LESS to this question.)
- Closely related to that: Are we getting less of an FCE on average for earlier grades or divisions, compared to later grades or divisions? If the answer to that is yes, then this is a negative long-term trend that we need to do something about.
- Considering all grades, did we get more or less of the cost to educate a child this year versus last year? What is the 10-year trend?
- What about average FCE percentages in the Preschool vs the elementary? (If you are in an area with a high demand for preschool, it is both conceivable and helpful in the average parent pays MORE than the cost of an FCE. (Preschools should make a net profit in that situation.)
- By that same measure, is there any significant differences in average FCE’s early, late, or in the middle of the marketing season? (E.g. Do families who come to us in the summer need significantly more financial aid? If we know, we can plan for it at least.)
What we do know is that every time there is an economic downturn, the middle class takes it the hardest. This happened with the Stagflation of 1978-1984 and the Great Recession of 2008-2010. Christian school types that predominantly served the middle class, including the Roman Catholic and Lutheran Church – Missouri Synod, ended up closing hundreds and hundreds of schools over this particular problem.
While these schools needed to more aggressively give away more financial aid (and yes, increase their tuition), instead they tightened the financial aid screws and watched – feeling helpless – as good families walked right out the door. The root problem here was how Christian school leadership thought about making their tuition income budget in the first place.
The starting place for you and your school is this important question – Over time, are we getting a higher or lower percentage of the Full Cost Equivalent for each student? Even if you have a lot of funded financial aid – which is GREAT – you still do need to track of how much the family is contributing on average per student.
For practically every Christian school, net tuition income is their #1 revenue source, and you have to know the long-term trends. And yes, you CAN do something about the long-term trends you are seeing. There is much you CAN do to increase your tuition income, and even save your school.
Especially for large schools, there is NO WAY you can accurately determine the proper enrollment goal to make your tuition budget without a Full Cost Equivalent system. On the other hand, small schools are often so fragile financially that they too need an FCE tracking system.
As a bonus, tracking average FCEs per student helps you understand the real impact of automatic discounts. I have personally debriefed our Christian school satisfaction survey a couple of thousand times, and I am continually astounded by the degree to which school leadership underestimates the actual income of parents.
Our largest category of responses to yearly household income was $100,000 to $149,000 of household income per year. All kinds of families can afford to pay the full cost to educate their child. Far too often they do not, simply due to low tuition and overly-generous tuition discounts.
Besides helping you understand if you are going to make this year’s net tuition income goal, the system outlined here also helps you realistically work out how to make your net tuition goal for the years ahead. Helping Christian school leaders understand the real issues here is the difference between the simplistic “more student” solutions versus thoughtful decisions on tuition levels, needs-based financial aid, and automatic discounts – and how all of these work together to get more students, and the right mix of students.
So besides knowing if you are going to make this year’s tuition income budget, the FCE system outlined here helps you to understand the real issues for the years ahead. For many Christian schools, solving these problems will be the difference between thriving as an educational institution, or closing its doors forever.
Conclusion: In tracking whether you will make your net tuition income budget, the number of FCE’s your school needs to do so IS the correct lead metric. Clinging to notions that “we’ll be fine with ___ number of students” is risky. Worse, it does not give your school leadership a good mental map or framework to deal with challenging short- or long-term financial trends in the United States.
We dive into this big idea, and much more in our online training service — which launches this Fall. To join the waitlist, click here.