One Schoolhouse's April 29, 2020, Academic Leaders Webinar on what academic leaders need to know about independent school finance and operations in the face of COVID-19 with Jeff Shields, President & CEO of the National Business Officers Association. Topics include the business model’s heavy reliance on tuition and enrollment, including a breakdown of the operating budget and percentage allocations, as well as challenges emerging with our financial and operational models in this new normal.
Brad Rathgeber, Head of School & CEO of One Schoolhouse: I'm joined today by my good friend Jeff Shields, the president and CEO of NBOA, the National Business Officers Association. Hi, Jeff.
Jeff Shields, President & CEO of NBOA: Hi, Brad. How are you doing today?
Brad: I'm so excited to have you here because it's really important for academic leaders to understand school finances in order to create solutions that can really fit within the means of schools. Yet we know that historically, the academic side of the house has typically tuned out the business side of the house and the business side of the house, historically tuned out the academic side of the house. And I know you and I have both been working for a long time to help change that quite a bit.
Jeff: That's correct. I really think what's changed is that the head of school has really seen how understanding the business model, developing their financial chops, et cetera, has been really not only valuable, but really expected by the trustees at this point in time. Not to let the business officers off the hook. You know, they can't just shrug their shoulders and say, I don't need to know anything about the program or I don't need to know anything about student learning or I don't need to know anything about anything other than the numbers. I do think those days are long gone and the most effective schools, I think, are led by heads of school, other academic leaders, and the business office working together in partnership.
Brad: I couldn't agree more. Jeff, can we just dive into a couple of questions?. So, Jeff, as we head into this kind of new normal or new whatever-we-want-to-call-it, I think it's important for academic leaders to understand the state of business and operations in independent schools prior to the COVID-19 crisis.
Jeff: There is no denying that the business model for schools already had numerous challenges even before COVID-19. I still think back to ten years ago and the impact that the economic downturn had on independent schools. Not a whole lot changed over the last decade. I would say until last year, and I'll get to that, but I do think as we went into this pandemic, most schools are very reliant on tuition. I'd go further and I'd say most schools are very reliant on fundraising and that's a real challenge. That was a challenge for schools this past year and going into this environment.
I think some other characteristics I'd share with the folks are that we were seeing steady enrollment overall, but really very little growth. Now, of course, I'm talking about across the board nationwide and certainly in independent schools, enrollment experiences could vary. Some have seen decline and some saw modest increases. However, the overall number of students enrolled in independent schools, in our schools, hasn't really grown much over the last several years.
I already mentioned fundraising. We saw that softening, so that was challenging for schools and filling that gap. There is a gap between how much we actually charge net tuition, how much we collect net tuition per student, and what we need to do to keep the school running.
A little good news, endowment performance was actually pretty strong again before the pandemic. It's been a rollercoaster ride ever since, but it was relatively strong.
These factors combined, what I thought was really interesting was over the past year, really helped drive schools to experiment with new tuition models and different financial aid models. And these have included tuition reset. We saw a really bold tuition reset by Southern New Hampshire University where they've reduced their tuition $39,000 to $10,000. Independent schools have been doing that as well. We saw the Kiski School, an all boys boarding school, do a significant tuition reset. One of the first boarding schools that I was aware of doing that. Montgomery School also did a tuition reset to be more competitive in thier particular market. Then, of course, there’s indexed tuition. I'm just going to clarify that I don't believe that index tuition is just a fancy new way of describing financial aid. Of course, it involves financial aid, but schools that are really doing it well are really doing it strategically so they can offer a wide variety of tuition price points and offer their students and families lots of flexibility while still honing in on the net tuition revenue that they need to collect.
All of these things were ways of opening the funnel and expanding our market. Of course, boarding schools were under tremendous pressure and still are. I think one characteristic, again, pre-pandemic, that I found most troubling was the data showing us that families even with the means to pay our tuition were still not selecting our independent schools. And that was really challenging. Again, it goes back to how can we open that funnel? How can we bring more people in? I think this was most evident and probably most people on the call would be able to observe that we saw a softening in lower school enrollment and yet, at the same time, for some schools, depending on your program, we did see much stronger demand for high school. So I think those are the key characteristics that I was observing and I'm sure many schools were discussing even prior to the onset of the pandemic.
Brad: So, if at least nationally, we were not talking about the rosiest of pictures heading into this, although we were talking about schools innovating on that whole variety of levels. What challenges are now emerging to our financial and operational model in this new kind of COVID-19 environment?
Jeff: Yeah, that's a great question. Obviously, we've been thinking a lot about it. NBOA has been working really diligently with partners like NAIS and EMA and state regional associations. I actually haven't seen a coming together of all of the different associations serving in schools before, including One Schoolhouse certainly.
First and foremost, business officers and everyone is concerned about the safety and health of our school communities. That's top of mind. And frankly, I'm relieved that today I'm not aware of any major outbreak within any school community that we've seen in other types of communities, in other types of workplaces. There have certainly been some positive cases and there's certainly been some exposure, but no outbreak that we’ve heard of. Schools reacted and were really on top of it.
I think what's happening right now is, as you well know better than anybody, schools are managing whatever distance learning solution that they've implemented, whatever they've put in place. Now they’re making decisions about the status of bringing students back to campus next year, which I think is really challenging and hard.
I think about my daughter who’s an eighth grader and the move up ceremony that we realize she's going to have in a virtual way and not an in-person way. I think of any high school senior with all those milestones and not being able to really experience a traditional graduation or other ceremonies. Schools are weighing those decisions heavily and also being creative about how to serve the community and serve those students in different ways. We're making a decision about summer programs. And, many heads of schools and many trustees and business officers are grappling with the PPP loan application process.
Brad: Can I stop you for a second? What is the PPP loan for those that are not aware?
Jeff: Yeah. I appreciate that question. It is a new program, a federal program administered by the Small Business Administration. The Payroll Protection Program, or the PPP allows schools, who choose to do so it's up to the individual school to apply work with their bank, to access resources funds that can be forgiven depending on certain circumstances. I don't think it's helpful to go into the details now, but it's really to help schools support the teachers and all the administrators and everyone who's on the payroll.
So I think what's important for your audience to know is that 75% of the funds, if a school was going to secure those, at minimum would have to go towards payroll. That means we keep everyone employed, which is a good thing, and then up to twenty five percent can also be used for facilities, which we're still paying for as our facilities. We're still maintaining them. We're still doing a lot of things around our facility. A lot of trustees, boards, and business officers are all grappling with it and I just think I'd be remiss for not mentioning that this is going on the backdrop, although it does not directly impact academic leaders at this point.
Then obviously the big question in all of this is, how is this going to affect our enrollment? And if enrollment is impacted, I think everyone on the call knows that budgets are impacted. The correlation between our tuition revenue and our salary and benefits is undeniable. If we do experience enrollment challenges, we will have to respond budgetarily..
Brad: So let's let's pause there actually for a second. Let's tie together two things that you just said. So when I asked you the first question, you talked about how schools have become more reliant upon tuition, which now makes us reliant upon enrollment during this time significantly more than we might have been even a generation ago. Just to give folks a sense for a bit, to make sure that we're kind of understanding the landscape on this. About how much of a percentage of schools annual revenue is coming in from tuition these days?
Jeff: Yeah, that's a great question. I mean, according to our BIZ data, most recently for the most current fiscal year, I would say you can ballpark it between 70 and 80 percent, depending on the school. Could be a little higher, could be a little lower. It depends, but most schools fall into that sweet spot.
Brad: You also mentioned that so much of a school's expenses are in faculty and staff between benefits and salary. What does biz data tell us about that?
Jeff: I would put that number around 60 to 70 again. It varies, so it's slightly under, but you can see the relationship is clear. It's the same for many, many non-profits across the country. That relationship between your primary revenue stream and your primary expense, which is investing in your staff.
Brad: Right.So that kind of leads me to my next question, which I think is very much related to these two things. And that is what actions can the academic leaders consider taking that can help their school thrive both during this crisis and then as a follow up to the crisis?
Jeff: I want to acknowledge that this is slightly out of my lane because I don't I don't often give advice directly to academic leaders, but since we're talking about business and finance and operations, I feel comfortable doing so. I also just want to acknowledge that I've had the privilege of serving on the One Schoolhouse Board for the last seven years, serving side by side with academic leaders from across the country that are innovating and I've learned so much from that experience. So I feel a little bit more firmer on the ground with venturing into this area for you and the folks that have dialed in.
We've been put on notice about our need to transition from an in-person, face-to-face learning environment where all of our students are in the classroom together to some kind of distance learning environment. We didn't know how to do that before, but we know how to do it now. So I think that if the need arises again, schools are going to have to toggle from opening to distance learning again sometime in this next school year. Is it the fall? Is it the winter? I don't know, but from where I sit, we're going to have to do it better and even faster than we did this year.
I want to say we did really well. Schools responded and I'm hearing that again and again and again. It's really exciting to hear that story being told how well the faculty responded, how well the students have responded, and how we demonstrated how agile we could be compared to some other offerings that are out there, some other K-12 options that are out there. I think schools have been remarkable in this regard. At the beginning, we were understandably a little flat footed, but ultimately delivered. I think that's something we should all be proud of.
I do think next year we have to be even more prepared and the transition has to be even more seamless. I know, as you and I have discussed, it could even mean opening distance, learning, opening again and then distance learning. Toggling back and forth throughout the year is not out of the question. I think supporting students and families with this kind of potential environment, as not only the school circumstances demand but as their family circumstances demand with parents who are working or trying to work and trying to help their students. That's on the horizon and absolutely something we have to be prepared to do.
I really want to say a big thank you to Edmund Burke School in Washington, D.C., which is where my daughter attends. She's an 8th grader, at a sixth through twelve school in D.C. You know, I have a focus group of one with my eighth grade daughter who is attending an independent school and it's amazing to me how resilient she's been in this environment. It's really inspiring and it's all because of the support of great teachers. As we all know, everything happens because of great teachers. The engagement she's having in this environment, the agency (I know we talk a lot about at One Schoolhouse), the expectations, it's just really great. It reminds me yet again that students are ready to step up to the challenge. You know, as we talk about potentially toggling back and forth, I believe that schools will be able to meet them again if they make the right decisions now.
Think about the number of faculty that now have had direct experience with distance learning. That's just incredible to me to think about that. But you know what? It's been almost entirely on the job training and it's been almost entirely under a lot of pressure in a time constrained moment. Think about the opportunity we have to help our faculty be more planful, be more reflective, and prepare for that type of learning for this fall. I think that's really exciting and I think that's what I believe we have the opportunity to leverage from an academic standpoint at this moment. I know that schools will be concerned about expenses just like anyone else, but you know, I'd really like to have the conversation or encourage schools to have the conversation that it's really doubtful we'll be spending a lot of PD money on travel, hotel or airfare in this next year. Let's not abandon our professional development budgets, but really shift those investments to online opportunities for our faculty to really get up to speed and advance their skills and abilities that, like I said, they learned in not the most ideal circumstances. Those are some of the initial thoughts I have.
Brad: Yeah, happy to hear you say that too Jeff. I know that NAIS last week did a SNAP survey of heads of school. In that SNAP survey, somewhere between 50 and 60 percent of schools said that they're considering cutting their professional development budgets next year. What I'm hearing you say is that might not be the best course of action, or at least school should be thinking about reallocating their professional development budgets differently than they had previously.
Jeff: Right and I really think it's I really think it's an opportunity, because I think if we do if we want to prepare for some difficult circumstances as it relates to enrollment, well certainly there might be an opportunity to reduce PD. Like I said, sometimes the most expensive part of professional development is getting on a plane and paying for that hotel. It's generally not registration fees onto themselves. I think obviously One Schoolhouse is one great resource, but I really think if we're going to leverage this opportunity and we're really going to ask our communities and our faculty to rise to the occasion, we really have to support it.
I mean, kind of the same subject, but different. One of the most frustrating things I think a business officer can experience is investing in technology and then going into a classroom and still seeing it sitting in the box in the corner. And you know what? That’s no one's fault. It’s very often not about the faculty not wanting to use the technology or the business officer not dedicating the resources. It really comes down to the additional training and support and sometimes we shorthand that and I don't think we can in a scenario like this one. I really believe, given how well schools performed in this environment, I think it could be a real key differentiator for schools going forward if they leverage what they've already done and invest in it.
Schools who want to be adept and agile are going to need the training and support to do that.
Brad: That's a really good point. Can you talk for a minute or two about a webinar NBOA hosted last week about safety and operations for this fall? It has been the talk among independent school administrators all week long.
Jeff: There were a couple of webinars that happened last week that were important for this topic. McLane Middleton really brought some really expert medical advice to the NBOA community last week that I think really helped give folks pathways to think about. It really was expert advice on topics from transportation to food service to obviously the health and safety of our faculty and staff. It gave the folks on the call, that was way beyond business officers, a lot of clarity around that. We also did a webinar last week around facilities and preparing our facilities for the next reopen and what that looks like.
Brad: Jeff, thank you so much for sharing these insights with academic leaders. I know that sometimes it's difficult for academic leaders to really want to jump into those business operations conversations. I think you've made this accessible to folks and given great information.Thank you.
Jeff: Thanks for the opportunity, Brad. And thanks to you and all the great work that One Schoolhouse and your whole team is doing. I know many, many schools appreciate it.
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Brad Rathgeber (he/him/his)