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Tuesday, July 07, 2009

Ask Orthonomics: A Tuition Dilemma

I always love getting reader questions and I received a number of questions this past week. I'm going to start labeling reader questions as "Ask Orthonomics."

A reader writes with the following dilemma:

His family came to the decision that they would remove their children from a school that they really like and that they want to see prosper, and enroll their children in a less expensive school that they also like. They are pleased with their decision.
However, a board member contacted them and asked them if they would stay if the
school matched the tuition of the other school. No official offer has been made by the school yet, but it is a possibility that one will come through. The family is uncomfortable accepting tzedakah, but the school really wants to retain students.

I think there are two ways of evaluating this situation:

1. The short-term: If the school makes a counter offer less than two months before the start of school, I don't think accepting the counter offer can be viewed as taking tzedakah funds. Enrollment is in, teachers have been hired, the fixed costs should be known at this point, and if there are empty seats in any classroom, it makes sense for the school to try to fill them with students that can pay more than their marginal cost. A family that has left the school because of cost issues, yet returns at a lesser cost is helping the school, even if they are receiving a discounted price. Likely the board member trying to win you back is well aware that

2. The long-term: Assuming the school comes through with a counter-offer this year, 2 months before the start of school, it is unlikely that the school will continue to extend such an offer in future years. That means that come year two you will be back in the same boat where you have to choose between a) applying for financial aid or b) switching to the less expensive school. I imagine that you could switch to a less expensive school and then be invited back, but chances are you don't care to be in limbo months before the start of school.

I don't think that you can view a potential counter-offer on the tuition cost this close to the new school year as robbing the scholarship fund. If there are empty seats and you can pay, you are contributing to the school's bottom line.

Ultimately it looks as though switching schools is likely inevitable. If that is the case I think the decision you make, should a counter-offer materialize, would be best based on educational and social factors. Will an extra year in the original school be of benefit to your children? Will switching schools in the future prove difficult for your children? Is there a particular teacher/resource you would like your child to have this coming school year? Is there a particular class grouping you would like your children in/rather your children avoid? If there are differences in school schedules, which schedule best suits your children for the coming year?

Hope this helps.

Readers, please do comment.

23 comments:

Anonymous said...

I agree with your analysis, but there may be another factor -- did the parents already enroll the children in the new school or otherwise make a commitment to the new school? If so, there may be an obligation to the new school. Also, how clear is it that the new school will accept the children the following year if the family turns them down this year?

tesyaa said...

I think your analysis is thorough. However, there's also the possibility that tuition in the cheaper school will rise to approach or meet the tuition in the current school. Then, the family might feel that they switched for nothing.

SephardiLady said...

Excellent points. I don't like the idea of pulling out of commitments.

And tesyaa makes a good point that school b could end up more expensive down the road.

Anonymous said...

I agree with SL's points in the post. If the school is recruiting them, for whatever reason (avoid appearance of losing students, keep kids who are a good influence, keep financial income to counter fixed cost), it is not improper to accept. However, future tuition is a potential risk. They should reduce the risk by asking whether the "discount" will be available in future years, and consider going to the extent of having an informal or formal financial aid review to consider what they could reasonably expect to receive.

Note: this assumes that the current school is their preference, and that the other limitations mentioned above do not negate the choice.

Be'er

Anonymous said...

"The family is uncomfortable accepting tzedakah, but the school really wants to retain students"

Should a family hesitate to accept a reduced tuition rate from one school, or is it "better" to pay full tuition at a lower cost school?

This question may be may be viewed subjectively or objectively. Subjectively, a family may feel a hit to their personal pride of paying in full. They should accept if they meet the following two criteria: 1) they are comfortable that the school really wants them, and does not see it as tzedaka (i.e. for objective reasons below, or other reasonable reasons they may state). and 2) they would not change their outlook and or spending patterns just because they have the discount. #1 should probably play out fine, via an open discussion with appropriate school administrators. For #2, being that they are asking the question, they are likely conscious of other's money, and will treat the situation with respect and not take inappropriate advantage.

Objectively, drawing the box around the school, this adds marginal tuition revenue to the school with little or no marginal increase in operating costs. Thus, assuming low risk of large increases in future tuition, it should be fine to accept. There may be an inflection point at which the family would feel comfortable, e.g. if the discount rate were 70-80% of full tuition or higher, then it seems they are paying the full amount but not subsidizing the portion many systems will add to full-tuition payers.

Altruistically from a system perspective: is an individual family hurting the overall families in the greater school system by sticking with the high priced school in favor of a school? Assuming decent scale schools, their personal choice would be unlikely to materially impact the lower cost school. However, if they would be part of a greater shift to the more sustainable lower tuition school (for parents), and the school would not be as attractive or fold because of their staying in the high tuition school, then it may be better for the greater good if they enroll in the lower tuition school.

I view the last paragraph as a philosophical discussion for the klal, rather than a practical decision for an individual family. Many of us in this blog would argue that it is in the greater interest to support the lower cost (yet still quality) school. However, if the higher tuition school is unofficially lowering tuition as in this case, then it may equivalent from the economic point of view of the larger system.

I would look at the larger system. The vast majority of people (outside of the couple percent who may read this blog) would not think in the larger terms, and therefore, it would probably make sense to steer families towards the lower tuition school.

Be'er

Dave in DC said...

The comments above allude to a critical distinction.

There is a stigma among amcha to taking tzedaka. I would argue that is a good stigma, and far preferable to the sense of entitlement we read about elsewhere on this blog.

Applying for tuition assistance is seen as accepting tzedaka, yet to the degree that tuition is higher than the cost per student, accepting that delta in assistance is akin to GIVING LESS tzedaka to others as opposed to ACCEPTIING tzedaka from others.

There is no stigma against reducing one's contributions when times are tight, in fact it's arguably halachically required...

gavra@work said...

An additional possibility is that the lower tuition is still more than average cost, with less going towards scholarships. In that case, the parent should accept on a long-term basis (the school will match other schoool's tuition every year), and not feel bad taking Tzedakah, as they are still paying more than their fair share.

Accepting on a long-term basis prevents the same issues happening the next year, when the first school needs the money for additional scholarships.

Thinking said...

I am not sure what the Tzedaka is? Is the board member going to go out and collect in order to subsidize their tuition?

If not then it's not accepting Tzedaka, it is accepting reality. As many on this blog know a very small portion of parents can actually pay full tuition. Does this mean that if you don't you are accepting Tzedaka? No, a good portion of the full tuition is going to subsidize someone elses tution already. If you can't pay full tuition but can still pay a good portion of it you are essentially paying what it costs to educate your children.

This is the attitude I have taken to every tuition meeting and conversation I have had. My "official" bill for 3 this year is $35,000, my oldest is 8. I pay a good percentage of that, but it's silly to think I could or should pay the full amount. I kow that and the exec director knows that. I also know that they would like my kids to continue in the school. That's the conversation we have: How can my children continue in the school for the long term based on my means, not based on the tuition?

I would encourage more parents to make the time to sit down with your schools and have an honest discussion. Don't wait, don't threaten to pull your kids, just have a conversation.

SephardiLady said...

Thinking,
Numerous school claim that the tuition does not even cover the average cost per student. I don't know whether this is true or not, and transparency isn't exactly what our schools are known for, but this is the claim.

A friend of mine likes to tell others that everyone who is not donating a thousand or two beyond tuition is taking tzedakah. I don't believe it. Have you heard this and what do you think?

tesyaa said...

SL, after giving this issue some attention, I believe that the average tuition *actually paid* does not cover the cost per student. I am sure that the "retail price" -- full tuition -- covers the average cost per student. The schools that use this explanation are being disingenuous.

Avi said...

Everyone is making cheshbonos one way or the other. I'm starting to believe that one part of the solution to the tuition crisis is to completely decouple scholarships from tuition and charge the actual education cost per child as the tuition - not more (to include scholarships for others) or less (to make it more affordable). Schools shouldn't give scholarships themselves - that should be left to shuls and communal organizations.

1.) If 20% of your tuition isn't going to your child, it's going to someone else's child, then 20% of your tuition ought to be tax deductible.

2.) If tuition is artificially low, then some parents who can pay their full obligation aren't being asked to. (True, some of these parents will donate money on top of their tuitions, but, then again, some will not.)

3.) Some parents who are priced out of tuition at today's rates would be able to afford it if it was 20% less expensive.

4.) The expectation of scholarships from the school is a disincentive to work. Why earn an extra dollar that extra dollar is just going to go to the school anyway? (Would this attitude be completely eradicated if there was a communal scholarship board? Probably not. But it would help.)

5.) Many parents who are paying full tuition are struggling and sacrificing to do so. It is simply unfair to have them sacrifice and stress more so that families on scholarship can, in many cases, live less demanding lives.

tesyaa said...

Avi, agree 100%. What you are proposing is a "full tuition only" school. Nothing is stopping the community, or even individual families, from raising the funds privately to cover what people truly can't pay. Donations to this fund would be tax deductible.

Charlie Hall said...

Selective private colleges have been competing openly for top students ever since the Ivy League cartel was broken up. It is no surprise that this has spread to Orthodox day schools.

Worthy of a post:

http://thejewishstar.wordpress.com/2009/07/07/breaking-news-shalhevet-hs-funding-ended-by-haftr-trustees/

Thinking said...

To follow up Charlies comment, I just read the article in the Jewish Star too. 2 quotes really stuck out to me
1) "Shalhevet is a victim of the tumultuous economic times" (President)
2) "It's an exceptional school. She took Arabic. She can now read and write Arabic...College bowl, debate team. It is an excellent school" (Parent)

Now the story behind it is that HAFTR pulled its funding, but the true story is that the school created an unsustainable model right off the bat. Many of options the school offered, and I understand that they were offered to attract new students, were extra costs. They blew through a ton of money trying to impress families to send their children there and now they are suffering from all the bad choices.

Can they survive? Sure. 50 students is 2 Grades. 2 Grades x 10 periods a day at $15k per year per period = $300k. + 1 Administrator at $100K = $400K. If everything else costs $200k (and it shouldn't) the entire cost of the school is $600K.

With 50 students that is $12K per student. It's manageable. What the school needs to do is drop all the extras and focus on education. They have a great opportunity to deliver and excllent, focused education and build a sustainable model. Will students leave if you don't offer the extras? Maybe, but then you won't have to worry about the 50 girls anymore.

Bottom line, the school does not have to close because HAFTR stoppes its funding. They just have to act smarter.

Anonymous said...

I had this situation myself.The tuition in one school was much higher and I told them that I would switch if they did not lower it.
The day school started, I told the school,that I switched and would like my deposit back.

Ahavah Gayle said...

If the prices of tuition is going to be the same in both cases, and the family is more or less equally committed to both schools, and both schools are more or less equitable in their academics and extra activities, then I would think the issue might come down to the kids social connections. Do they have friends at the new school? Cousins? If not, then disrupting their existing friendships at their existing school may not be worth it until it is absolutely financially necessary. On the other hand, if it is going to be necessary eventually and everybody knows it, the doing such a disruption earlier, in lower grades, is better than waiting until the last couple of years of school, when having a social network in place for mutual support and help with classwork may be a much bigger factor. Just a thought.

Oh, whatever... said...

A couple of thoughts & comments come to mind:

1) A while back my former supervisor told me that you shouldn’t ask your current employer to match a salary that a competitor is offering because if you accept a match from your current employer your employer believes that you are indebted to the employer forever. Similarly, if the letter writer accepts the tuition match, the school is going to think that the letter writer “owes” the school and will probably raise this point forever. The following scenario is a likely outcome in several years:

Letter Writer (to school administrator): We really need a break on tuition costs…we’ve got several kids in school….

Administrator (in response): But didn’t we give you a break last year and the year beforehand? And there lots more families who need a break.

My belief is that if the second school is a good choice and if you’re comfortable with it, switch and don’t look back.

2) I can understand the letter writer’s hesitancy to accept “tzedaka.” If the letter writer stayed wanted to stay with the first school, I wouldn’t be concerned about a tuition break being tzedaka. Tzedaka is if one needs money for clothing, food, medical care, hachnosses kallah. This is a stupid mind game of economics of trying to keep a parent defecting to a neighboring school.

3) This comment for the letter writer: If you felt comfortable with it, could you please post what is the list price tuition at both schools, and how much of a discount the first school offered?

Mike S. said...

let me raise a different issue. If the posted price is only for those who don't know to negotiate or thrreaten to leave, and discounts are routinely offered, is the school violating the issur of ona'at mammon?

One is not generally allowed to take advantage of the other party's ignorance of the market price.

Miami Al said...

Mike S., yes, they are taking advantage of people's ignorance of "how things work" in these schools... the "marks" are the BTs and the non-Frum (or not Frum yet) Jews sending their children there.

They don't follow Halacha by not paying their staff on time. The routine violations of Federal law, particularly in Civil Rights areas, violates Halacha. Routinely non job related matters are considered in employment (overpaying primary breadwinners, etc.).

Do we care that these "communal organizations" violate Jewish law?

Does standing by for this while sending our children to them because they "look Jewish" communicate the increasingly common idea that appearances trump reality?

Assume you know the Dean of a school that deceives parents regarding tuition, fails to pay his employees on time, violates the law of the land by giving donation letters to the full amount for things likes dinners, let's wealthy donors pay their tuition via their donor directed funds (you give the money to Schwab/Fidelity, invest it, then direct them to give to charities, in theory you're advising, in practice, they do what you want), letting someone pay for services rendered via charity money (commonly done), and other violations of Halacha. However, he's a learned Rabbi from a "good Frum family," and dresses Charedi or Charedi-lite MO (tzitzit tucked in, maintained beard instead of scraggly).

Do we refer to him as a learned man whose not quite Frum yet, or do we treat him as "very religious" and just sigh about the business practices. A polo and khaki wearing businessman who doesn't do those things, is he "very religious" or is he "very modern."

Thinking said...

Mike-

There is no market price because there is no standardization of what schools offer. HAFTR charges $24K a year per high school student. Is it worth it? Maybe, they offer lots of extra curriculars. The question is not whether or not the price is too much, the question is can it be done for less? Can I get the same outcome for a lower price?

Schools prices are not based on a value achieved basis, they are based, very loosely, on what it costs to run the school. Included in this is scolarships etc.
In some cases, probably many, they are based on what is perceived to be the amount the top 20% or so would be willing to pay.

Mike S. said...

Thinking: I didn't mean between schools. I meant the difference between the asking price and what the school really demands within one school.

Mike S. said...

Al:

No, I don't know schools like that, and wouldn't send my kids to one.

Anonymous said...

I worked for a MO yeshiva in the midwest for four years because I wanted to help the community. From my vantage point, it was amazing how much of the tuition money was wasted. The admininstration was very highly compensated while new teachers were lucky to make $15.00 per hour with no benefits. Every payperiod I, an hourly employee, was consistently paid for 4 to 6 hours less than I had actually worked. When I complained to the executive director who was paid well over $200,000, I was told that it was a great mitzvah to work with the students and that I had a lot of nerve to complain to an important man like him. I was told by a non-Jewish attorney that that I should have reported them to our state labor board, as they were clearly in violation of the law but I didn't want to hurt my students or feel shunned by the community for being a trouble maker.