Got Orthonomics in your Email Box?

Sunday, March 06, 2011

New and Innovative, or Moving Money from One Pocket to Another Pocket?

Hat Tip: Google Alerts

There is a saying, "you can't buy your way out of debt" or "you can't finance your way out of debt." That is what popped into my mind when I read the newest creative proposed solution to the "tuition crisis" published in Jewish Image Magazine. (Brooklyn Sephardic/Syrian Community Magazine).

I had to hand the article over to my husband to read before committing pen to paper, or in this case fingers to keyboard, because I was certain that I was missing some important detail in the article, something about restructuring schools or cost reduction. Turns out I wasn't missing anything. The plan appears to be one where money is moved from pocket to pocket.

The plan proposed by the article is as follows:

I would like to propose a solution that may very well be the answer we have all been waiting for to reduce the current average tuition by 40 to 65%. This was inspired by the simple financial principle of dispersing a financial liability of 14 years of yeshivah tuition over 70 years. And this is how I suggest we approach this:

• Our current reality is: a young father fully pays all his children’s yeshivah tuition (approximately $252,000 per child ) over the 14 year span during which his children attend yeshivah, because his father did the same thing when he was a young father.

• The new state of mind becomes: each person pays his/ her own tuition over a span of 70 years, breaking the total into portions of 1/70 per year instead of the current 1/14. See figure 1.

This would result in a reduction of the annual payment by one fifth.

Of course, this would require a retraining of our minds and viewing the tuition obligations under a completely new light

Naturally, children between the ages of 1 and 20 cannot pay his annual 1/70 portion, so his father will pick up the tab during the child’s first 20 years, and in return this child (now a young man or woman) will pick up his children’s tab for the first 20 1/70 portions.

Let’s illustrate with numbers: After running multiple mathematical formulas, it seems like the key dollar figure of $7.95 daily contribution (roughly $2,900 a year) to a yeshivah fund program from every community member ages 1 to 70, would result in the reduction of the $18,000 average tuition to $4,000 to $6,500. So our new reality becomes that each and every one of us would come to terms with an annual contribution of roughly $2,900 throughout our adult lives, hence resulting in a tuition rate anywhere between 20 and 60%.

I'm not certain I understand how this proposed system is to develop and mature across a community, in a non-Utopian society (perhaps the Syrian Jewish community is more of a utopia? Do note that the author didn't limit this plan to his particular kehillah). The proposed system seems to make some bold assumptions:

1. That grandparents are not current contributors (could there be anything further from the truth? Seems many grandparents are contributing cash--even if not directly to tuition--or services--read: free babysitting while their own children work).

2. That young people, ages 20 +, have the means to make significant contributions to tuition while they are just starting out, either as singles, couples, or young families.

3. That families are similar sized. In figure 3, note that the grandparents had 4 children, and their more middle-aged children have 3 and 4 children a piece, nearly equal-sized.

4. That each and every member of a branch family will make their contribution from here until age 70 without dispute. The article states: "Each family branch is fully independent and self-sufficient. No exchange in funds between different families is to take place. Although this program aims to have the tuition burden shared by the whole community, yet this is not a redistribution of wealth by any stretch of imagination." While the plan might not call for redistribution of wealth within the community, it does seem to assume that branch families will be happy to share costs within their own unit. Should that not be the case, one can only imagine the potential disputes.

5. That all contributors will able to meet their obligations for a period exceeding any mortgage on the market.

6. That children from the family are all attending schools within the same system.

7. That grandparents have (even more) money to spare.


There will be a public forum, according to the article. So, I'm very curious what type of discussion will ensue. It is extremely difficult for me to envision such a plan working, but perhaps I'm mistaken.

What I'm certain I am not mistaken about is the following: you can't spend your way out of debt! Costs must be reduced. Even if tuition increases are kept in line with inflation (a stated goal), we all know how hard it is to keep up with inflation alone. I think each community exploring their options needs to ask themselves if their income plan raises new money or just moves money from one pocket to another and if their expense plan reduces cost.

42 comments:

JS said...

Seems overly complicated by sharing costs across generations. I don't like the idea in general because it just deals with payment, not the fact that schools are too expensive to begin with for the vast majority of parents. It's basically just a way for schools to continue charging what they're charging without having to give out scholarships. That said...

Why not something like this?

When you enroll a kid in the school, you have the option to 1) pay annually a slightly reduced rate, but no scholarships are offered or 2) spread the cost of tuition over a period of years with an inflation adjusted interest rate.

For example, you can pay now in full and take a 10% discount on tuition, or you can pay over 10 years, but then you don't get a reduction - basically, the school offers a low interest loan to those who can't pay in full. Of course the school would need collateral and the parents would need life insurance to cover the loan.

Again, don't like this idea, but it's far simpler.

HAGTBG said...

1. This plan could not be legally enforceable. You can not and should not obligate a 6 year old to be forced to pay tuition for the remainder of his life. You would be forcing the child to pay for the religious choices and the contract entered into by their parents.

2. 70 years? Why not 10 years or 80 years? Was this number picked out of a hat. Or just to get a low enough number to sound like a good idea.

3. Who is the resource providing the money for a 70 year loan to a 6 year old? Is it interest fee or with interest? Oh wait, reading more this is actually a tax until you are 70 and has nothing to do with your own education. So who will enforce this tax and how? How much will the infrastructure overseeing this cost?

3. If viewed as how it is portrayed: deferring the costs of your education- It removes the education costs from what are actually the resources at hand, a problem, similar to any situation where one spends more then one has. It therefore is not desirable. You can not possibly know what a first grader will make in 20 years, or, indeed, what kind of society they will be entering.

3. School does not start when you are born and is more then 14 years. Parents will therefore be paying for over 20 years of the childs education. What if the child is a doctor and doesn't earn money until they are 30.

4. In Judaism it is the burden of the parents to raise the child, extended family second, community third. It is not a tyke's obligation to educate themself. That is the system proposed here.

5. You'd be adding on a whole new level of expense surpervising and enforcing this system.

6. Were it adopted the system could easily get overb

Yakov R said...

This seems similar to something that I've been thinking about. Let's eliminate all tuition scholarships and replace them with loans.

Why should we allow people who have educated their child while relying on tuition assistance to then throw their child a lavish wedding and support the "child's" non working Lakewood lifestyle.

Anonymous said...

It is interesting how tuition is an issue in such a wealthy community as the Syrian one. I see this problem extends further than Bergen County. We really need to examine how things are run and come up with a viable solution.

Miami Al said...

The problem with "communal" level solutions to funding is that they assume a static community. People can move in and out of neighborhoods, rent an apartment, buy/sell a house, etc.

Any community with a large "solution" will get people moving in to take advantage of it, and others leaving when they are on the losing end, the "free rider" problems.

It's not nefarious.

If my communal obligation is $10k/year, that's an extra incentive to retire/empty nest elsewhere. I might claim that I'll keep paying, but once I start my new life elsewhere, I'll forget about it.

It's the problem that the states have with welfare programs, and the attempts to nationalize things. States that offer nicer benefits get poor people relocating from other states, to avoid that, they push for Federal programs.

Arthur said...

JS Said
spread the cost of tuition over a period of years with an inflation adjusted interest rate.

Linkage in this way the person taking the load will never be finished with it and never know what the monthly payment will be.

Kind of like a mortgage in Israel - somehow this does not strike me as a solution.

Anonymous said...

Here is a wild and wacky idea. Instead of deferring payments or stretching them out over a lifetime (with all the additional interest costs to the community of what, in effect is a 70 year mortgage), save a good portion of the amount up front, kind of like the good old days when people put down 10, 20 or 30% for a mortgage. How can young couples do that? Easy. Skip the expensive weddings, fancy furniture and stemware and silver, etc. and put all of that cost toward the tuition fund. Skip seminary and year in Israel. Rent longer before buying. Work a few years before starting a family. If tuition/yeshiva really is a priority it can be done.

Shira and Joey said...

I prefer a flat cost "per family" rate that you pay no matter how many kids are in the school. Obviously this needs to be hashed out with full details and cooperations between local schools.

Anonymous said...

Shira and Joey: Wouldn't that just encourage more bad economic decision making and more people on scholarship? Your plan would only work if there were also "flat requirements" on the income and expenditure side -- i.e. don't spend more than X on simchas, no house larger than 1200 square feet, both parents work full time.

Shira and Joey said...

My flat fee solution would work something like this: (and its obviously community based, so the numbers will change based on location)

Each family pays $30,000/year no matter how many children they have in school. If they have 1, great. If they have 5, also great. In the early years, with only 1 kid in school, you are subsidizing families with more kids there. In the later years when you have the bulk of your kids in school, others are helping you out.

Now, this would need some cooperation across the board between local schools (and possibly high schools). It basically spreads out the burden of tuition over more years.

No scholarships will be offered. There can be a different organization that deals with scholarships (lets say something like NNJKids) where people can ask for help.

Now the amount per family needs to be affordable for what most people in the community can pay and what about 95% of people can pay by really stretching their budgets.

Overall, the schools would be getting approximately the same amount of money per family over the long haul (unless someone has kids every 9 months).

Avi said...

Shira,

$30K to start with no scholarships? $30K when you have three kids in high school and only one in elementary school? Never mind that this makes no sense from the schools' perspective, good luck getting any parents to buy into it.

Shira and Joey said...

Avi,

Like I said, the details aren't fully worked out. If the high schools work in conjunction with the elementary schools, it could be more feasible.

If you do the math (I've done it for a few scenarios, but neglected high school), 3 kids spaced 2 grades apart paying $15,000 tuition for each vs $30,000 flat for 8 years is the same amount. $30,000/year is easier to pay than paying $45,000/year for a few years, likely requiring scholarships. I think you would actually get more money out of families overall.

It seems to be that child #3 is the stretching point and child #4 is the breaking point for most families today.

Anonymous said...

ShiraandJoey: Creative proposal, but how will you account for (i) 27 year olds who can't pay 30,000 after taxes, particularly while still paying off student loans -- in other words expecting people to pay a lot in the early years of their careers and while more moms may be working reduced hours and taking maternity leaves; (ii) the family that overpaid in the early years and then needs to move due to things like job loss, elderly parents elsewhere needing care, etc.; (iii) creating incentives for families to first move in after they have a lot of kids? (iv) the incentive to space your kids really close together to have fewer years where you are paying the $30,000?

Anonymous said...

this is why the system is BROKEN and we need alternatives.

Shira and Joey said...

Anon,

1) You figure out a way to pay the money. If not, you find your own fundraising or loans to cover you in the early part of your career. By 27, most people I know are earning enough to pay $30,000/year. At that point, they have to pay $18,000/year with another kid coming up soon (generally) which will end up costing $36,000! (most people I know space their kids approx. 2 years apart)

2) That's a gamble. Its like moving to Canada when you are young and investing in the health care system. You may not be there in old age when you really will use the system.

3) Even if you have a lot of kids, you are paying over a longer span of time. If you have 6 kids, the amount of years you are paying $30,000 will generally be longer. A family with 6 kids will likely be on scholarship anyway and may not be paying much more than $30,000 as other expenses are higher (food, camp etc).

4) Most people I know will not space their kids too close together because its hard. I know because I get plenty of comments about the spacing of my kids :-)

Any system is prone to abuse. There will always be people who try to take advantage of the system. This will give people a way to plan their finances, not bankrupt the average family and still provide a quality education.

(In conjunction, schools should work to reduce expenses and work only within the budget as given. But it will be easier to plan for)

Anonymous said...

Shira and Joey: Any responsible couple with decent earnings (as you suggest many have) can do the exact same thing you propose on their own. From the time child 1 is born, put away 30K/year. When child 1 starts school, put away 30K-that child's tuition, etc. until they are paying 30K in tuition, and then start using the savings for the portion of tuition that is in excess of 30K. Sure, that might mean not buying a house early or buying a cheap house or not taking vacations, etc. but isn't that what is necessary anyhow to support this very expensive private school system.

Abba's Rantings said...

SHIRA and JOEY:

so then you're locked into a particular school?

"You figure out a way to pay the money. If not, you find your own fundraising or loans to cover you in the early part of your career"

if that's the fallback, then you can simplify your whole proposal by making it the default.

Shira and Joey said...

Anon 11:45,

Its not quite as simple as "save now" - when you get to the point with 3-4 kids in Yeshiva, most people's salary don't grow that rapidly. So they won't have $45,000-$60,000 to pay and will go on scholarship for a few years. Once their kids are out of school, they won't really repay that amount because now there is college/weddings/retirement etc. This is just a way to spread out payments in a reasonable fashion.

Abba's Rantings:

You are somewhat locked into a school, unless the local schools have some sort of agreement.

Its also a lot easier to say "I'm in grad school now, so I'll need to borrow for 3 years tuition, but my salary will catch up" rather than constantly trying to catch up with tuition and never quite making it.

Orthonomics said...

I wouldn't lock myself into a school even if it would even things out in the long run. The school might simply be wrong for a kid. And if parents are more locked in than they imagine themselves to be now, where will the school's incentive be?

Furthermore, I know very, very few 27 year olds who can afford $30,000 out of pocket for tuition.

In other words, making a dent in this "tuition crisis" will not be solved by playing only with the income side of the equation.

JS said...

"Furthermore, I know very, very few 27 year olds who can afford $30,000 out of pocket for tuition."

And this highlights the problem because at the same time, many of those 27 year olds have been married 6-7 years and have 2-3 kids, with 1 already in yeshiva. If they can't swing $30k at 27 with 1 kid in yeshiva, they won't be able to pay for 2 kids in yeshiva - and it's the rare couple that has only 2 kids.

So, you're just pointing out that yeshiva education is unaffordable. Period.

Nephew of Frum Actuary said...

The Detroit solution:

As you may have read, Detroit is proposing 60 child classes for students, due to the economic crisis and lack of funds.

If you are serious about the problem, do the same for those in yeshiva who can not pay. And why not? It will keep them segregated out of the vaunted "public school", which is the real purpose of jewish day school anyway (as shown by the opposition to hebrew charters), and may even teach them something in the process!

The problem is we really do believe in having a prep school education for all, no matter the income or ability to pay. Until that notion is dismissed, tuition will continue to be unbearable, and will just get worse.

Abba's Rantings said...

SHIRA and JOEY:

aside from all the impracticalities with your proposal, i would NEVER lock myself into a particular school.

and i ask again with regard to your comment that anyone who can't scrape together $30k will privately fundraise, why not just make that the default right now?

Abba's Rantings said...

"Detroit is proposing 60 child classes for students, due to the economic crisis and lack of funds."

there was an article a few months ago in the NYT about large computer-based classes in florida to save money.
and just this past shabbat i saw an article that bloomberg wants increase class size

Shira and Joey said...

You aren't technically locked into the system. You have just paid into it more. People do this with building funds as well.

If you can't afford $30,000 at 27, what's the likelihood your salary is going to jump $15,000 by 29 (assuming tuition is $15,000/child)?

And I agree - we need to decrease expenses. But expenses are rising much faster than income, so we need a way to even out the burden.

As a general rule, most families have their kids in one school and stick with it. Sure, I know plenty who don't also, but for the most part they do.

Abba's Rantings,

You can cut scholarships fully right now. That won't really solve any problems because many families will be priced out of school altogether and will send their kids out of the immediate area or to public school. If that's your goal, fine. I think Yeshiva should be affordable in some way for 95% of families to afford sending an average size family to school.

Anonymous said...

Shira and Joey: What do you consider an average size family? What do you consider affordable? What would you have families cut from their budgets - weddings over $5,000? sleep away camp? home ownership? More important, what would you cut from school budgets -- raise class size to 30? 35? Its very nice to yeshiva should be affordable and have a plan for paying over a different period of time, but without a plan to cut school costs and to cut what families spend on other things, all the payment schedules in the world wont help.

Abba's Rantings said...

SHIRA and JOEY:

"You aren't technically locked into the system"

after i've paid into school A for a good number of years, if I then decide to jump to school B after my family has already grown, why would school B want to accept me if they will lose money on me? (because you think over all it evens out?)

"People do this with building funds as well."

actually i have heard people comment that they are stuck in their shul because they don't want to pay another building fund

"You can cut scholarships fully right now . . ."

i didn't mean to imply that scholarships should be cut altogether. rather that the scholarships should be coming from outside agencies and not from the schools. or as you called it, even though it's not really what you meant, "private fundraising." (i think it's very noble that there is basically a communal concensus that supports tuition assistance, but i think that it would be healthier for all involved if it wasn't handled by the schools.)

Shira and Joey said...

Anonymous,

Average size family varies, but where I live its about 4 kids.

I'm not sure why wedding costs would specifically go towards tuition - are you saying that the grandparents should forgo nice weddings and put that money in an account for their kids? I don't know many people who paid for their own wedding.

What should individual families do to afford tuition? Well, I do think they should forgo all luxuries (cleaning help, fancy camps, Shabbos/Yom Tov guests, eat more beans etc).

Right now however, that's not the way the system works. The system says spend what you want and then show the scholarship committee that you need $X break.

I do think class size should be increased. I think tracking should be implemented (which should reduce the need for extra teachers in the classroom). I think fancy building upgrades should be stopped. There is too much administration. Schools should move towards basics in education so that schools are affordable for more people.

I don't have all the answers at all, but I am certainly looking for solutions since my kids are starting school soon. I know I will never be able to afford some of my local schools (at $18,000/child) so I am seeking out some sort of solution.

tesyaa said...

Shira, tracking is hard to implement unless a school is very large, especially when sexes are segregated. I have never though that tracking would reduce expenditure, though perhaps you have seen evidence that that's the case. Most schools, including public schools, don't track until middle school, by which point classroom assistants aren't used anyway.

Shira and Joey said...

Why is tracking hard to implement? Most of the local schools here have multiple classrooms. Split according to level.

I'm not sure why all the assistants are needed anyway. Growing up, starting in 1st grade we had 1 teacher and that was it. Call me old fashioned :-)

Mark said...

Orthonomics - Furthermore, I know very, very few 27 year olds who can afford $30,000 out of pocket for tuition.

I don't know about others, but when I was 27, I was still single and there was no way I could afford $30,000! That's insane. I think I was making less than $50k GROSS at the time, after federal, NY state, and NY city taxes, I was making less than $30k net.

tesyaa said...

Shira, I'm no educator. But schools are already dealing with splitting boys & girls (let's see, 60 kids = 3 classes, except when there are 30 girls and 30 boys it suddenly equals 4 classes). I don't know how they'd implement tracking easily. And I don't know of any schools (public or private) that track at ages below 4th or 5th grade.

I'm with you on the assistants - public schools don't have assistants on a routine basis, but that seems to be what yeshiva parents want & expect.

Anonymous said...

Any talk of different payment plans strikes me as distracting from the core issues, namely reducing costs and developing alternative educational models; and prioritizing tuition over luxuries (and being willing to call a luxury a luxury, whether its sleep away camps or more than the simplest wedding),and increasing family incomes since school costs can only be reduced so far and the costs of true necessities -- i.e. food and heating are going to rise a lot in coming years.

aaron from L.A. said...

It could work if everyone stays put for life,doesn't move,can pay their bill,wants to pay the bill,the school is still there,everyone is honest,no new buildings are needed...in other words,it ain't gonna happen.

Dina said...

There are a lot of things wrong with this proposal, but to me the most obvious is that tuition is set to pay current expenditure needs such as salaries, supplies, mortgage payments, etc. that cannot be put off for 70 years. How is stretching a payment schedule for everyone going to help the school administration pay current bills?

Michaltastik said...

Reading this and the comments I was thinking long before I saw it that there's so many principals in the schools and there's so many teachers and 19 year old seminary grads who are assistants until they find a zivug from Lakewood.

I'm not married and I don't have kids, but I'm hearing schools have two teachers? One for Hebrew and one for English (secular) subjects so the teachers all work part time and get paid a full time salary? I don't agree. They should sit down and set up a schedule so that teachers work full time and are moved around throughout the day. A teacher who teaches English subjects will teach one class in the morning and another in the afternoon and she will switch with the "Hebrew studies" teachers. Get rid of these assistants.


I also agree that the mentality of money is crazy in the frum community. If you tell people you can't afford things there's this, "WHAT'S WRONG WITH YOU THAT YOU CANT BLOW MONEY ON THIS???" reaction. I've had so many people tell me to get jobs that are suppose to pay more than what I make now and usually these jobs pay less. For most people, there are things they can't afford. Why is there this thing, this wall that we can't admit when we can't afford something?


Finally, I think we need to stop this Kollel for all crap. Some of the tzedakah that's going to kollel can go to schools for kids and kollel fathers won't need handouts or at least smaller hand outs than they need now.

thegameiam said...

There are a whole lot of unrealistic, overly-centralized ideas here:

1) Anything that involves cradle-to-grave involvement with a communal power, when that communal power doesn't have a monopoly on violence (i.e. the government) will fail. This has been demonstrated time and again, and pretty much all social contract theory provides the rationale.

2) $30K for education regardless of the number of children? What? Seriously? At that kind of rate, it would be cheaper for I and my neighbor to band together and hire a rabbi (who will make less that $60k a year) to do full time tutoring instruction for our (what, 5?) children.

@Michaeltastik has the right approach: inherently, the problem with kollel for the masses is not that the subsidies drain prospective scholarship funds (although they do), it's that they prevent those families from actually earning a living - thereby shrinking the size of the total communal earnings for everyone. That is the *definition* of the free-rider problem.

Anonymous said...

I just want everyone out there to realize that bashing "kollel" in the context of tuition doesn't make much sense.
#1 some people in kollel (gasp) pay full tuition for their kids!!!
Yes, I did it. (We also did NOT get a kollel paycheck). No, Daddy did not support us. I worked! I used my wedding presents! My husband went to work half a day when that didn't cut it. OK, OK, I admit we are probably exceptions, and I know most kollel families get breaks, but so do working families...
#2 most people in kollel belong to right-wing communities. Thus, one could argue that parents who send their kids to a right wing school that accepts these kollel families understands that their tuition will subsidize the children of kollel families. Maybe they value having their children in a setting where they will have "holy" friends. Can't you choose another school if you don't like that? If kollel is the basis of the tuition problem, why do modern schools without kollel parents have trouble collecting tuition?

JRKmommy said...

My husband and I are both professionals, and we certainly didn't have an extra $30K/year when we were 27. My husband was doing a medical residency at the time, and his salary was less than $50K. The early years of just scraping by were required so that we could eventually earn much higher incomes and pay full tuition.

As to the original plan - it makes no sense. Children obviously can't pay, so dividing payments over 70 years is foolish. At the other end, no everyone will live to age 70 in good physical and financial health. This assumes no cancer or other debilitating illness, no job loss at an older age, etc. Not all grandparents are made of money - especially if divorced or widowed or in poor health.

The current system starts tuition payments when parents are likely starting out professionally, and they continue and increase through the prime earning years. They end around the time that wedding expenses come up, and if there is any time left after that, it's finally a chance to save for retirement. "Magic math" doesn't change that.

Aleena said...

This seems to be a great site which offers an advanced Austin Movers, Movers Austin TX, Austin Moving, Moving Company Austin to make your moving company more productive by managing your moves.I had been relying on http://heartoftexasmoving.com earlier and they offered good stuff.

man and van London said...

Interesting blog and posts, helpful and informing. I appresiate the effort you have put in writing all of this.

home removals in London said...

You have a very interesting way of expressing yourself, which I like and as much as I can see so do other, visitors. Keep up the good work with such relevant information.

cheap hotels in Singapore said...

Hello .. I have never seen a smart articles that you created. It really helped me to get back my ideas for writing. I will save this post, for I learn more