Wednesday, May 22, 2013

But Exactly Who Will Pay the Bills?

Source:  Putting a Cap on Day School Tuitions

The newest Avi Chai day school affordability proposal for "middle class" yeshiva/day school families, i.e. families in the top 10% of American earners, is to cap tuition as a percentage of income and require less paperwork and income verification.  The idea stems from a pilot program at a Solomon Schechter school.  Certainly for the yeshiva family paying far more and breaking their backs to do so, such a proposal sounds like a welcome proposal. I'm not so sure this has the potential to lay out well in Orthodox Schools with a preference for larger families and a day-school-or-bust mentality.

But I have to wonder, where is the created budget shortfall to come from?  After all, someone has to pay the bills and the basic current operating policy for Orthodox schools (even articulated at points in this long "discussion") is to continue raising tuition annually because someone will pay.  Some families will find additional jobs or income sources.  Some families will seek gifts from grandparents. Other families will curtail savings.  Other families will refinance the house.  Other families will dip into savings.  Other families might turn to credit cards.  The families that can make it work, do, and the schools continue with the annual raises because it works for them to an extent.  Therefore, we see tuition going up and up, but families that are already on tuition assistance generally are not expected to pay additional monies as tuition increases and number of children enrolled increases.

I simply can't see how extending this method of operation to families that are "making it work" is sound financial policy barring other ideas that raise tuition on families who are not "middle class".  The articles makes mention that a policy would result in "modestly" lower tuition in the short term, but the supports believe that this will be made up for in the long term (for schools with empty seats) through two means:

1.  Retaining larger families.
2.  Spurring enrollment of new families.

I certainly agree that a tuition cap of 15% of income will help retain larger families in the system.  In fact, I'd argue that such a policy might even spur a "baby boom" (perhaps even fueling the fire of the age-gap people, oy vey!).  If the 3rd child for the $200,000 family in the given example is free, why not enroll 4 children?  While I think it would be nice to see the families with 2 and 3 children who have imposed their own cap, have more children where desired, I don't see where tuition will increase in the long term here.  Perhaps someone can explain it to me?  The larger families aren't generally the full payers, rather the 2-3 kid families are the full payers and the ones to absorb the annual increases.  Perhaps I'm unaware of a new trend of larger families leaving day schools and yeshivot?  Maybe while my blog was in hiatus there was a mass exodus?

I imagine that those who believe in this policy really are putting their bets on #2:  spurring enrollment and filling "empty seats."  I'm not sure there is a consistent definition of an empty seats and my understanding from teachers and administrators is that not ever "empty" seat is equal.  In other words, an empty seat can be filled by a fantastic student whose only cost is another desk while at the same time another few students can tax the staff enough that the school fills the need to hire more staff.  Perhaps there are more potential families from the "middle class" payers and I grossly underestimate, but I'm doubtful.  Of those who are a natural fit for day school, but are not enrolled in day schools, is the decision financial or based on other factors?  Where it is based on other factors, what are those other factors and will a changed tuition structure for the "middle class" bring them back?

Let's hear from you my dear readers.


miriamp said...

Well, the business model here is set minimum tuition per child (not per family) for anyone needing tuition assistance, make deals with the families that can't even afford that and then fundraise, fundraise, fundraise. We have 75% of families not able to pay full tuition. Raising tuition helps no one, so we didn't. But this is a tiny out of town community with one orthodox day school. maybe 50 -100 orthodox families in the whole city. Maybe half have kids of school age. but it's a great community if anyone's looking to move out of the ny area...

JS said...

The idea of capping tuition for high earners (ironically called "middle class") seems to be catching on. A lot of schools in the NYC area have or are starting/increasing a tuition abatement program. I also wonder who will pay the bills. I can't imagine rich donors wanting to foot the bill for families slightly less rich than they are. Maybe it's just a way of spinning not raising tuition to prevent the segment of the school most likely to complain from actually complaining. After all, if everyone's getting something what's to complain about?

15% of income seems awfully low given how high tuition is in the NYC area. For a family making $100k, that's 1 kid's tuition.

My understanding is that all schools offer a large family discount in the form of increasing deductions per child after, say, 3 children. So, this seems moot.

Empty seats is a dangerous concept if not controlled properly. Today's empty seat becomes tomorrow's money pit. Also, expanding a kindergarten class from 20 to 25 kids may seem reasonable for that grade, but as the grade advances, you may need more teachers of every type as the kids have separate instruction in each subject. I've seen schools where they created 3 classes instead of 2 larger classes - that creates havoc on the school's salary budget down the line. If they can keep all else equal, maybe this is worthwhile.

PS Welcome back.

JS said...

Also, what in the world does it say about Orthodox values when we identify people making between $150k and $300k as worthy of tzedaka?

Parent said...

JS - no, not all of the schools offer a deduction or reduction if you have 3+ children. I have 4 children in elementary school and got zippo.

Be'er said...

The pricing model isn't fully working, the scholarship system/process is challenging. An abatement like this is a band-aid. If you have priced high earners out, due to the ever increasing tuition (squeezing high earners, more than <150k), then it's not tzedaka. It is a change of the current model.

I can't see 15% working.

Abatements could work, if done well, but require a lot of analysis for the individual school. If you shift scholarship families to abatement, but don't pick up many new families (total $ value), then it reduces strain on the resources (scholarship committee, Admin) and reduces stress for families who would prefer to not be singled out/fill out personal information.

I would bet that a lot of families would stretch a little more if the abatement met the majority of their need. Each school/community would need to analyze this carefully on their own.

Be'er said...

Good article, but limited in initial applicability. The schools quoted as making significant caps are not currently easily comparable to NY/NJ and many communities. It is a laudable conversation, but needs more fleshing out.

The article quotes Solomon Schechter in Boston, which likely has a mix of Orthodox, and Religious/interested families. many of which would choose between day school and public. This is not necessarily the choice many other families are comfortable. The article quotes Maimonides and a Manhattan school as looking at $2-3k discounts. These are great steps, but not the flash of a 15% cap.

Note: the 15% cap is likely off gross earnings. For a married couple with several children in the early AMT band, that is still pretty hefty. Better than 70-100k bills, but not as low as one may think off the cuff.

Anonymous said...

Abatements are basically a game, right...

The school, rather than calling it scholarship, makes it a discount to the tuition, so they don't need to fundraise for it, it's just less revenue... this ironically lets them lower the amount of scholarship money that comes out of general revenue.

The parents have a choice, a detailed scholarship application where their expenditures are reviewed, but possible cheaper tuition, or an "abatement" process where you send it two pages of your tax return to establish your Income Level and get a discount.

The big drawback I see is that one thing that controls scholarship abuse is pride... there will be no shame in accepting an abatement, it's not charity, it's in the price sheet, which will cause far more families to get in than they think.

Cliff problems as well:

Also, such abatements are going to be with hard cliffs.

If you get $3000/child off, with 3 kids (so $9000 in savings) up to $240,000 in income, than the family making $245,000 is paying DRAMATICALLY more in tuition than the family making $235,000. On an after tax basis, the $245k family is MUCH WORSE OFF than the $235k family.

An income percentage cap is reasonable if your have an elastic student body... Committing 15% of your income to something requires dedication, committing 30%-40% requires SERIOUS dedication. This will likely help retain and recruit marginal families, but will not help large Orthodox communities where the competition is between different schools, but might help where the competition is between Day School X and non Day School options.

Dina said...

Perhaps with such an income cap, we can eliminate free tuition for teachers. This would certainly help close part of the gap!

If it comes along with greater financial transparency, it may also encourage more donors to give, no longer feeling that the schools are vampires...

Dina said...

Perhaps with such an income cap, we can eliminate free tuition for teachers. This would certainly help close part of the gap!

If it comes along with greater financial transparency, it may also encourage more donors to give, no longer feeling that the schools are vampires...

wordgirl said...

Middle income assistance is a difficult concept, but it is a necessary issue to tackle. As you can see from the comments, the middle class are probably being squeezed the most. Low income families -- those who have many children, parents in chinuch, etc. -- are already tapped out. You can squeeze money from a stone. But middle class families might still be taking a vacation a year, sending children to sleepaway camp, or buying a new car. They might not want to open their books to a tuition committee because they don't see sleepaway camp, a vacation or a new car as something they are willing to give up. So these parents sit down. Maybe they have two kids in elementary and another in kindergarten. They see that as tuition goes up, they are going to have to make sacrifices. Are they going to pull out just the youngest? Send the oldest to public school for high school? Or just pull out of the yeshiva system altogether.

In the more modern/centrist schools where I have worked, there aren't that many families with 6+ kids. I'm going to estimate that population at 10% and I think that is being generous. This proposal is not going to change that number. Capping tuition at a percentage of your income is going to keep those middle income families who may choose either to send one child to public school for higher levels, send to a "blended learning" or online learning school, make aliya, home school or choose the public school system for all of their kids.
At the schools where I have worked, the middle class assistance is separate from need-based assistance. In some cases, it takes middle income families off of the need-based rolls. These families really need a couple thousands of dollars and a guarantee of privacy to stay in day school.
Most middle class families plan their children. A tuition cap is not going to cause a baby boom. It will enable them to stay stronger financially. They can visit out of town relatives at Thanksgiving without putting the trip on their credit cards.

The other side of this middle income assistance is a minimum tuition. Let's say a family with four kids making $200k per year pays $30k in tuition, using the 15% model. But let's also say that the school has decided it cannot accept less than $5k per child. If this family wants to enroll child #7, it will have to pay more. Such a minimum will affect low-income families as well.

Please note, I'm not criticizing the options of home schooling, aliya or public school for families who make that choice. I'm looking at this as an enrollment problem for day schools. To stay in business, day schools must attract and retain families with means.

Someone said something about some children being more expensive than others. If a school already has special educators on staff to help struggling students, adding one more is not going to increase costs.

Avi Greengart said...

The basic premise of maximum tuition is based on sound economic theory: if lower tuition creates higher demand for services, the school can make it up on volume. The problem is twofold:

1. It only works up to a point, because education does not scale evenly. If the additional children require additional teachers or infrastructure, then the additional volume is not profitable volume, and lowering tuition becomes a double whammy: lower tuition receipts and higher costs.

2. It only works where lower tuition generates higher demand. In some MO and most Yeshivish communities, lowering tuition will not generate additional demand. Sending your child to day school is a social need, and parents who cannot afford day school send anyway somehow - they do not drop out of the system and send to public school or homeschool. Some make lifestyle changes. Some rely on relatives or charity. Many go deeply into dept. Worse, at least some lie, cheat, or steal. A lowered/cap on tuition would help these people immensely, but would not generate additional revenues for the school by encouraging them to stay in/return to the system because they never left in the first place.

Anonymous said...

I think that people underestimate the impact of marginally affliated families on Day School Finances. In Florida, every school has people not in "the community" that the school serves... Israeli families, traditional Conservative families, and not Orthodox families that grew up with Day School and want it for their children. This results in an economy where the school's "base load" is inelastic, but the marginal students are elastic.

The problem that the administrators AND parents have is they don't know these families. They don't see them in Shul, don't see them around town, don't really know them. So they don't know that these families exist.

One of the subtle problems is that the families making decisions are serious Orthodox Jews and don't necessarily understand these families... or how their participation in the schools is critical to the financial success of the institutions.

Anonymous said...

I am that person Miami is describing. I have three kids. I have a great job. So does my spouse. And we're not sending them to day school because it's $19,000 and I'm not kidding (we live in the SF bay are). $19k x 3 x 13 years is a non starter especially with my somewhat less religious spouse. 10k maybe we could talk... So we WOULD change our decision based on price, but no one at the school knows we exist because we took one look at the tuition and did not apply...

Anonymous said...

Would you consider reaching out to the school(s) in your area, and talking to them about it?

That may be an odd thought, but they may consider working with you. Of course, this would be if you value the Jewish and overall education the school would provide.

Push, and open doors you may like. Don't close doors for yourself, that others don't even realize they aren't opening.

Good luck!

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