I’ll bet you’ve said, “He’s lost his mind.  We can’t raise our tuition 10%!  There’s so much financial instability today, and people won’t be able to afford that!”

Before you jump to that conclusion, the first word of the sentence is the most important one – “Consider.”  Sometimes, we have to go WAY outside the box before we can make some incremental adjustments to address concerns.

Here are some reasons why I suggest “considering” this approach.

A few years ago, when our country was experiencing the Great Recession, I visited a school that actually had a waiting list.  Can you guess which one it was?  No, it wasn’t the one with the lowest tuition.  It had one of the highest per student tuition!

Today’s consumers see a low regular price and associate it with low value.

Further, more and more families are applying for financial aid, and more and more schools are saying they don’t have financial aid to give.  Their budgeting practices are as tight as they can get – especially with paying for benefits today!  The tuition that’s published is the result of work that takes months to accomplish.

And, unfortunately, most schools are STILL doing it incorrectly if they expect to be around five years from now.

Why?

School leaders set tuition with an “income-based” mindset.  That is, the question is always asked, “How much of an increase do you think parents will be able to absorb?”  Then they’ll increase tuition by $100, try to figure out the expenses by cutting expenditures, and then announcing, “Great news!  Tuition will only increase by $100 for the coming school year!”

And then enrollment declines.

It turns into death by a hundred increases.

Sadly, most full-tuition amounts are set BELOW the cost of education.  In the business world, that’s a recipe for failure.  You can’t sell anything for less than it costs to make and still remain in business.

Also unfortunately, consumers today don’t appreciate all the work you’ve done to keep costs low and quality high.  They want to know what they’re going to pay as an individual customer, and, more pointedly, “What’s in it for them?”

So, what do they appreciate?

Incentives.

This approach touches all those things.

Once again, this is something to CONSIDER.  It’s different – and most people don’t like different.

First, let’s deal with the cost issue.  If there are 200 students in your school, and your budget is $1,000,000, that’s a $5000 cost per student.

Now consider raising that by 10% and $50.

Now you’re up to $5,550.

Also, be sure to take this extra $550 “out” of the need-based financial aid calculation.

Why is this important?  I’m sure you’ve rolled fees into your tuition before.  Unfortunately, when you calculate financial aid based on the total tuition with fees included, you’ve just flushed most of the work you’ve done down the drain.  Awarding financial aid on a tuition amount that includes fees reduces the fees by the amount of financial aid you’ve awarded, since your financial aid is paying for the fees that have been rolled into tuition.

Let’s look at it from another angle.  If the tuition is handled as $5,500, and the child has a financial need of $2000, that means the family can afford to pay $3,500.  Even if the tuition is now $7,000, the family can still only afford to pay $3,500.  The child’s financial need is now significantly higher, and all that debating that your board did about rolling fees into the tuition is now moot and raising tuition amounts by just a small amount is now moot.

So what’s the extra $550 for?

Let’s split that into 2 sections, and take the $50 out for now.  Split the 500 into two amounts – $350 (70%) and $150 (30%).

$350 per student will go into a fund to create a pool of financial aid.  With 200 students in the school, you’ve just created a budgeted amount of  $75,000 in additional financial aid funds.  The $150 is a “cushion” so that your school can offer parents the ability to use credit cards to pay tuition AND help to absorb the cost.

If parents pay with a credit card, it may not mean that parents are going to go into debt to pay tuition.  They may want to receive points for airline tickets or hotel rooms.

What are those?  Incentives!  This makes those conversations that centers around “Pay tuition” or “Take the Disney trip” a little easier to deal with since you’re offering parents options.

Further, since you’ve budgeted for it, if parents choose to pay through auto-debit or via check in an upfront one-time payment, you can offer them a 2% “incentive” – NOT A DISCOUNT – to do so.  Why not offer this to monthly payers?  Because they might choose auto-debit one month and credit card for the next.

Now you’re saying, “Wait a minute…why only give them 2%?”  There are two reasons.  First, it’s a good practice not to tie the credit card cost to the incentive you’ll offer, so a difference in percentage rates accomplishes that.  Second, you’re offering the percentage “incentive” on the total $5,550.

Here’s how math works out.

Your new tuition is going to be $5,550.  If a parent pays by credit card, there will be a charge of around 3% for the credit card company, and that equals $166.50, so you’ll be left with $5,383.50.  Deducting the $350 for the financial aid fund brings that amount to $5,033.50, which a little higher than your original $5,000 cost per student.

If they don’t pay by credit card in one payment, they’ll get a 2% tuition reduction, or $100, leaving $5,450.  Deducting the $350 for the financial aid fund brings that amount to $5,100, which is still above your original $5,000 cost per student.

So what’s that additional $50 for if the $500 goes for creating financial aid and covering credit card costs?  You can use some of the surplus funds generated to cover the cost for families to enroll in a FACTS payment plan to serve all (yes, all) families.  Remember, these are per student costs, and FACTS’ fees are per family!  By doing this, your school has covered the cost of FACTS at your school.  Also, since FACTS has no additional cost for follow-up, if you choose to set a late fee, that’s can be the start of a new revenue stream for your school!

But what if a family is receiving financial aid?

Let’s take another look at that example of the child with $2,000 of financial need.

That child’s tuition would be $3,000 + $550 to amount to $3,550.  $350 still goes to the financial aid fund, leaving $3,200 of revenue from that child.  If the $3,550 is paid with a credit card, 3% of $3,550 is $106.50, leaving you with $3093.50 in revenue for that student.  As long as that figure is above $3000, you have the funds to pay for a family’s payment plan on FACTS.  In this case, if a payment plan costs $55, and the financial aid fee is $45, you’re only using $1.50 for that student…which is less than losing $1000 on a student if your tuition is $4,000, but your cost of education is $5,000 per student.

Will these changes sit well with your current parents?  If you tell them tuition is going up so that you can provide financial aid or pay for a billing program, then the answer to that question is “No.”

However, if parents see enhancements in the school curriculum which can come from development resources, see improvements in the school’s learning environment, or see some structural realigning regarding leadership responsibilities, then cost decisions can be justified.

Notice each of those phrases contain the word, “see.”  Just like an open house, a tour, or photos on your Web site, parents today need to “see” improvements to enhance an already positive experience at your school.

Improvements cannot be “behind the scenes.”  They need to be “experienced.”  Otherwise, it looks like it’s the same old same old, only with a higher price tag.

There are additional elements to these thoughts to create a true “Sustainability-based” tuition program, including revenue per student, a step-down tuition payment incentive, the first student flip, budgeting for financial aid and scholarship goals, and the timeline for tuition capture and aid application.

Why?  Because you can’t just change one element, and expect everything else to remain the same.

Training on this new way of considering tuition setting and capture will be provided through STAFFAdvancement.com.  Check out the site at https://staffadvancement.com if you haven’t seen it yet!