The Hard Truth about Tuition Pricing

For more than a decade we have heard complaints about perpetually rising tuitions from independent school parents and trustees alike. Everyone who complains has a different villain to blame, but the fact that galvanizes everyone is that tuitions are rising faster than inflation and have done so for at least 60 years. Thanks to William Baumol and his "cost disease" formulation, we know a big part of why this has been the case: simply put, in an industry with a fixed labor ratio (a limited number of students to each teacher), prices have to rise a couple of points beyond inflation just to keep salaries competitive with industries where productivity has increased.Parents and trustees usually don't know much about Baumol, nor do they appreciate the pricing constraints of working in an industry that, thus far, has been immune from using technology to leverage productivity. What they usually blame are a rising (they usually use the word :"bloated") headcount of administrators and non-teaching personnel, and boards that must been stashing away cash for some alternative purpose (usually nefarious).The reality is very different. Data available through NAIS and other sources shows that, yes, there are more administrators and non-teaching personnel now than, say, 30 years ago. But a deeper analysis reveals that almost all of these were added either to meet regulatory requirements (actually the smallest fraction) or parent expectations for expanded services. In fact, our scan of two dozen large schools shows that most headcount gains have occurred in the following areas:

• Shift from teacher-coaches to outside coaches hired just for that purpose;
• Counseling and psychotherapy services;
• Learning support and academic coaching;
• University admissions advising; and
• STEM fields.

With the possible exception of learning support, all of these are "table stakes" for schools; that is, services that parents expect to have bundled in with the whole school package, rather than priced extra. What this means for those wanting lower tuitions (or even lower tuition increases) is that they must get comfortable with one or all of the following:

• Fewer services, especially from smaller schools, meaning narrow specialization and some nice-to-have things not available at all schools;
• More services priced on an a la carte basis; e.g., learning support and athletic coaching;
• Higher ratios of students to teachers; and
• Increasing use of alternative delivery technologies; e.g., flipped classrooms and online learning.

Tough choices, to be sure, but we can't manage tuition without making them. Until we find a way to make these decisions and have some tough conversations with teachers and parents, we might as well just resign ourselves to CPI+2 or 3 pt increases in tuition. In perpetuity.