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 It’s
enough to make a CPA cry: a business that charges less than its
cost of production.
But, when it comes to private elementary and secondary schools in
the area, annual tuition fees cover just a part of the real cost
of educating students.
“Private schools do something very odd,” observes Gary M. Mudd,
director of development for the Whitfield School. “They don’t really
charge what it costs.”
Mudd, who is a certified public accountant, notes that the disparity
between tuition and the actual cost of education means that every
one of Whitfield’s 450 students, no matter how well heeled “is on
financial aid.” He explains that Whitfield’s annual tuition is $15,975,
but the true cost of educating each student is $18,200. That means
that each student is essentially being underwrittten by $2,225 each
year, Mudd says.
So, who’s doing the underwriting? Ironically, it’s probably the
same parents who are paying the tuition, and they are typically
making up for part of the difference—and sometimes more than the
difference—through a mechanism known as annual giving. Annual giving
is not tuition; it’s philanthropy, and it’s a gift that usually
means an income tax deduction for the parent or other contributor.
School development officials say annual giving is the price to be
paid for keeping tuition affordable.
“We want to keep our programs affordable to families, while not
sacrificing the quality of our educational programs,” explains Howard
E. Berner Jr., Treasurer and CFO of Principia, a school that provides
education for children through high school at its west St. Louis
County campus and college education at its Elsah, Ill. location.
While affordability is a relative term (Tuition for a middle school
day student at Principia runs about $8,500 a year.) Berner says
tuition would be much higher without annual giving, endowment income
and other gifts. Principia, Berner says, has an annual budget of
$40 million for both campuses, and student tuition and fees cover
only 20 percent of operating costs.
That is a much lower percentage than most private schools, which
typically cover 70 to 80 percent or more of their operating expenses
through tuition. Whitfield’s tuition covers 80 percent of the cost
of education. At John Burroughs School, tuition covers 70 percent
of the cost, says Dr. Keith E. Shahan, headmaster.
Burroughs tuition and fees are $14,600 and would be $20,500 without
annual giving and other income, Shahan says. “It’s a huge gap.”
John
Burroughs School is one of many area private schools
that count on annual giving to meet operating costs.
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While tuition for a parent of a child not receiving financial aid
is mandatory, annual giving by parents is voluntary—sort of. Annual
giving campaigns at private schools, officials say, are major ongoing
activities that typically include parent presentations, informational
mailings, parent coffees, direct solicitations, and phone calls
to parents by campaign volunteers, usually other parents. The pressure
to contribute at least to the level of the so-called tuition gap
can be enormous.
“Annual giving can come across poorly, if not handled correctly,”
concedes Whitfield’s Mudd.
“We don’t expect every parent to pay that (gap amount), but we expect
parents to pay according to their means,” Shahan acknowledges. “Our
parent gifts range from $10,000 to $20,000.”
At Principia, which has a large $400 million endowment, Howard says,
“We don’t overemphasize giving to parents, but ask them to give
to the extent of their capacity and interest. We recognize that
some parents are young and can’t give as much as others, but we
think that, if we do the right things educationally, there will
be a sufficient supply to meet our needs.”
At Whitfield, Mudd says “we have a dialogue with parents at the
time of admission that everyone is expected to participate. After
admission, we realize that every family’s financial situation is
unique. Just as we ask our students, we ask our parents to be nice
and do the right thing.”
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John
Burroughs School |
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Shahan says that 95 percent of Burroughs parents participate in
annual giving. Last year, that totaled nearly $1.3 million, covering
approximately 13 percent of the school’s $11 million operating budget.
Another 16 percent of the school’s operating expense came from endowment
income, according to school figures.
Whitfield, Mudd says, has just a small endowment and reinvests all
endowment income earned. “The annual fund must bridge the entire
gap between tuition and the actual cost of educating a Whitfield
student.”
Whitfield is also nearing the end of a three-year, $16 million capital
campaign to improve facilities. “That’s pretty incredible, considering
that the most we raised in the school’s history of close to 50 years
was just over $14 million,” Mudd says. Funds are going toward a
new athletic complex, library, classrooms and a performing arts
center.
Principia collects about $2 million each year through annual giving,
says Berner who adds that the annual campaign “is one of the giving
opportunities that we have, but not our largest source of gift funds.”
While parents may view annual giving as another financial obligation,
Mudd says that, unlike tuition, gift amounts may vary from year
to year and can be paid in a variety of ways and at different times.
“Annual giving helps parents even out the ups and downs that occur
during the course of a year.”
Administrators also note that annual giving tends to redistribute
wealth among school families. At Burroughs, about 20 percent of
students receive need-based aid, and the average aid award is about
$9,000, Shahan says. A lot of that money comes from annual giving,
he adds.
Private schools also generate income through other gift-giving opportunities
including alumni drives, memorial and tribute funds, endowed memorial
scholarships, charitable remainder trusts, charitable lead trusts,
transfer of life insurance, gifts of real estate, and other bequests.
Now that’s enough to make a CPA smile.
William V. Poe is principal of Poe Communications, a St. Louis advertising
and marketing communications firm.
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