Sustainability? No, I am not talking about helping Al Gore improve the charts shown in his next presentation. I am talking about the tough questions that need to be asked during the tough times we find ourselves in: times in which the public markets do not seem to be correlated with the average person’s experience with continued depression in housing prices and difficult times in the job markets. [In fact, as I write this, I see that, for the first three months of 2011, 28% of all home sales were accounted for by foreclosure. Obviously, some people as still losing what they thought would be significant assets whilst others are picking up what they hope will be homes at fair new values.] If you are looking at sending your child to an independent (otherwise known as ‘private’) school, especially starting during the younger years of the Lower School, and expecting to stay for the long term through graduation, it might be wise to investigate with far more due diligence than the average list of compatibility questions would answer.
As with real estate, the environment that a school faces is highly location-dependent. However, it can be said that, in general, schools covering the spectrum of K through 12 have been turned on their heads in recent years. Not long ago, prospective parents were faced with waiting lists when attempting to enroll at an early age, and if you did not know someone at the school to make a greater connection – or, better yet, already have another child at the school – then, good luck getting in. This fact also produced a financial support system for the school where, in general, the Lower School was the base of the financial pyramid of stability, with the Middle and Upper Schools resting on top, enjoying the strong wind in the sails at the bottom. In recent years, however, this pyramid has been turned completely upside down. Due to the economy, combined with – or actually resulting from – demographic changes, the Lower Schools have generally had extreme difficulty in filling out classrooms, and successful institutions have had to respond quickly to focus on the Upper School as economic leaders to keep the wind in their sails. In other words, keeping with the sailing metaphor, they needed to tack in order to keep going in the correct overall direction.
Some sample questions to ask:
Before getting into the list of questions, I need to offer two points of wisdom. First, these are, more than likely, questions that the usual Admission people will have no clue about how to answer. They should be able to direct you to the people who will; and, if not, that could be a warning sign in itself. Second, I know of no rule book on what questions might be off-limits, so be prepared to accept the fact that some answers might be confidential in nature, and therefore either will not be disclosed or will be disclosed on the assumption that you will not disseminate the information further. Now, on to the questions:
- What is the school’s annual budget, and has the school been running a balanced budget?
- How many of the past five years have ended with a negative surplus?
- How large is the annual fund, and what is the average gift size?
- How is the annual fund used? Operations? Reserve capital? A combination of both?
- How many families or institutions could be considered as the largest donors (in whatever form), and what are their average total gifts?
- How much debt does the school hold on its books (including all forms of debt, be it bank loans, mortgages, etc.)?
- What is the term of the debt, and what is the general philosophy with regard to debt? (Is the school looking to be debt free at some point?)
- Are there any internal loans from the endowment to operations?
- How much reserve capital does the school have in cash? (From an NAIS presenter, a good rule of thumb is that 20% of the operating budget should be in reserve.)
- Without getting into the details of pay rates, how does the school approach the subject of being competitive with salaries to attract faculty and staff?
- How has the school managed benefits over the past several years? Have they increased, decreased, or remained the same for employees?
- How large is the endowment, what is its history, and who manages the investment?
- Does the parents association manage fund-raising events during the year? If so, how much do they raise, and is there any material to review (such as an ad journal for an annual gala fund-raiser)?
- Describe the past capital campaigns. How much money was needed? Where did it come from? Were the fund-raising goals met?
- What future capital campaigns is the school looking at, and what are the priorities?
Though there are no correct answers to the above questions, they should provide a great start for understanding how financially sound the school is to maintain and enhance its course through the future, regardless of whether times get tougher or the economy slowly improves. There are many references on the web to help gather ideas for finding the school that will be the best fit. The list above, however, will help you answer a question that’s just as important: namely, whether the school is at risk, or whether it’s likely to be around for as long as you hope it will. Obviously, no matter how difficult a present-day snapshot may seem, it does not automatically translate into destruction for the future. However, in the end, if not making actual profits – regardless of the title – schools as businesses must at the very least break even in order to continue to exist. Though they have no shareholders to reward with dividends and growth, they still need to generate the financial stability to fulfill their missions.
These are 501(c)3 organizations, so look at the public data!
GuideStar can be your best friend when trying to understand the inner financial workings of a private school. Registration is free, and though there are premium reports available for a fee, the base information from the IRS is available at no charge. Find the organization you are looking for and drill down on the Forms 990 & Docs tab to access the yearly Form 990 filings. Even without a financial background, you should be able to make interesting comparisons between target schools. Of particular interest is line 19 in the expenses section: “Revenue less expenses.” In other words, is the ‘not for profit’ organization running a balanced budget? Is it throwing off enough cash to keep in reserves? Whatever you see on these sheets can be the basis for more detailed questions to ask the institutions you are interviewing. Remember, do not be afraid to ask! The worst case is that they will indicate that the information is confidential and cannot be shared. If you run up against this block, it is something to be respected, and I would not suggest playing the generosity of someone else’s information against them.
In addition to more detailed questions you might think of, I would strongly suggest still using some of the sample questions above, just as though you had never logged onto GuideStar. Though some of the answers might come through the figures on the IRS documents, there is simply no substitute for hearing hearing how the school might talk about the information being requested. In other words, how it is presented in person might give a much larger story than the cold figures alone could generate on a piece of paper.
Other things to ponder about while thinking different:
With all of the focus on technology, some schools seem to be giving up on the hands-on experience. On the extreme side, with the disappearance of votech (vocational-technical) offerings in mainstream schooling, students who are not fit for college are offered little in the way of easy paths to successful careers. Though one might think that this is a far step from private schooling, one should realize that the hands still can do amazing things. A quick read on the subject is the article: “Why Shop Class is Still Relevant”. Though it might not be shop class you are looking for in an independent school, you might be surprised when you add this lens to the list of comparisons you will be making for the schools you visit.
A lot of parents also focus on the matriculation stats of the graduating class. What I would love to see are these statistics broken out by ‘lifers’ (students who joined the school from Kindergarten and stayed for the term) vs. students who entered the school late in the grade selection process, or who have otherwise been filtered out through present knowledge of successful siblings. In other words, how effective is a school at creating an outstanding student as opposed to selecting already outstanding students later in the process? With the seemingly ever-increasing challenges of Lower School enrollment, it would be great to understand hard data on this subject and where one’s money is best spent. When given an economic choice, people like Harry S. Dent, Jr. would say: save, and spend it on higher education, as the dollars do not deliver the impact at value on K through 12. I personally do not know what the answer is. It would be a great problem for Steven D. Levitt and Stephen J. Dubner to discuss at some point. Until they do, let your personal situation and your gut decide. For me, the key factor in going down the private route is the smaller class size, access to more resources (that we have seen cut in the public environments), and the greater ability to stay connected as parents. Then again, if private schools were able to find the magic formula to fill their institutions with the outliers seen in the likes of Jaime Alfonso Escalante Gutierrez (and stop the craziness of their seemingly being persecuted for their success), then it would seem that no amount of money would be too much for tuition. Alas, until Malcolm Gladwell writes the book focusing on outliers for education, I think we need to rely on our own due diligence, gut feelings, and reference checks to gauge how capable the faculty really is.
For those looking for a silver lining in the changing demographics and economy, the good news is that it might become a lot easier to get into college in the future. “Will Colleges Receive their Own Rejection Letter?” is an out-of-the-box look at what might be in store for the future of higher education. The link points to a brief overview of the March 8th, 2011 issue of The Socionomist. Those interested can look into how they might be able to get a copy of the back issue from the website.
Related articles
- Private schools call in debt collectors to chase millions in unpaid fees (guardian.co.uk)
- TurboTax – What Is the IRS Form 990? (turbotax.intuit.com)
