CEO Notebook |
Over the last few months, I’ve been invited to participate in numerous conversations regarding the financial impact of the pandemic on independent schools. During these discussions with industry leaders and observers, three dominant themes emerge.
The first is the clear recognition that many schools were experiencing financial fragility prior to the pandemic. At individual schools, whether that fragility was driven by enrollment decline, reduction of full-pay families or increasing expenses, COVID-19 only accelerated the financial pressure for many schools.
In the next category is the concern that schools will “snap back” as soon as possible and pursue the normalcy they recall prior to the pandemic. This is understandable because there is a lot of pressure to relieve the stress of the frenzied past year for faculty, staff and students, and allow them to regain an equilibrium. Parents may also be a strong driving force in this scenario because they too want life to resume as they once knew it — and for the school to operate as it did when they made the decision to enter the community. This scenario may unfortunately ignore the financial challenges some schools faced prior to the pandemic because those challenges have not gone away, even if they are masked by an inflated enrollment during the pandemic year(s).
Then there is the third rail, or plank if you will, which is school leadership teams looking to create the “next normal” by assessing what worked particularly well during the pandemic that should be retained because it has enhanced delivery of education, improved faculty and staff wellness or even perhaps placed the school in a more favorable financial situation than before. Some may find it hard to fathom in this moment, but these innovations are occurring, and it’s prudent to take notice and share.
Therefore, I read with great interest a recent story from Inside Higher Ed regarding Endicott College, a small private college of approximately 2,800 students in Beverly, Massachusetts. A recent press release from the college noted its endowment had grown to an impressive $119 million, it did not place any faculty staff on leave during COVID-19 and it maintained a consistent enrollment during this tumultuous time in higher education (they were even able to maintain a study abroad program). Since independent schools have much in common with private liberal arts colleges like Endicott (tuition dependent, relatively small class size, etc.), I thought it may be helpful to share a few relevant takeaways from this useful case study.
Maintaining low debt levels. First and foremost, Endicott entered the pandemic with a philosophy that paid off greatly, combined with other factors. It has a long history of maintaining low debt levels and minimizing recurring debt, and this allowed the institution to build up healthy cash reserves. We know now many of our independent schools identified this as an early warning sign when they needed liquidity to invest in technology, testing, PPE, materials for barriers and other unanticipated expenses necessary to manage the impact of the pandemic on their campuses.
Student retention. Endicott admitted its largest class in 2019, comprised of 820 students. It went into the pandemic from a position of strength, but it was clear that having students on campus amidst the pandemic during admissions season also played a key role in Endicott maintaining its enrollment. Parents commented positively regarding the student life they witnessed during tours, which certainly wasn’t the case on all college campuses this past fall. According to Endicott President Steven DiSalvo, the deposits for the coming year are tracking ahead of budget and anticipate another strong admissions season. This is thanks in large part to the implementation of a rigorous testing program for faculty, staff and students on a weekly basis. The commitment to the health and safety of the campus produced an enrollment boom because of the college’s ability to showcase student life and how it was thriving despite environmental factors. We know this is the case for independent schools that were able to maintain safe on-campus learning as well.
Modest aid allocation. Another factor that will help Endicott maintain a strong financial position following the pandemic is a historically low discount rate compared to its peers. On average, Endicott discounts tuition at 38% compared to an average peer school that may discount as high as 51.2%, according to the most recent NACUBO Tuition Discount Study.
Demographics. Endicott has certainly benefitted from the makeup of its student body, which is 82% white, and represents students and families disproportionately less impacted by the financial tolls of COVID-19. However, Endicott also prioritized resources by refunding $9.2 million in prorated room and board fees and gave families options to apply the credit toward future room and board or donate it to a fund to help students in high financial need. This strategy helped generate $250,000 in additional resources and protected the college’s operating budget.
Non-tuition Revenue. Another feather in Endicott’s cap was its ability to generate non-tuition revenue by leveraging its beautiful campus for special events, particularly weddings. It hosted 127 nuptial celebrations the year prior to the pandemic, and the resulting revenue reflects nearly 20% of its entire annual auxiliary budget revenue.
The lesson from the case study could be seen as illuminating or nothing new. However, I would encourage all of us to treat it as the former. The educational institution that takes a disciplined, strategic approach to debt, tuition discounting, student retention and non-tuition revenue streams will demonstrate its financial strength and permanence following a once-in-a-century pandemic and stand apart from those that falter in this moment. And while each individual component may not reflect a new approach or a magic bullet, combined they tell a powerful story from which all of us may learn. Therein, attention must be paid.
Benchmarking the Pandemic’s Financial Impact (Mar/Apr 2021)
Projections: Powering the Flywheel (Mar/Apr 2021)
Metrics for the Multiverse: Measuring School Financial Health (Jan/Feb 2021)
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