Tuition Change and Enrollment Demand: A Replication Study
Independent School Management (ISM), the National Business Officers Association (NBOA), and Measuring Success have collaborated to update a study and methodology originated in 2006 by Measuring Success and repeated in 2011 by Measuring Success with ISM. These original studies suggested no statistical relationship between tuition increase and enrollment outcome. The current findings strengthen those studies in several ways.
- The study changed enrollment outcome variables from lagging to leading metrics. Leading indicators—such as applications for admission, selectivity in admission, tuition-assistance offers, and enrollment yield—are more sensitive to market demand than year-over-year net enrollment changes.
- The time-series (longitudinal) regression analysis was made more robust to provide a clearer picture of relationships among variables.
- The study involved significantly more schools: 259, up from 140.
- The number of factors outside a school’s control was expanded, e.g., birth rate, strength of public school districts.
- Schools were examined both by division and by whole school.
As in the two previous studies, no correlations, positive or negative, were found between changes in tuition level and in enrollment demand. For example, a school increasing its
tuition at 4% per year could be expected to have had the same enrollment levels that it actually experienced, even if it had increased its tuition only 3% per year, or, alternatively, 5% per year. The correlation is zero. (An individual school might have had a nonconforming experience, of course, but this would make the school a statistical anomaly.)
Among the new variables studied in the latest project—for example, changes from division to division, changes related to applications, changes in tuition-assistance levels—none provided outcomes different from the whole-school outcomes. No statistically significant relationships developed.
Please note, however, that among schools whose tuition levels fell in midrange (neither high nor low), there were inconsistent outcomes when contrasted to the consistency of outcomes with high- and low-tuition schools. These midrange tuition-level schools experienced enrollment demands ranging from flat enrollment to more than three percent increases:
- with tuition held constant, 3% enrollment growth was evident;
- with modest tuition increases, lower enrollment growth (not negative) was evident;
- with stronger tuition increase, enrollment growth was strong; and
- with very strong tuition increases, the same 3% enrollment growth was evident that was seen with tuition held constant.
But a cautionary note should be issued regarding these mixed results for mid-tuition-level schools. That is, the net tuition generated—which, after all, is the critical variable, not enrollment itself, in working your school into a strongly cash-positive position—tends to suffer when tuition is held flat, compared with the net tuition generated with moderate-to-high tuition increases. With flat tuition levels, enrollment may move up, but increases in net tuition revenue may be negligible. The consequent overall cash position may be weaker with that approach than with the moderate tuition increases that are associated with lower enrollment increase but higher net tuition.
An exhaustive and enhanced replication of two previous studies of the relationships between tuition increase and enrollment demand has shown yet again that no statistical relationship exists. Your school may be statistically anomalous. But even if you believe that to be the case, ISM recommends that you approach tuition-setting according to these long-established ISM strategic/financial principles.
- Set tuition increases in a multiyear context.
- Insure that your multiyear expense gradient is established before setting tuition increases.
- With your desired school’s characteristics delineated six years out, establish the approximate cost to operate that desired school. Then determine the net tuition increase (over the next five years of tuition increases) to pay for that school with hard income.
- If the resulting tuition-increase calculation is higher than seems wise, then remove items from your postulated “desired school” until the year-six expense figure is low enough to permit a more moderate tuition-increase calculation.
ISM calls this strategic planning/strategic financial planning, and views this as the only legitimate approach to establishing tuition-increase levels. Note that strategic planning (identifying the desired characteristics of your school six years from now) and strategic financial planning (the critical expense and hard-income numbers involved) constitute two sides of a single coin. One without the other has no meaning whatever.
Finally, ISM views this process by way of the ISM Stability Markers. This array of 18 critical variables should be reviewed carefully before engaging in strategic/financial planning. If your tuition increases are set up multiyear to conform to the implications of strengthening your school on the ISM Stability Markers, you will have a justifiable rationale for your tuition increase, year-by-year, and thus a plan that can be marketed to all constituent groups.