Private School Fee Increases and the KHDA's Education Cost Index

This week the KHDA published its annual Education Cost Index (ECI) which determines the maximum amount by which private schools in Dubai can increase their fees. The ECI is set at 2.4% which means that 

• 'Outstanding' Schools can increase their fees by 4.8%  (2.0 x the ECI)
• 'Very Good' Schools can increase their fees by 4.2% (1.75 x the ECI)
• 'Good' Schools can increase their fees by 3.6% (1.5 x the ECI)
• All other schools can increase their fees by 2.4% (the ECI).

The issue of increasing school fees and making money out of educating children is an emotive one. The ECI is an important mechanism to protect parents from organisations profiteering from education. Ultimately, parents are reticent about moving children from the schools in which they are settled because of fee increases. 

ECI Theory and Practice

In theory, the ECI incentivises for-profit organisations by allowing those schools who have invested in achieving high standards to increase fees by a higher rate. However, it may argued the unintended consequence of this is that good schools have the income to get even better, whereas weaker schools are caught in a poverty trap by not having the capital to make necessary improvements. 

Where does the money go?

Much depends on where the additional income from the fee increase goes: whether it is reinvested in the school (as it is in full in the not-for-profit schools) or whether it goes to line investors' pockets. All schools should be transparent about the percentage of school fees that goes on profit to the investors so that prospective parents can make informed choice of school. 

At JESS, Dubai, we publish these data on our website and 100% of any annual surplus is reinvested in the school.

Middle-classes 'being priced out of boarding schools'

Research published by the Good Schools Guide indicates that school fees have risen around about a third in the past six years alone in some schools with the consequence that the Middle-classes are 'being priced out of boarding schools' [See Daily Telegraph article 22/01/2011].

At Berkhamsted, we have certainly begun to see effects of the recession hitting those families who are no longer willing or able to afford the fees at the boarding schools. The most obvious indication of this is that we have seen an increase in applications at 13+ from Prep Schools, such as Lockers' Park, Swanbourne House and Edge Grove, schools that traditionally 'feed' the large national boarding schools.

At £16,200 p.a. it is not surprising that increasing numbers of parents are seeing Berkhamsted as a very real alternative to sending their children away to the national boarding schools. Afterall, Berkhamsted has retained many characteristics from its boarding past, such as the House-based pastoral system, Chapel, a CCF and an extensive games programme; it still offers weekly and flexi boarding and has excellent facilities and opportunities for its broad co-curricular programme.

The consequences of this are that this week we had record numbers sitting our entrance exams, the quality of the entry has gone up and we are having to turn away significant numbers of applicants who meet our entry requirements. This all means that there are some very difficult decisions for us to make in the next couple of weeks.

Are "top-up" fees the way to higher school standards?

According to the OECD's PISA Survey Britain's independent schools are some of the very best in the world. Sadly the same cannot be said of our Maintained sector. Despite numerous Government initiatives and significant investment over decades, the British education system remains polarised. There is no middle ground.

However, Paul Collier, the Professor of Economics at Oxford University and author of The Bottom Billion, argues that there is a simple, cost-effective way to close the gap between the very high quality, expensive Independent Sector provision and that in many Maintained Sector State Schools. Professor Collier argues that it is the ban on "blended funding" that causes the "Educational Apartheid" that is the British system of schooling.

Professor Collier maintains that, if parents were given education credits [equal to the amount that the Government currently spends per capita on Maintained Sector provision - roughly £5k p.a.] and allowed parents to top up that sum, that middle ground providers would enter the market-place providing education in the £7k to £10k p.a. price band. He will be presenting his ideas to Government think-tanks over the coming months and we can look forward to him publishing a number of articles in this important debate.

Professor Collier's intervention is timely, for it comes when the question of top-up fees is a hot topic for Independent Schools. At present, most schools with Early Years provision in their Pre-Prep are reviewing whether or not they are going to remain in the Government's Early Years Funding Scheme [EYFS]. The terms of the Scheme have recently been changed, increasing the number of hours that schools must provide free per week to fifteen. To date, many Independent Schools have been subsidising the Scheme, because the cost of the provision is not usually covered by the funds that schools receive and the Government will not allow any top-up fees to be charged. For some schools this has made sense as a "loss-leader", but the new requirements have increased the costs still further. It is very difficult for schools to justify these subsidies - particularly in the present economic climate. Without the provision for top-up funding, it is unlikely that many organisations will be willing or able to support the EYFS. Sadly, at Berkhamsted, we have taken the decision to withdraw from the Scheme, which was due to cost the school in the region of £60,000 this academic year. If others come to same conclusion, it is likely to mean that there simply will not be sufficient free Early Years provision in the area. It would be a very different picture if the Government were to embrace Professor Collier's approach.

Professor Collier in his own words:
Private v state: here's how to bridge the educational divide Independent 14/01/2010

Independent Education: a worthwhile investment

Research by Kent University and the LSE has concluded that former pupils of independent schools earn 30% more than pupils from schools in the maintained sector.

"Private schools do indeed have a substantial impact on earnings later in life."

The study, which analysed data on 10,000 people from the British Household Study who went to school in the 1960s, '70s and '80s, found that 20% of the pay gap was due to better exam grades and 10% to family background.

"Private schools do indeed provide benefits for some individuals above and beyond those that accrue through qualifications and access to good universities. Whether these benefits come through 'old boy networks', 'old girl networks', through superior careers advice systems, or through unmeasured broad competences that are not captured by formal qualifications, we cannot say."

I am sure that the many parents who are making huge sacrifices to invest the £15,000+ per annum in their child's education will find these data reassuring.

That Independent Schools give young people a competitive edge should not surprise us. Our schools are committed to a broad view of education that extends beyond the narrow confines of the National curriculum and the examinations specifications. It is an education that still provides opportunites for leadership through the Prefectoral system and the Combined Cadet Corps, teamwork in School Plays, competition on the games field; articulacy in the debating society and challenge on expeditions. In other words, our schools are teaching the very skills that employers value [see the National Employers Skill Survey - 2007].

The economics of education: "Independent" versus "Private"

The Daily Telegraph's splash that "Parents turn to 'no frills' private schools due to fears over recession" [12/01/09] is sensational:

Parents are turning to "no frills" private schools as the recession hits middle-class families.

Schools with fees set at a fraction of the national average are reporting increased demand during the economic downturn. Some cheap and mid-market independent chains are even preparing to open new schools despite fears of falling interest elsewhere.

The New Model School Company - linked to the Civitas think-tank - is opening two new prep schools in London charging around £5,000-a-year. Its one other existing school in West London is also expanding.

Robert Whelan, Civitas deputy director, said: "The demand is fantastic. It is a question of finding buildings."

Talks are under way for a school to join the Alpha Schools Group, which has four "affordable" schools in the capital.

Independent School fees are undoubtedly expensive: the average school fee is £11,253 per annum which is a significant amount of money for all but the ultra-rich. Now that money is more scarce parents are right to ask exactly what they are getting for their money.

It obviously sells newspapers to complain about the amount that independent schools charge. However, we are charities and we do not exist to generate profits for our shareholders or investors. The fee levels are there for a reason. When you analyse the balance sheet of any independent school you will find that any surpluses are ploughed back into the school.

Now it might be argued that schools have invested too much in recent years in new buildings and facilities - now we all have sports halls, swimming pools, theatres, art and design centres and so on. However, it should be noted that this particular arms race was fuelled by parents [advised by school guides and newspapers!] going around with a check-list to compare schools. But this world is changing - I suspect the years of infrastructure expansion are over and the age of Foundations to fund bursaries has dawned. This is not only a very positive thing for our schools, but also for the country. Whether reinvested in plant or pupils, all independent school funds go back into the organisation.

When parents send their sons and daughters to an independent school, they are benefitting from years [and, in some cases, literally centuries] of prior benefaction. When a pupil comes to Berkhamsted they benefit from literally millions of pounds worth of investment. Their parents are not paying to service a debt - the fees simply cover running costs, and an on-going maintenance and investment programme that enables us to be the best school that we can be. The same is true of most independent schools in the country.

The irony is that the same is not true of "private schools". For those not familiar with the subtlety of the terminology, I will explain. "Independent Schools" usually refers to those schools who are charities and are Governed by Trusts; as opposed "Private Schools" which are owned either by a proprietor, or, as is increasingly common, by a company. Private Schools operate for profit and their approach is driven fundamentally by an ethos of business rather than of education.

The Daily Telegraph article provides us with a fascinating case study. Ten minutes' research reveals that the 'Alpha Plus Group' comprises some thirteen schools and nurseries and five sixth form colleges. The Group was acquired by Sovereign Capital in June 2002, who developed the group and sold it in December 2007. According to Sovereign Capital, they achieved an 'Exit money multiple' of 5.5x, with which their investors were no doubt delighted. The new owners, Delancy, outline their aims on their website and will no doubt be equally successful:

We look to deliver higher returns without sacrificing security. Our approach provides the optimal balance between risk and reward and consistently delivers success. Indeed over the years our clients have seen highly competitive returns on their investments.

I have no problem with schools being run as efficient business. Indeed, it is important that those of us who run independent schools are good stewards of the inheritance that we have received from previous generations. But I am concerned that parents are sometimes unable to distinguish between those schools which are charities and those which are being run for profit. I believe that we need greater transparency. One way for this to be achieved might be for the Independent Schools Council [ISC] to distance itself from schools that are not charities.

This is not just an issue of profit versus surplus. There are other important factors at work here too. Because family wealth is often tied up in proprietorial schools, they can can simply be here one day and gone the next: Wolborough Hill School in Devon was a case in point. Worlborough , founded in 1877, was a thriving Prep School, with good numbers and a strong reputation in the area, before the owners sold up in the summer of 2004.

Parents can easily determine whether a school is a charity by consulting the Charity Commission website. Parents can access school accounts posted there and thus see how their money is spent and how much surplus is being generated each year. They can also research the financial health of a school and identify schools with significant debt, or, alas, schools that are in trouble.

So "why pay more?"
Well, as far as education is concerned, you tend to get what you pay for. I use the word 'education' advisedly. It is possible to 'school' a boy or girl of prep age for £5,000 p.a. Whole-class teaching in the younger years is much cheaper and easier to provide than secondary education, where a number of specialist teachers are required. Education becomes much more expensive when it comes to GCSE and A-level, where schools need to offer a diversity of subjects. This is why large schools are able to offer more A-level subjects than smaller schools. Independent schools are able to provide suitably qualified specialist teachers - and you get what you pay for here too. Salary levels in independent schools are higher than in maintain sector schools, but so are expectations of what is required of them.

But there is more to an 'education' than just teaching and examination results. Independent schools set out to develop the whole person, be that on the games field, in the concert hall, on the stage, in after-school clubs, in the CCF, on Duke of Edinburgh Award expeditions, on trips and tours. It is these co-curricular aspects that complete an education.

In the current economic climate, not all parents will be able to afford an independent education and it is a sad reflection on maintained sector provision that "private schools" are filling the gap.

"Private" versus "Independent"?
"No frills" Schools - perhaps; "No frills" Education - never.