How Annual Tuition is Determined

How Annual Tuition is Determined February 2017 Tuition is set each year after significant discussion and evaluation of a variety of metrics by Collegiate School’s Board of Trustees and administration. When setting tuition, we are mindful that a commitment to an independent school education comes with sacrifice and that our families find it increasingly difficult to plan when tuition increases are unpredictable. We take the tuition-setting responsibility seriously, and decisions around tuition come after several months of analyses and deliberation. Our tuition-setting efforts are guided by three commitments: To examine carefully school operations, including tuition and expenses, while remaining steadfast in supporting our strategic priorities; To provide our families with more predictability by utilizing an overall tuition pricing approach more closely linked to inflation; and To minimize the use of new tuition dollars to fund new initiatives by working to reduce current program and other expenses, and to use these savings, together with funds from other sources, to fund new strategic initiatives.

Phyllis Palmiero, Vice President for Finance & Administration

TUITION-SETTING PROCESS COMPENSATION COMPENSATION BENCHMARKS BENCHMARKS

STRATEGIC STRATEGIC GOALS GOALS AND INITIATIVES

INFLATION

TUITION

MARKET MARKET POSITION POSITION

NON-TUITION NON-TUITION RESOURCES RESOURCES

OPPORTUNITIES OPPORTUNITIES FOR COST COST FOR REDUCTION REDUCTION EFFICIENCY && EFFICIENCY

Each fall, the School’s administration and Board of Trustees work together to identify the School’s needs for the next academic year. These discussions are guided by our strategic plan. As we consider school needs and their potential impact on tuition, we study carefully several factors, including inflation, compensation and tuition levels at local and national peer schools. After considering these factors and before setting a tuition increase, we analyze diligently our internal operations looking for opportunities to reduce current program and other expenses and re-direct those savings. Finally, we thoughtfully consider other funding sources, such as donor funds, that could be used to minimize the impact on tuition. After all of these steps have been taken, tuition is set.

Factors Influencing Decision-Making Around Tuition INFLATION One factor in the tuition-setting process is inflation. There is no one ideal measure of inflation that captures well the independent school sector. Therefore, the School uses three inflationary indices:

tend to rise faster than those in productoriented industries. In projecting the CPI-U for the period covering the 2017-18 school year, we have used several recognized sources.

and services purchased by independent schools. Over the past decade, the HEPI has been, on average, 1 percent greater than the CPI-U. 2

ISM’s 2 Percent Factor. Independent School Management (ISM), a management-support firm for private-independent schools, believes tuitions must rise faster than the CPI-U because of what 3 is called, “Baumol’s cost disease.” William Baumol, a renowned economist at New York University, developed data that showed costs in service-related businesses rise faster than those in productoriented industries because service-related businesses are heavily labor-intensive

1

Higher Education Price Index (HEPI).

The second inflation index used is called the Higher Education Price Index or HEPI. Unlike the CPI-U, the HEPI measures a fixed selection of goods and services that typically contribute to college costs. This index tracks college faculty and staff compensation; salaries and benefits for nonprofessional personnel; contracted services; library acquisitions; and utilities – similar in ways to many of the goods

The Consumer Price Index – Urban. The most common inflation index is the Consumer Price Index - Urban (CPI-U). The CPI-U, while valuable as an inflationary metric, is not necessarily a perfect match for inflation for independent schools. The CPI-U is based on prices contained in a market basket of goods that are production-oriented. Costs in service-related organizations, like Collegiate School,

$28,000

INFLATIONARY FACTORS OVER TIME 6.00% 2% FACTOR PROJECTED

5.00%

4.00%

HEPI PROJECTED

3.00% CPI-U PROJECTED

2.00%

1.00%

0.00% 08

09

10

11

12

13

14

15

16

17

18

INFLATION AS A $26,000 FACTOR IN 2017-18 $24,000 For 2017-18, the CPI-U is $22,000 projected to be 2.24 percent. $20,000 The HEPI is estimated at about$18,000 .97 percent higher than the $16,000 CPI-U, or 3.21 percent and the $14,000 2 Percent Factor is therefore $12,000 projected to be 4.24 percent. $10,000 Using these inputs as factors in our decision-making, the goal is to attempt to keep the 2017-18 tuition increase within these inflationary ranges.

MARKET TUITION AT ENTRY POINTS 2016-17 Collegiate

School 1

School 2

School 3

School 4

$28,000

with little opportunity for growth in productivity. Thus, to maintain an equivalent operation, year-to-year, ISM recommends that schools use a factor that is at least 2 percent greater than inflation (CPI-U) to cover the additional inflation that comes with schools.

$24,980

$26,000

$23,380

$24,000 $20,820

$22,000 $20,000 $18,000 $16,000

$15,500

$14,000 $12,000 $10,000 JK

We study carefully these three indices, and it is our goal to keep tuition increases within these inflationary ranges.

COMPENSATION Another factor that is important in setting tuition is compensation. Our school has long been committed to attracting and retaining the very best educators to work with your children. It is one of our most important strategic goals. As highlighted in the report Collegiate School’s Operating Budget: Where the Money Comes From and Where It Goes, updated in January 2017, 70 percent of the School’s expenses are for the salaries and benefits of our faculty and staff; thus, compensation is our major budget driver.

The School uses local, regional, and

Kindergarten

national benchmarks to make certain that our faculty is competitively compensated.

We carefully examine the local market, ensuring that we are competitive with local public school systems. We utilize data from the Virginia Association of Independent Schools (VAIS) to understand Virginia’s independent school market.

Finally, Collegiate studies data collected 4

by INDEX , a national benchmark group of 50 co-ed day schools. In our analysis, cost-of-living adjustments are made where appropriate.

We consider all of this benchmark data when evaluating our faculty salaries, benefits and overall compensation. Using this approach, our efforts over the years to compensate Collegiate faculty competitively have worked well and in aggregate,

Middle School

Upper School

our faculty is well positioned relative to our benchmarks. Because attracting and retaining faculty is one of our most important strategic objectives, competitive compensation remains a high priority and is an essential factor when considering tuition levels.

MARKET POSITION We are very deliberate in ensuring that Collegiate School’s tuition is competitive relative to the local market. For example, the above graph depicts how Collegiate compares in the current year relative to several local independent schools. We also use our INDEX benchmark group to understand tuition nationally, especially for those peer schools offering comparable programs.

1 https://www.commonfund.org/commonfund-institute/higher-education-price-index-hepi/ 2 Independent School Management, Ideas & Perspectives, Vol. 41 No. 11, “Appropriate Tuition Adjustment: Recasting Financial Figures, 2016–17,” Sept. 5, 2016.

3 Ibid.

4 Independent School Data Exchange (INDEX), 2016

Strategic Priorities

2017-18 TUITION INCREASES AND OPERATING BUDGET SUPPORT With tuition increases averaging 3.12 percent, the 2017-18 operating budget earmarks 100 percent of those increases to support the important goal of attracting, retaining and developing the very best educators to work with your children. In addition, the budget also supports several other important strategic initiatives including:

Enhancing curriculum, particularly around STEAM, Responsible Citizenship and Wellness Ensuring that we know each student well and helping maximize each student’s potential by reducing the maximum class size in several Lower and Middle School grades Providing enhanced instructional technology including access to age-appropriate devices in Grades JK-8 and supporting implementation of a Bring Your Own Device (BYOD) program in the Upper School Providing for an enterprise-wide, integrated data management system Enhancing campus safety and data security

THE SCHOOL’S COMMITMENT TO FUNDING ITS INSTRUCTIONAL PROGRAMS

Provided our families with more tuition predictability by keeping true to our inflation-based tuition model; Met our competitive faculty compensation goals within the tuition parameters set; Examined carefully school operations while remaining steadfast in supporting our strategic priorities; Reallocated existing funds to strategic priorities and continue to meaningfully redirect funds from overhead to instruction; and, Met all surplus and transfer requirements prescribed by the Board.

1 Independent Data Exchange (INDEX) 2016 2 Charity Navigator = 75 percent or more of nonprofit budget be spent on programs and 25 percent on overhead; BBB Wise Giving Alliance = 65 percent or more of a nonprofit’s total expenses be spent on programs; IRS=80 percent of an nonprofit organizations expenses be spent on core mission (prior to 2010).

22%

24%

20%

22% PERCENT

20% 18%

12%

16% 14%

16% 14%

18%

Collegiate 46

Collegiate 12% 46 10%

10%

8% SCHOOL

8%

SCHOOL’S COMMITMENT TO SCHOOL INSTRUCTION INCREASES

70% PERCENT OF BUDGET DEDICATED TO INSTRUCTION

IN SUMMARY, WE HAVE:

24%

70% PERCENT OF BUDGET DEDICATED TO INSTRUCTION

PERCENT

In the last three years, the School has meaningfully reallocated existing funds from overhead to instruction. There has been a deliberate shift of more than 2.4 percent, or more than $1 million, to directly support the instructional program of the School. When looking at the School’s commitment to instruction, as expressed in terms of its financial investment, Collegiate ranks 46th out of 50 national peers, that is the 5th lowest of all peers, in administrative spending as a percentage of total school spending. In fact, the School dedicates more than 86 percent of its budget to its core mission of instruction and only 14 percent to overhead. When comparing to various nonprofit standards, ranging vastly between at least 65 to 80 percent dedicated to core programs, Collegiate’s 86 percent is far greater than any nonprofit metric published today.

ADMINISTRATION EXPENSE % TOTAL OPERATING EXPENSE

65%

65%

60%

60%

55%

55%

FY 16 ACTUAL

THE 2.4% SHIFT TO INSTRUCTION EQUATES TO OVER $1 MILLION THE 2.4% SHIFT TO INSTRUCTION EQUATES TO OVER $1 MILLION

FY 16 ACTUAL FY 17 REVISED BUDGET

FY 17 REVISED BUDGET

FY 18 PRELIMINARY BUDGET

FY 18 PRELIMINARY BUDGET