Independent School Demand:

What Can’t be Managed, What Can?

Ohio Association of Independent Schools

2008

Jeffery T. Wack, Ph.D.

What is demand?

What drives demand for private schools?

• Where we were.

• Where we are.

An Historical Overview

Remember the Late 1980s?

• Whip Inflation Now (WIN)

• Several years of recession

• Mortgage Rates: 11%

• “Black Monday” October 1987

• Post-Boomer birth-dearth

0%

0% 5% 10% 15% 20% 25%

Day

Boarding

Independent School Enrollment has Grown 20+

% since the early ’90s

Mostly due to new schools coming on line

24%

Number of U.S. students is down; international up

20 Years of Recovery

61%

32%

20% 20%

0%

10%

20%

30%

40%

50%

60%

70%

Inquiries Apps/Enrollee Enrollment Giving

Increases in Indices of Demand

Source: NAIS StatsOnline

But N.A.I.S. Enrollment Growth Varies by Region (1993-2003)

-5%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

East NewEngland

MiddleAtlantic

Midwest Southeast Southwest West

5 year

10 year

NAIS Statistics 1998, Vol 1.

OAIS Trends in Admissions – Slippage (Indicators, per enrolled student)

0123456789

10

Inquiries Apps Accepts

2003

2004

2005

2006

2007

2008

Source: NAIS StatsOnline

What Has Driven Demand for Independent Schools?

This Devil’s Advocate’s View:

Affordability is not the Answer

Key Drivers of Market Demand

Government Policy Demographics Social Forces & Attitudes Competition Economics

External, Uncontrollable

Government Policies

The worse the public options, the better for private schools.

How much respect and confidence do you have in the Public schools?

58%

45%

39%

49%

11%15%

36%

42%40%40%39%

22% 22% 23%22% 19%

22%

26%

0%

10%

20%

30%

40%

50%

60%

1973 1978 1983 1988 1993 1995 1997 1998 1999

Great Deal of Confidence Very Little Confidence

Gallup Organization

And what have been governments’ responses to concerns about public education?

19% 21% 16%23%

16%24% 20% 21%

37%

14%

Public and Parents Are Divided on No Child Left Behind

Very favorable Somewhat favorableVery unfavorable Somewhat unfavorable

Q.13

45%38%

43% 41% 41% 43%

2005 2007 Adults whotook surveyin Spanish

48%40%

Attitudes toward No Child Left Behind

2006 K-12 parents

67%

24%

General public

49%38%

Teachers and Administrators Are Firmly Opposed to NCLB

Very favorable Somewhat favorableVery unfavorable Somewhat unfavorable

Q.13

20%

77%

33%

63%

Attitudes toward No Child Left Behind

Public school teachers

Public school administrators

Grades for the Nation’s Schools Remain at ‘C’

Q.10

A

B

C

D

F

GPA

2001

2%

18%

51%

16%

3%

2.0

2003

2%

29%

47%

13%

2%

2.2

- - - - - - - - - - - - - - - - General Public - - - - - - - - - - - - - - -

The Nation’s Schools

Spring 2007

2005

3%

23%

46%

15%

4%

2.1

2006

5%

26%

44%

15%

5%

2.1

2002

2%

14%

50%

21%

4%

1.9

2004

2%

20%

47%

15%

4%

2.0

2007

4%

23%

44%

16%

5%

2.0

Grades for the Nation’s Schools Remain at ‘C’

Q.10

A

B

C

D

F

GPA

2004

2%

20%

48%

14%

3%

2.0

2001

8%

35%

33%

13%

4%

2.3

- - - - - - - K-12 Parents - - - - - -Publicschool

teachers

Education Stakeholders’ Report CardThe Nation’s Schools

Spring 2007

2006

5%

26%

45%

14%

4%

2.1

2005

4%

27%

46%

12%

2%

2.2

2007

4%

25%

43%

16%

4%

2.1

2007

4%

33%

41%

10%

1%

2.3

2007

1%

41%

42%

4%

0%

2.4

Public schooladministrators

Grades for One’s Own School: Better – But Still Not Great

Q.6, 8, 9

Public School Stakeholders’ Report CardMy Children’s School/My School(s)

Spring 2007

A

B

C

D

F

GPA

Publicschool

teachers

27%

52%

17%

2%

1%

3.0

Public schooladministrators

32%

57%

8%

1%

0%

3.2

Publicschoolparents

26%

41%

21%

8%

3%

2.8

2%8%

13%8%

20%9%10%

12%13%

12%

21%13%13%

18%

23%26%

27%39%

One or two biggest reasons for public schools' problemsOne or two best changes to solve public schools' problems

Public School Problems and Their Solutions

Lack of/need more parental involvement

Lack of/need more classroom discipline

Lack of funding/increase funding

Large class sizes/reduce class sizes

Low standards & expectations forstudents/raise standards & expectations

Unmotivated teachers/incentives to motivate teachers

Too few/need more qualified teachers

Lack of/need more challenging/ interesting schoolwork

Lack of consistent measures of student learning/increase testing

Q.11a,b

General Public

• Variability• Still Large Not individualized• Bureaucratic • Safety• The “Good Kids in the Middle”• Buildings vs Program

In Short, Dissatisfaction Persists

What portion of apps to your school reflects affirmative choice vs. lack of viable public options?Q:

Kid Demographics

If they aren’t there, they can’t apply.

Projected Population Growth by State

U.S. Births by Year

2,500

2,700

2,900

3,100

3,300

3,500

3,700

3,900

4,100

4,300

4,500

1951

1954

1957

1960

1963

1966

1969

1972

1975

1978

1981

1984

1987

1990

1993

1996

1999

2002

Graduating high school 2009

Entering elementary

19%

23%

4%2%

0%

5%

10%

15%

20%

25%

1988-2002 2002-2014(proj)

U.S. School Enrollment Trends

PK-89 to 12

Note the Dramatic Change

in Rate of Growth

= 1.5%/year

= 0.3%/year

But Trends Depend

on Where you Are

The Warmer, the Better

Percentage Change in the Population of Children in Ohio

-6%

-4%

-2%

0%

2%

4%

6%

1990 to 2000 2004 to 2009

0 to 4 5 to 14 14 to 19

Table A. Projected percent increases in public elementary and secondary school enrollment, by state: 2001 to 2013

Alaska 17.0   Virginia 4.3

Hawaii 16.1   South Dakota 2.6

California 15.7   New Jersey 2.5

Idaho 15.1   Michigan 2.4

New Mexico 14.9   Tennessee 2.4

Nevada 13.8   Nebraska 2.0

Wyoming 13.1   Rhode Island 1.9

Utah 12.7   Delaware 1.8

Arizona 12.0   Maryland 1.7

Texas 11.2   Kansas 1.4

Colorado 8.8   Illinois 1.2

Georgia 6.8   South Carolina 0.9

Washington 5.7   Missouri 0.5

Oregon 5.4   Indiana 0.4

Florida 5.4      

Montana 4.6      

SOURCE: U.S. Dept. of Education, NCES: Common Core of Data surveys and State Public Elementary and Secondary Enrollment Model. (See reference table 5.)

Table B. Projected percent decreases in public elementary and secondary school enrollment, by state: 2001 to 2013

New Hampshire -0.2

North Carolina -0.9

Wisconsin -1.1

Minnesota -1.2

Iowa -1.6

Alabama -1.7

Oklahoma -1.7

Pennsylvania -1.9

Massachusetts -2.4

Maine -2.4

Mississippi -2.4

District of Columbia -2.8

Connecticut -2.8

Arkansas -2.9

Ohio -3.2

Vermont -3.2

New York -3.5

North Dakota -4.5

Kentucky -5.5

West Virginia -6.1

Percentage Change from 2000 to 2009

-20%

-15%

-10%

-5%

0%

5%

10%

15%

Cincinnati Cleveland/Akron Columbus Dayton Toledo

Children Aged 0 to 13 Adults with Graduate Degrees

Average Household Income (inflation adjusted)

Ohio Kid Demo Projections Included as Handout

• Ohio Overall: Downward– 0-4: +.5%– 5-9: -7.1%– 10-14: -.7%– 15-17: -1.4%

• But some counties are “hot” e.g.– Delaware– Warren– Union

Good News:

Schools’ Alumni “Markets” are Growing

Living Yale Alumni at Selected Years

0

50000

100000

150000

1700 1800 1850 1900 1950 1975 2000

Year

Competition

The choices used to be few.

Public Assigned76%

Now • Home Schooling

• Public Charters

• Public Magnets

• Soon: Proprietaries

Public Choice14%

Then

Private Religious

8%

Independent

2%

Public, Parochial, or Private?

Ohio “Community Schools” Enrollment is Growing

010,00020,00030,00040,00050,00060,00070,00080,00090,000

1998-1999

1999-2000

2000-2001

2001-2002

2002-2003

2003-2004

2004-2005

2005-2006

2006-2007

http://www.ode.state.oh.us/GD/Templates/Pages/ODE/ODEDetail.aspx?Page=3&TopicRelationID=662&ContentID=41601&Content=41601

Variety of Newer Tuition-Charging Schools

• Niche Segment Schools– Therapeutics– Nations Academy

• Religious Schools– Catholic– Christian and other

• Price Gap Schools– Proprietaries (“Southwest Airlines”)

Ford Mustang V6:

1975 = $3,200

2005 = $20,000

Increase = 625%

Duke Tuition:

1975 = $2,780

2005 = $32,600

Increase = 1,173%

Independent Schools compete with colleges for today’s share-of-dollar for

education (e.g., 529 plan)

My summer 1974 earnings at Holiday Inn:

$4/hr * 40 hrs/week * 12 weeks = $1,920

Boy is 6 years old

Will attend 4 years of private college with average tuition and R&B

Models says start saving $15,400/year NOW

And More Competition for Alumni Dollars

41782

97156

0

20000

40000

60000

80000

100000

National

1995 2006

* Excludes higher education.

Number of registered non-profits in education* has doubled since 1995:

Social Forces and Parent Attitudes

My mom thinks we’re nuts!

Parents Determine Primary Demand

Students Choose the (High) School

The “Purchase Decision”

“Suppose the government would pay all tuition. Which

school would you choose?”

Harvard Kennedy School/ NPR/Kaiser poll 2003

Asked of Public School Parents:

Q:

Same school 66%

Religious/ Parochial

13%

Other Public

6%

Don’t know

6%Non-religious

Private 9%

Similar question asked of parents in NAIS national public opinion polls (1999, 2007) finds that 1/3 would opt for an independent school, 1/10 a religious school, if cost and distance were non-factors

Realities of Today’s IS Parent

• Work environment is pay-for-performance– Employment has become precarious

– Their world is already flattening

• More knowledge shifts balance of power– Parents are experienced education customers

– Professionally successful

• Less trust– Cultural message of the benefits of more parent

involvement

• Brand conscious less time to shop?

• ISs fit with the luxury brands

• Less confident that their child can achieve what they have

• Ends-oriented College Craziness

Uncertainty Fear Strive for Control

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

19

72

19

74

19

76

19

78

19

80

19

82

19

84

19

86

19

88

19

90

19

92

19

94

19

96

19

98

20

00

20

02

20

04

20

07

SAT Test Takers 1972-2007

YearEnroll in college right after high school: 1975=51% 2008=69% Source: National Science Board report 2008

Number of College Applications per Student Up 30% (1997-2007)

SOURCE: HERI at UCLA College Freshman Survey

Average # apps filed:

1997=2.9

2007=3.7

1997:

1,100,000 SAT takers x 2.9 Apps =

3.2 Million Applications

2007:

1,520,000 SAT takers x 3.7 Apps =

5.6 Million Applications!

Why Parents, Seniors (and College Counselors) Have Gone Crazy:

67% Increase in College Apps in Less than 10 Years!

Applications to Yale

0

2500

5000

7500

10000

12500

15000

17500

20000

22500

25000

1975 1980 1985 1990 1995 2000 2005 2007

There has been essentially 0% change in the number of Ivy League freshman spaces since 1985.

0

100

200

300

400

5001

981

19

85

19

89

19

93

19

97

20

01

20

05

20

09

New England

New York

Other East of Miss.

West of Miss.

U.S. Poss and Foreign

Source: Yale OIR

“I went to Yale….why can’t you get my child into Yale?!”

Origins of Yale Freshman Matriculants (Classes of 1981-2009)

College Counseling is a Marketing Issue

Write your estimate of the acceptance rates (% of applicants offered admission) at the following universities:

Case Western Reserve

Denison

Northwestern

Ohio State

Wake Forest

Yale

College Counseling is a Marketing Issue

Write your estimate of the acceptance rates (% of applicants offered admission) at the following universities:

Case Western Reserve = 67%

Denison = 39%

Northwestern = 30%

Ohio State = 68%

Wake Forest = 44%

Yale = 9%

Per US News & WR

Family Economics

The Story as of Summer 2007

Average High/Upper School Tuition Trend

$0$2,000$4,000$6,000$8,000

$10,000$12,000$14,000$16,000$18,000

1950

1955

1960

1965

1970

1975

1980

1985

1990

1995

2000

2005

Do

llars

Source: NAIS

+30%

+23%

Pricing Context

Year

-76

374457

100

129

160

269

311315

-80

200

-100

-50

0

50

100

150

200

250

300

350H

ealt

h In

sur

Cab

le T

V

Uni

v of

Con

n

Med

ian

Hom

e

Bw

ay S

how

Car

s

GE

Was

her

Pepe

's P

izza

Ban

anas

Slee

p So

fa

Air

Tra

vel

Lon

g D

ista

nce

Tec

h D

evic

es

By JTWack and Company from data appearing in the Hartford Courant (1/29/06)

Changes in Prices Relative to 82% Inflation

(1985-2005)

Products/Svcs that overshot the 82% increase in CPI

Hourly Worker Pay = 81%

Products/Svcs whose prices increased less than CPI

Indep Sch Grade 9 = 205%

CPI Increase = 82% (1985-2005)

US Families by Income (2005 Est Based on

Census Data)

Income Range

Families (000s) % of Total

Cumul % Percentile

Less than $35,000 21,700 28% 28% 0%

$35,000-$49,999 12,700 16% 44% 28%

$50,000-$74,999 17,500 23% 67% 44%

$75,000-$99,999 11,100 14% 81% 67%

$100,000-$124,999 6,200 8% 89% 81%

$125,000-$149,999 3,300 4% 93% 89%

$150,000-$199,999 2,600 3% 96% 93%

$200,000-$350,000 2,900 3% 99% 96%

$350,000+ 780  1%  100%  99%

Median

Full-pay

The Vanishing Upper Middle Class

25%

33%

45%

Median Tuition as a Percentage of Median Family Income

19902005

2015?!

Federal Reserve Board Survey of Consumer Finances 2006

Income Growth by Income Segment

020

4060

80100120

140160

180200

Middle Quintile(40-60%)

2nd Decile (80-90%)

Top Decile (90-100%)

$ th

ou

san

ds

Median Income 1995 Median Income 2004

Income Growth

Net Worth Growth by NW Segment

0100200300400500600700800900

1000

Middle Quintile(40-60%)

2nd Decile (80-90%)

Top Decile~$150K+ (90-

100%)

$ th

ou

san

ds

Median NW 1995 Median NW 2004

Federal Reserve Board Survey of Consumer Finances 2006

Growth in Net Worth

0

20

40

60

80

100

120

1940 1950 1960 1970 1980 1990 2000 2004

* Top 3 officers in the 50 largest U.S. companies. Source: Saks, Federal Reserve; Frydman, Harvard 2006

Top Executive* IncomeMedian Income of Top Executives in the 50 Largest U.S.

Companies Relative to the Average Worker’s Pay

# of times Avg Worker’s Pay

27.4

12.4

7.8

0.5

38.8

15.9

9

0.10

5

10

15

20

25

30

35

40

45

Middle 2nd Decile Top Decile CEO Pay

Tu

itio

n's

% o

f In

com

e

1995 2005

For the top ~5% of households, independent schools have become cheaper

Change in Average Tuition as a Percentage of Household Income

(1995-2005)

• National Retail Sales: +3-5% Annually

• Luxury Sales: +10%-20% Annually– Coach Same-Store Year-over-Year Sales:

+20% each of 2005 and 2006– Netjets, Luxury cars, Viking ranges sales

records– Record real estate and art sales

U.S. Luxury Sales Had Been in a Steep Climb

But this peaked

• Housing headed south in late 2006

• Luxury goods sales slowed in summer of 2007

….and things have surely changed this year

So, Which Way is the Wind Blowing in Ohio and Your Market?

Government Policy

Demographics

Social Forces & Attitudes

Competition

Economics