Calculating the true cost of private school education: based on a survey of South Australian School fees.

Introduction

This paper is based on a survey of fees charged by South Australian schools. It identifies and calculates the financial burden associated with funding a child's private school education. The survey is a systematic review of up-front fees and ancillary charges. A summary of fee structures is provided and the cumulative cost of secondary education is calculated together with the projected family incremental income necessary to fund these costs. Accordingly, the survey is a valuable resource in support of a consumer's decision to purchase private school education.

Prior to this survey, the public has had to assemble their own data for comparison, or rely on incomplete information and assertions put by journalists. For example, Scott (2001:16) claims that a family paying for secondary schooling for their four children will be out of pocket by "at least $60,000". However, there is no indication of how this sum was calculated. Whilst there have been some cost projections from financial advisers, disclosure of the full cost bases used in the calculations has rarely been made available (Silins, 1998, AMP, 1996, Rush, 1994).

A further benefit of this survey is that it occurred prior to the introduction of the July 2000 Goods and Services Tax (GST) and therefore it will serve as a bench mark, allowing researchers in the future to make a comparison between educational costs prior to and after the GST.

A limitation of the paper is that it is based on a survey of private school fees payable in the 1997 school year only. However, analysis of the data does demonstrate that Australian families require a substantial financial investment to educate a child privately. This paper also emphasises the care and time required by parents to adequately assess the budgetary implications, as a number of `hidden costs' were revealed by the survey. No attempt has been made to enter the debate concerning the supposed benefits of private over public school education. However, it is recognised that the decision to purchase is a function, not only of financial cost, but also of perceived overall social and other benefits associated with the type of schooling selected.

Background

The importance of conducting this survey is reflected in the increasing demand for private school education. Several themes emerge to explain this phenomenon. Participation in private school education in Australia is substantially higher than in the United States or the United Kingdom (Hogan, 1994). This is testament to its importance as a viable educational alternative to public sector schooling in this country. At a national level, the demand for private school education is largely explained in terms of class preferences:

   In South Australia, going to a private school is ingrained in the
   middle class psyche. But nowhere is the impact of our educational
   novelty more evident than in Melbourne ... In Sydney, by contrast,
   private schools until recently have been socially select but of
   lower academic repute than the city's selective (government) high
   schools. Only in Sydney ... did more of the elite go to public
   schools than private schools. (Hope, 1996 p. 4)

An indication of the size of the shift in demand toward private school education is identified by Lloyd (1998a), who states that in South Australia alone, there has been an 18% swing from public to private schools since 1993. During this period, private school enrolments increased by 11,236 to 72,600 (1998 projected) while government school enrolments dropped from 183,772 to 175,600 (1998 projected).

There has also been a shift in supply to meet the shift in demand. Despite Federal Labor government rules to restrict Commonwealth funding of new private schools there has been a substantial increase in the number of private schools (Hope, 1996).

   The rise and rise of non-government schooling has occurred despite
   federal Labor government rules in place for more than a decade to
   restrict Commonwealth funding of new private schools to those able
   to meet tough planning curriculum, enrolment and fiduciary guidelines
   under its new schools policy. (Hope, 1996, p. 4)

Overall the trend is for parents to `... desert public schools for private and the Federal Government is encouraging the drift.' (Hope, 1996, p. 1). The increasing popularity of private school education has been further fuelled by studies such as those conducted by Spierings (as cited by Brice, 1996) dealing with youth unemployment. Spierings found that:

   .... in May, 1994, 41.6 percent of young people who left State
   schools at the end of 1993 to seek work were unemployed,
   compared with 22 percent of those who had attended private
   schools.

Media reports from the UK and Australia, pointing out the short falls of public school education have added to the desirability of private schools (Clare, 2001; Denny, 2001). The UK report Schools--Building on Success claims that "comprehensive education has failed so badly that there is a danger that the state school system will collapse through parents abandoning it." (Walker, 2001: 9). In response to this phenomenon Tony Blair has embraced a report recommending that private companies, trusts and independent schools be allowed to help to take over both successful and failing state schools on fixed term contracts (Walker 2001).

In Australia it has been reported that governments have succeeded in getting out of the business of public school education (The Australian, 2001). This claim was supported by comments from the Education Union President, Denis Fitzgerald stating "there has been a tenfold increase in federal Government expenditure of private schools in the past 20 years" (The Australian, 2001). In response to the perceived down grading of the public school sector enrolments in the private school sector had increased by 2.1 per cent. This equated to an additional 20,205 private school enrolments compared to 601 public enrolments for the past year (The Australian, 2001). The trend toward an increase in demand for private school education supports the need for surveys that inform consumer of the associated cost of a private secondary school education.

We contend that potential consumers of private school education should have available to them information with which to make an informed decision when making the choice between public and private school.

Information needs of consumers

For the many parents who are considering sending their child to a private school, the overall cost is an important factor in the decision making process. Although consumer information is readily available by contacting private schools on an individual basis, the collation and analysis of this data into partial or full summary form is a laborious task. There are few alternatives to this approach. Previously, prospective purchasers of private school education in South Australia have had to rely on limited surveys, assembled by journalists, as a basis for comparing prices (Silins, 1996). Financial organisations marketing trust funds for parents who wish to cover the projected costs of education, have also based their figures on such surveys (see, for example; AMP, 1996). An electronic search of the literature using the AUSTROM and APAIS databases failed to locate any surveys outlining fee schedules for private school's, cost comparisons or projection of cost, for the purpose of informing consumers educational counsellors or financial advisers.

A further complexity in calculating the overall cost of education is associated with the existence of a range of direct and ancillary costs charged by private schools. The nature of the ancillary items (e.g. compulsory donations, book, subject, or information technology levies) and their respective costs varies amongst the Schools surveyed.

   It's important not only to look at fees but also what else you are
   expected to bring from home or pay separately. (Terry Chapman,
   executive director of the Association of Independent Schools of
   N.S.W., cited in Silins, 1998, p 6.)

The implication is that those involved in marketing, teaching or counselling about private school education may have little basis on which to judge `value-for-money' issues in relation to ancillary costs. In short, there is a need for greater transparency of information in the marketplace about private school costs, to improve and support counselling advice, and decisions made about the purchase of education.

The need for more consumer-oriented information is reflected in the public's concern over their ability to pay (Hope 1996). While the media and insurance companies offer financial advice (Hope, 1996), there is clear evidence that parents from all socio-economic backgrounds and income levels continue to pay the premium required for their children to be educated at a private school. This preference often creates extraordinary demands on family incomes.

Independent Schools Board executive director, Mr G. LeDuff(cited in Lloyd, 1998a, p. 7) states that:

   Many parents on both high and low incomes place a high priority in
   education and are willing to make significant financial commitments
   to the education of their children.

Further, poor financial planning is sometimes associated with marital tension and legal disputes over the payment of private school fees (Bates, 1998).

Clearly, parents need to identify all relevant financial information and project all costs associated with schooling to form a basis upon which to develop a viable plan to fund the education of their choice. We argue that, without sufficient data to help in their decision making, parents cannot fully estimate the true financial and social implications attached to funding private school education.

Methodology

Due to the lack of published comparative data on private school fee structures, information was initially sought from the Bursars Association in South Australia. The Association was not willing to release any information, claiming that a number of variable costs and discount mechanisms made grouping of data problematic for them. It was stated that the variation in fee structures would give a distorted view of the costs put forward by certain schools without substantial explanation. We were advised, therefore, that the only reliable source of information that could be collected and summarised would be from direct contact with each private school. This response highlighted the lack of alternative information sources already noted.

Accordingly, a survey of schools in the Adelaide metropolitan area was conducted. Data collected on tuition fees and all ancillary costs were then used to calculate an indexed average cost of private school education over the five years of tuition. (1) Further, we estimated the incremental family pre-tax income together with the indexed monthly savings required to fund the total cost.

Sampling procedures

Private schools were randomly selected from the Adelaide yellow pages telephone directory. A telephone call was made to each school, explaining the purpose of the survey, followed by a request for a publicly available prospectus or brochure including fee structures and methods of payment. Of the twenty two telephone requests for printed information, twenty two information packages were received (n=22). This represents 18.6% of the private school listing in the Adelaide metropolitan area in 1997 (see Table 1)

This represents the passage of time from the beginning of secondary education to entry into higher education.

Analysis of data

An arbitrary stratification of the sample was made to separate low cost from medium cost and higher cost schools, and to provide general indicators of the differing funding targets needed for families. This stratification is based on financial cost only (excluding boarding fees) and the authors do not imply differences in the quality of education. The designated strata are as follows:

* Stratum 1 (high cost)--fees > $6,000 per annum.

* Stratum 2 (medium cost)--fees > $3,000 < $6,000 per annum.

* Stratum 3 (low cost)--fees to $3,000 per annum.

The number of schools in each stratum is displayed in Table 2 below.

Permutations of components in private school fees

The survey revealed there were variations in the number and permutation of components that make up private school fees, as shown below, in Table 3. The prospectus information also designated a number of ancillary fees as compulsory (listed below). Accordingly these fees were included in calculating the average cost for the schools in the sample:

* Acceptance/Enrolment Fee

* Tuition fee

* Book fee (where charged)

* Technology fee (where charged)

* Parent levy (in lieu of fundraising)

* Building Fund

These fees do not include the cost of uniforms, sporting equipment, excursions, special fees not listed in the prospectus, and levies etc, which can be substantial.

In addition to the above, a small number of schools quoted other minor fees which are not listed here.

To estimate the total cost of five years of secondary education the average cost of school fees in each stratum was indexed at 4.94% per annum (cumulative) (see table 4).

An important issue for parents to consider is the level of family income generation required to fund the private school fees. This is calculated using the before-tax incremental, family income required to fund the school fees, using an average marginal tax rate of 34%, as shown in Table 5. The tax rate selected is a conservative rate, based on Australian Taxation Office tax scales for incomes between $20,700 and $38,000, but excluding the Medicare levy.

In quantifying the cost, it is assumed that parents will want to minimise the impact of having to pay school fees from an annual family budget, by investing to pay for future schooling costs. It is assumed that parents invest over a ten-year period to accumulate the funds required on day one of the first year of secondary schooling when the child reaches the age of twelve years. A third assumption is that parents commence saving when the child is two years old. The round amounts represent, as general indicators only, a reasonable savings target for families, as a base to fund private school fees. The final assumption is that the funding requirements relate to only one child where in reality parents often fund private school education for more than one offspring at any one time.

The monthly savings required to uphold the appropriate investments are given in Table 6 below:

Discussion

The assessment of cost across the three strata does not imply any relationship between cost and quality of education, nor does it facilitate interschool comparisons of value for money. What can be said is that private school education across all three strata represents a substantial call on a family's disposable income for the ten years of savings required to fund this type of education.

Families from lower socio-economic groups will have to allocate a larger proportion of their income to private school education relative to other groups. Consequently, the cost calculations made here would be most relevant to this group in planning long term family budgets. We advise that this approach be taken, because payment of full fees at the time of enrolment each year of schooling represents a significant burden. It would be prudent for families who wish to make calculations similar to those made in this paper to seek financial advice, or educational counselling to make more transparent the impact of this financial commitment.

The consequences of getting the calculations wrong or making no attempt at all are likely to be financial distress. The following scenario is a possibility. Inability to fund the full five years of secondary education could result in the student being withdrawn from a structured program, which would affect both their studies as well as their social networks and friends. Financial embarrassment for the parents is also a factor that cannot be minimised. In extreme cases, parents may have to deal with a debt collection agency. In order to service the financial commitment, it may be necessary for both parents to work, or the working parent may have to extend their working hours. This could mean an extra burden of balancing work commitments and home duties, which may impact on all family members. Cost factors continue to change. For example, recent moves to impose fees in the public school system have the potential to narrow the funding gap between private and public schooling. Furthermore, changes to the economic environment and tax laws will impact on the cost of education. An example is the introduction of the goods and services tax (GST) on 1 July, 2000, by the Federal Government. Consequently, we call for a longitudinal study to more accurately project the cost of private school education.

Identifying opportunity cost is a useful means of assessing the impact of factors, other than financial, influential in the decision to purchase. The money used to fund a private school education represents an opportunity cost for the family. That is, the price paid for education represents what the family may forego. For example, the family may tolerate of buying a used car as opposed to the latest model that offers greater comfort and safety. Similarly, the funding of institutional education reduces the opportunity for family leisure activities (for example the funding of an overseas holiday). The emergence of dual income families is recognised as a phenomenon related to parents wanting to maintain their standard of living and promote education of their children (Carlsen & Laesen, 1994; Hantrais, 1990). Whilst this survey provides a preliminary investigation into the full cost of private school education, many questions remain unanswered in relation to a full cost benefit analysis.

Conclusion and recommendations

This study has revealed that comparative cost data for private school investment decisions is not readily available in the market place. It also exposes a number of cost variables in the construction of the total cost of private school education, which may not be evident to many consumers, thereby clouding their choice of schooling.

While debate about the price and quality of education choices will doubtless continue for many years, it remains the subject of future research. This paper breaks new ground, by presenting information that is not widely available, and could form the basis for further research that correlates the cost of private school education to the investment decision. It may be both useful and feasible to create a database accessible to all consumers, that details the true comparative costs of private school education, and calculates the resources needed to fund such an investment. This would be a valuable public resource and could improve the decision-making process for those wishing to invest in private school education.

Table 1.
Participation in survey of private schools in South Australia

             Boys   Girls   Co-educational     Total
             Only   Only

Population    11     15           92         118 (100%)
Sample         8      6            8          22 (18.6%)

* Population--based on private schools listed in the S.A. metropolitan
yellow pages directory.

Table 2.
Stratified sample of Schools

Stratum 1   Stratum 2   Stratum 3

   14           2           6

Table 3.
Fee variations in private schools in South Australia

Acceptance/enrolment fee (one-off fee)
Fee       No fee   $20       $50       $100       $475    Due     Total
                   $35       $75       $310               but
                                                          not
                                                         listed
No. of      11      1    2    3    1     1    1     1      1        22
Schools

Subject Fee/Resource Fee (fixed charge per year)
Fee       No fee   Between   $151 to   $301 to   $451 to    Due   Total
                    0 and      $300      $450      $540     but
                                                            not
                                                           listed
No. of       3        1          6         5         5       2      22
Schools

Annual Book Fee
Fee       No fee   $70   $75   $100   Total
No. of      19      1     1      1      22
Schools

Annual Technology Fee
Fee       No fee   $35   $50   $60   $110   $120   $180
Total
No. of      16      1     1     1      1      1     22
Schools

Parent Levy (in lieu of fundraising)
Fee       No fee   $60   $75   $200   Total
No of       19      1     1      1      22

Building Fund (compulsory contribution)
Fee       No fee   120   130   150   220   240   300   440   Total
No. of      14      1     1     1     1     1     2     1      22
Schools

Table 4.
Indexed average cost of private school fees of
surveyed South Australian schools

Stratum              Average Annual       Total Costs for five
                     Compulsory Fees   years of private secondary
                                           education indexed
                                           at 4.94% per annum

1 (>$6,000)              $7,655                  $42,246
2 ($3000<x<$6,000)       $5,040                  $27,815
3 (<$3,000)              $2,428                  $13,400

Table 5.
Incremental family income required to fund average
private school fees assuming a marginal income tax rate of 34%

Stratum     Average     Incremental       Indexed)    Total incremental
            Annual     annual income    Total Costs     income over 5
          Compulsory    required to    (See Table 3)  years required to
             Fees        fund fees                        fund fees

1           $7,655        $11,598         $42,246          $64,009
2           $5,040        $ 7,636         $27,815          $42,144
3           $2,428        $ 3,679         $13,400          $20,303

Table 6.
Monthly savings required to fund a base for private school fees

                       Monthly savings required *
                      Rates of return (per annum)

10 years target *    4%     6%     8%     10%    12%

$10,000             $ 68   $ 61   $ 55   $ 49   $ 43
$20,000             $136   $122   $109   $ 98   $ 87
$50,000             $340   $305   $273   $244   $217

* Excludes tax; assumes the child starts secondary school at age 12
years, no inflation.

Source: Black (1998 pp 23-24)

References

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Bates, F., (1998) `Maintenance and Private School Fees', Australian Journal of Family Law, vol. 2; 125-137.

Black S., (1998) `Lessons in saving', The Advertiser, 21 September, pp 23-25.

Brice, C., 1996, `Old school tie still keeps most off dole', The Advertiser, 2 December, p. 7.

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Clare, J. Jones, G. Cracknell, D. Murphy, J., (2001) The Weekly Telegraph, issue no.50.0, 21 February-27 February, 2001:13

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Hantrais, L., (1990), Managing Professional and Family Life, Dartmouth Publishing, Great Britain 

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Lloyd, N., 1996 `3,800 leave school bills unpaid', The Advertiser, 10 August.

Lloyd, N., 1997 `How our schools rate', The Advertiser, March 29: p. 2.

Lloyd, N., (1998a) `2700 more at private schools', The Advertiser, January 15: p. 7.

Lloyd, N., (1998b) `Rethink on private schooling', The Advertiser, September 29: p. 7,

Rush, E., 1994 `School fees rise as rural crisis hits', The Advertiser, June 12. p. 8. options from the first school day', The Sydney Morning Herald, 20 March, p. 16

Silins, A., 1998 `School Fees, A Lesson in Saving', The Weekend Australian, January 31 February 1' Personal Finance Section, p. 6.

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Walker, J., 2001, `Public schools fail big test, says Blair', The Australian, February 14, 2001: 9.

Tom Laws is a Lecturer in the Division of Health Science, University of South Australia. Brenton Fiedler is a Lecturer in the School of Accounting and Information Systems, University of South Australia.