To Lower Tuition Costs, Stop Donating to Schools and Start a Bank

From Section:
Education & Administration
Aug. 12, 2019
August 12, 2019

Source: Lehrhaus


Philanthropic support for Jewish education, so much as it wants to address affordability, would be best served by working to realign the current incentive structure. The best way I can see to accomplish that is to stop giving money to Jewish schools. Let schools operate like any business and receive direct data from their end users via the most relevant economic signal – price. In a non-subsidized market, if there is demand for a no-frills education, a school will find a way to provide a no-frills education at a no-frills price. If there is demand for a luxury education, another school will provide the luxury education at a luxury price. But the school that can provide the best possible education at the lowest possible price will corner the market. While some ideas for cost reductions have been offered and tried, most schools have not yet had any real incentive to invest in what’s been suggested or build on what’s been tried. Getting schools out of the subsidy business will encourage greater innovation and serve to realign incentives so that the school and educational consumer (Jewish families) share the same goal.

If schools stop providing subsidies the burden to provide financial aid for those in need will shift as the donations that used to go directly to Jewish schools are available to be allocated elsewhere. This will also allow those seeking to address affordability to do so using a better economic model for the redistribution of resources – banking. Perhaps more suitably, we should call this philanthropic banking. Consider an independent financial organization, or a number of organizations, free to operate with greater flexibility than individual schools to provide a variety of financial aid possibilities. Everything from subsidized loans to collateralized lines of credit to need-based scholarships to alternative investments can all be structured and offered by what is effectively a bank. It will be designed with the primary purpose of assessing the available resources against the financial situation of those seeking assistance. This “bank” will be better equipped to consider applications and implement new ideas for funding, and can be seen as far more independent than the average tuition committee. The bank will also have a real incentive to maximize its communal reach by keeping its per-student costs low, operating in tandem with the desires of the average consumer of Jewish education and pushing schools to provide the best possible product at the lowest cost.

It’s also important to recognize that this suggestion, if adopted on any large scale, seems likely to shed some additional light on certain economic disparities within the Jewish Day School community. One could imagine that different schools within one community offering vastly different products can lead to a sharpening of the lines between the wealthy and the middle class. This is a possibility, but I don’t think it is likely. For one, Jewish Day Schools are fed by relatively small homogeneous communities that are connected across socio-economic positions in various ways, including shared values, shuls, and friendships. In addition, we are at a point where a majority of families are struggling in some way to afford tuition, and that is true for many of those paying full tuition as well. If there is an equal or better product for a lower price, that should garner significant interest from a broad group. Let’s face it, a Jewish family with four kids earning $400,000 a year is likely still interested in a cheaper school, so that makes for a pretty large consumer group that is incentivized to innovate toward cost savings. Besides, if super wealthy families were going to create a high priced luxury school, it likely would have happened already.

Get the incentives right and nearly every school will be attempting to innovate toward cost savings without sacrificing quality, or they will risk losing customers to a school that can. This should result in a better, cheaper product for everyone. Transparent pricing and consumer freedom have always been the essential ingredients for innovation that serves consumers. Right now, Jewish education lacks transparent pricing and consumer freedom. So wouldn’t it be best to allow consumers the freedom to use their individual preferences in price point to drive a better outcome for more people? Doesn’t it make more sense to have school leadership focused on producing a great education at a lower cost instead of focusing on raising money for a great education at a higher cost?

There is much to be gained from philanthropic investments in Jewish education, from promoting a particular educational ideology to generating influence within the institutions that shape our future. But if the goal in giving is to facilitate the most broadly accessible, and best possible, Jewish education, then the best idea is not to donate to a Jewish school. Start a philanthropic bank and give it directly to the consumer instead.

Read the entire post at the Lehrhaus



Updated: Aug. 28, 2019
Day schools | Philanthropy | Tuition | Administration