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Why Private Schools are Dying Out

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On May 16, 2013, The Atlantic published an article written by Chester Finn, titled “Why Private Schools Are Dying Out.” Finn explores private schools in America and why they’re “dying out.”  While most of the article discusses the situation as it applies to private schools, the author also writes that non-elite, private colleges are also burdened with similar challenges, namely needing to heavily discount tuition in order to attract students.

Many years ago when I was a seventh grader, I was fortunate to be awarded an academic scholarship to attend a private school in Baltimore at nearly no cost to my parents.  That experience at McDonogh School enabled me to go on to two private universities, receiving scholarships and fellowships for my bachelor’s and master’s degrees at Duke and Tulane.  After college, I volunteered and served as an officer of McDonogh’s alumni association.  During my twenties and thirties, I wondered how people could afford to send their children to private school.  Federal student aid doesn’t exist for K-12 private schools, neither does state aid fund them in Maryland.  As I observed McDonogh and other Baltimore area private schools raising their tuition year after year, I found it remarkable that demand appeared to hold steady.  It wasn’t just that the tuition was high, currently exceeding $20,000 per year per student at the Baltimore area independent private schools, but it was the fact that a wage earner would have to earn enough to have after tax cash available to pay tuition, a non-deductible item.  Assuming a combined 45 percent federal and state tax rate, that would require $36,400 in pre-tax earnings for every $20,000 of tuition paid.  Sending more than one child to private school each year would require even more after tax wages and would make certain that a majority of students attending private school came from elite families.

One day, as I discussed private school tuition with a friend of mine whose children attended private school, he pointed out a fact of which I was unaware.  He stated that his parents paid for his children’s private school education since healthcare bills and education tuition were two notable exclusions from federal gift and estate taxes provided the bills were paid directly by the grandparents of the child.  I asked him how many grandparents paid tuition.  His estimate was 30-40 percent of his children’s classmates received tuition payments from their grandparents.  At that point, I realized that eventually, tuition dependent private schools would be in trouble.  The faster tuition increases at rates in excess of wage increases, the more likely it will be that families realize that the difference between sending their children to public school (free, in most states) and private school is either unsustainable, unaffordable, or not justifiable particularly with increased public institutions such as charter schools available.  It is also likely that there are fewer people who can afford private school education as tuitions increase.  Merit scholarships, or tuition discounting similar to practices adopted by private colleges, might work for a while, but as the overall discount approaches 50 percent, the school’s ability to balance income with expenses significantly diminishes.  In addition, higher tuition levels would exclude all but the wealthiest grandparents from taking advantage of the income tax maneuver previously discussed (and that assumes that the exclusion continues in the future).

According to the author of this article (and in line with my thinking), elite schools will continue to do okay since wealthy families have the means to pay for that level of education.  The real question is how many private schools will survive in cities other than the largest and wealthiest metropolitan areas?  The author provides examples of similarities between private secondary schools and private colleges and states that the eventual outcomes are likely to be the same; fewer of each will exist at some point in the future.  Some point to technology as a possible solution but I note that without a positive adjustment to a fixed income business model, the private non-profits risk spending incremental funds to offer online courses in a market with a lot of excess capacity at today’s tuition prices.  I enjoyed my experiences at McDonogh and hope that it is one of the private school survivors in the Baltimore area.   However,  I agree with the author that the private school market will continue to shrink, and school closures and/or mergers are more than likely over the next few years.

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Wally Boston Dr. Wallace E. Boston was appointed President and Chief Executive Officer of American Public University System (APUS) and its parent company, American Public Education, Inc. (APEI) in July 2004. He joined APUS as its Executive Vice President and Chief Financial Officer in 2002. In July 2016, he retired as APUS president and continued as CEO of APEI. In September 2017, he was reappointed APUS president after the resignation of Dr. Karan Powell. In September 2019, Angela Selden was named CEO of APEI, succeeding Dr. Boston who will remain APUS president until his planned retirement in June 2020. Dr. Boston guided APUS through its successful initial accreditation with the Higher Learning Commission of the North Central Association in 2006 and ten-year reaccreditation in 2011. In November 2007, he led APEI to an initial public offering on the NASDAQ Exchange. During his tenure, APUS grew to over 100,000 students, 200 degree and certificate programs, and approximately 90,000 alumni. In addition to his service as a board member of APUS and APEI, Dr. Boston is a member of the Board of Advisors of the National Institute for Learning Outcomes Assessment (NILOA), a member of the Board of Overseers of the University of Pennsylvania’s Graduate School of Education, a board member of the Presidents’ Forum, and a board member of Hondros College of Nursing and Fidelis, Inc. He has authored and co-authored papers on the topic of online post-secondary student retention, and is a frequent speaker on the impact of technology on higher education. Dr. Boston is a past Treasurer of the Board of Trustees of the McDonogh School, a private K-12 school in Baltimore. In his career prior to APEI and APUS, Dr. Boston served as either CFO, COO, or CEO of Meridian Healthcare, Manor Healthcare, Neighborcare Pharmacies, and Sun Healthcare Group. Dr. Boston is a Certified Public Accountant, Certified Management Accountant, and Chartered Global Management Accountant. He earned an A.B. degree in History from Duke University, an MBA in Marketing and Accounting from Tulane University’s Freeman School of Business Administration, and a Doctorate in Higher Education Management from the University of Pennsylvania’s Graduate School of Education. In 2008, the Board of Trustees of APUS awarded him a Doctorate in Business Administration, honoris causa, and, in April 2017, also bestowed him with the title President Emeritus. Dr. Boston lives in Owings Mills, MD with his wife Sharon and their two daughters.

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