Mission Moment

Dear Covenant Families,

This year’s year-over-year (e.g. grade 4 to 4) tuition increase is 5.1% on average. But what our families feel is the grade-over-grade transition (e.g. grade 4 to 5). Let me explain. (This is going to be a tome.)

For years we have worked to gradually “flatten the tuition curve,” in order to eliminate historic between-grade jumps that compounded the effect of a flat percentage increase. We have gotten rid of most of them, but several jumps remain. Obviously, K-1 jumps because K is part time. The next jump is 4-5, but includes an overnight 5th grade trip fee. The next jump is 6-7 which we continue to flatten, by applying a 1.4% year-over-year increase this year. In another year or two we hope to have 6-8 base tuition leveled to one price for Logic School, which brings us to the next jump. Eighth grade tuition includes the Washington DC trip fee. Next is 9-10 which is the historic jump into Rhetoric School, and now occurs in grade 10. Currently, ninth grade tuition is actually less than eighth, and that grade-over-grade (8-9) increase was just 0.9% this year. The last jump is 11-12 because of the senior activities fee, which covers the senior retreat and graduation. Otherwise grades 10-12 tuition is the same.

All this said, I want to acknowledge the inflationary tuition hit that our families face, year after year. Understanding the trend won’t ease the pain, but we are not alone in this conundrum. The relentless rise of tuition, not just at Covenant but, at every private school can best be understood from economic theory and from economic realities.

Economic Theory: In his 2019 book Why are The Prices So Damn High? (not my words, but his), George Mason University economist Alex Tabarrok credits New York University and Princeton economist William Baumol for his work in the 1960s, leading to an economic theory known as “the Baumol effect.”

Tabarrok contrasts a string quartet with the television production industry. We have all seen the cost of each wave of new model televisions come down fairly quickly as technology advances and production of parts becomes more efficient. This has meant that employees in that industry have realized increased wages, while consumer prices remain stable or decrease. It is a function of innovation and efficiency.

But how can a string quartet innovate or become more efficient? Tabarrok explains that it takes four people the same 40 minutes to perform the same repertoire in concert today as it did in the late 1800’s. There is just no innovation that can increase the efficiency of providing this cultural commodity to the consumer. But, in order to remain in their profession, string “quartetists” must realize increasing wages commensurate with those of workers in other industries. And concert tickets have gone up accordingly. This is the Baumol effect. Importantly, Tabarrok makes clear that the education “industry” suffers the same inability to increase efficiency (without sacrificing quality). But education wages must also increase in order to retain qualified professionals.

But might “efficiency” actually be possible at Covenant?

Economic Realities: There are really just four “levers” to pull to adjust the revenue and expense balance at a private school. These include tuition increases, enrollment growth, faculty and staff compensation, and student to teacher ratio. It might seem appropriate to add fund-raising to this list, but financially stable schools are typically at least 95% tuition-driven, relying on just 5% or less in charitable contributions to meet annual budgets. Many strong schools are 102% tuition-driven, directing 2% to rainy day cash reserves. Covenant is 97% tuition-driven, which means that tuition really is our best, perhaps only, remaining means of covering increasing expenses.

I say “perhaps only remaining means” because of the second lever. Large enrollment spikes have long meant that schools, including Covenant, could spread the budget demands across more families. This lever window has essentially closed for Covenant, as the days of big year-over-year enrollment increases are gone. While openings in a few classes may remain, these grade levels are not always attractive to prospective families. Meanwhile, applications for normal “on-ramp” grades far exceed openings in those grades.

So where do your tuition dollars go?

Of Covenant’s projected 2025-2026 expense budget, 78% is allocated to faculty and staff compensation and benefits. Five percent goes toward deferred maintenance and capital expenditures, and five percent goes toward debt service. The other 12% goes to program and operations. This breakdown is important for two reasons. The lesser reason is that, despite our annual efforts to keep program and operations expenses “tight,” savings in these areas have miniscule effect on rising tuition. The greater reason is that compensating faculty and staff as generously as we can is our best way to attract and retain the best of the best. I have often said that everyone at Covenant could make more money doing the same thing for the Richardson Independent Schools District. Compensation isn’t why our employees are here, but it does help us keep them here.

The one of the four levers where efficiency “might” be pursued is in our student to teacher ratio. Our recent accreditation team, upon heaping praise upon us for exceptional programs and school culture (their official report is yet to be received), observed that ours are the smallest classes they have seen at any classical Christian school. They actually raised the possibility of our increasing our class sizes. It would certainly be possible, beginning next year, to start transitioning from 12 to 15 students per class in K-2, and from 15 to 20 students per class in 3-12. This could save us 0.6% of our budget for the first three years by eliminating two teachers each year, followed by 0.3% savings for the next ten by eliminating one teacher per year. After thirteen years, we would have increased our student to teacher ratio by roughly 23% while saving a total of 4.8% of budget - spread over thirteen years. Then the savings would cease, unless we wanted to move again to even larger classes. I could be wrong, but I would guess that sacrificing one of the things that most parents love most about Covenant (our small classes) for such a small savings would not be a popular strategic move.

But, how does Covenant fit in the DFW private school tuition landscape?

In comparing tuition across all Dallas private schools, one observes two major bands or groupings of schools. Top tier schools include: ESD, Greenhill, Hockaday, St. Marks, and Parish. Average tuition at these schools is $12,101 more than average tuition at our comparison-set schools, which include: Cambridge, TCA, PCA, Legacy, Ursuline, Cistercian, Jesuit, and Providence.

Among our comparison-set schools, Covenant is historically (and currently) at the bottom of the tuition cost list, year after year. And Covenant tuition is consistently $1,000 to $3,000 less for most grade levels than that of the schools that new applicants to Covenant are most likely to attend. While I would argue that our “product” is better, the cost of that product, although admittedly steep, is less than other “providers.”

Finally, why isn’t Tuition Assistance one of the levers for balancing revenue and expenses? Well, it actually is. But not in the way you would think. Tuition Assistance is not actually an expense. Rather, it generates considerable discounted revenue.

Twenty-five percent of current Covenant students receive some level of tuition assistance, and Covenant directs 11% of gross revenue toward supporting these students and their families. So, why isn’t 25% of the budget required to meet tuition assistance need? Because these families pay tuition. And tuition assistance makes the difference between “affording” Covenant and leaving Covenant for these families, at a cost to us of losing the revenue they generate.

It could be argued that because demand is so high for Covenant enrollment, that every seat could be filled with full-pay students. But, practically, this would take many years to accomplish, and it would be antithetical to a founding Covenant principle to accommodate some economic diversity. Further, without tuition assistance, most teachers couldn’t afford to enroll their children, dramatically impacting our ability to attract and retain quality faculty.

Over 31 years, Tuition Assistance has helped us build our student body, our faculty, our exceptional academic, athletic, and fine arts programs, and our wonderful community. We thank God for Tuition Assistance and for all who contribute generously to support all that Tuition Assistance grants us. With this in mind, I encourage everyone to join me at our annual Covenant Auction later this month, and to wear your “generosity hat.” Thank you!

If you have made it to the end of this tome, you are to be congratulated - or pitied. These explanations by no means ease the burden of increasing tuition. And, we don’t want to see such burdens lead to even one family leaving this amazing community of faith and learning. This is why we make every effort to meet reported Tuition Assistance needs, and why we seek to increase the amount of Tuition Assistance we offer each year. No one ever balks at requesting tuition assistance for college, but for some reason they do when it comes to reporting need at K-12 schools. But I urge anyone finding themselves in need to please make us aware.

As always, I thank you for your continuing commitment to the Covenant School, and for your ongoing trust in our board, administration, and faculty. Our students and families are what make Covenant such a special place of discipleship and learning. And we all look forward to what God has in store for the coming year!

Non Nobis,

Robert Littlejohn, Ph.D.
Head of School