Elite Australian private schools face a couple of problems similar to those facing elite US universities – high fees and how to cope with excess demand.
Supply of places in elite Australian private schools is very limited and so parents have to pay to join waiting lists. In most markets a supply side gap normally drives in investment, but for elite private schools there isn’t a simple solution.
When Yale wanted to expand its undergraduate intake by 15% or 800 students it had to invest US$600m or $750k per student place. Yale’s US$19bn endowment generates so much cash that they could actually let every student study for free. Few Australian elite private schools are rushing out to invest in more bricks-and-mortar assets. Why? For a start most are already heavily overcapitalised because they are locked in an educational ‘weapons race’ to build things like better sports facilities, boarding houses with ensuite bathrooms and the like.
Even where they have the funds, expanding bricks-and-mortar may not the best, or most pressing strategic investment. Parents are already crying over seemingly never ending fee increases and smart schools may be better off in the long term investing in other parts of the educational market like tutoring, edtech, assessment, employment services or even education start-ups.
But few can even contemplate this until they can square the circle of their biggest variable cost, teacher and staff salaries and pensions. In most every industry, output per unit of labour has risen dramatically for decades, but in elite private schools labour inefficiency is sold as a key benefit of what parents buy, i.e. high teacher to pupil ratios. This is unsurprising at one level (from the fee paying parents perspective), but educationally there is little research that shows any significant correlation between this ratio and excellent educational outcomes: teacher quality is far more important.
One possibility that isn’t yet legal in Australia would be to create new for-profit private schools. This is an existing business model in markets in the USA, Middle East, Africa, India and South East Asia, so why not Australia? It can’t happen overnight because of the current legislative and funding arrangements for education but these are not insurmountable barriers. Indeed there are already companies looking at just this situation and I believe it’s a question of when and not if they will eventually open private schools in Australia.
An interesting example, who have already said Australia is on their list of target markets, is Avenues – The World School, who have just opened their first 750-student private school in New York. The US $75m for the new company and this school came from private equity companies – Liberty Partners and LLR Partners. Rather than owning land and buildings the school leases their landmark building from a New York real estate company and subcontracts out capital-intensive activities like sport (to Chelsea Piers Sports and Entertainment Complex).
Avenues may be an exciting model for developed markets, but the greatest opportunity in private education is probably at the ultra-low cost level (<US$20 per month) in markets like Africa and India (where there are already 200-300,000 such schools). Pearson, the world’s largest education company are already in both markets; in India via TutorVista (online tutoring and schools) and in Africa via investments in Omega Schools (set up by UK academic and entrepreneur Professor James Tooley) and Bridge International Academies.
Are fees too high?
At $28k the basic fees at elite an Australian private school are perceived locally as being too expensive, but what worries parents more is that these keep rising above inflation year after year. But is there a mismatch between perception and reality?
Fees at Avenues are 43% higher than the their elite Australian counterparts, yet according to the Economist Intelligence Unit World Living Survey Melbourne (5th) is a far more expensive city to live in than New York (20th). At New York’s many traditional elite private schools $40k apparently only covers 80% of the real cost per student per year (not at Avenues)! The $8k difference being made up by donations and fundraising.
There is a parallel in Australia, which is the money given to private schools from the federal government which currently averages to about $6050 per student, although at elite schools this is an average of just $2,750 per student.
This means elite Australian private school fees represent excellent value in absolute and relative terms, although I doubt you’d find many parents in Melbourne or Sydney who would agree.
What this does indicate is that if a for-profit school wanted to open in Australia and had a different business model, they could probably keep their fees below $28k even with no government support.
Ask 100 economists what they think will happen in a market with the following characteristics:
- demand exceeds supply
- dominated by a few premium priced brands
- competition for customers is increasingly globalised
- labour costs are high
- business models are old-fashioned
- technology has made little impact
- existing legislative barriers are likely to fall
All 100 different answers will have a single theme – this is a market ripe for disruption.
Yet on the supply side it seems that it is educational businesses from outside Australia who see this opportunity most clearly. In terms of scale, the market may seem small compared to Brazil, India, China and the Middle East, but what it lacks in size it more than makes up for by having things like financial, legal and taxation transparency/certainty, political stability and mature capital markets, who thanks to Australia’s superannuation laws have billions of excess funds to invest.
On the demand side I don’t think existing elite schools really appreciate the extent to which their traditional customers (alumni, professionals and aspirational middle and working class parents) are consider abandoning the existing private education system and replacing it with a mix of lower cost services like tutoring, edtech products and services, membership at sports clubs and even international travel.
Even when parents can bear the fee pain, I get a sense many are now starting to question whether the skills and qualifications provided by traditional elite schools are actually what their children need to live in and compere for jobs in (or create their own) a globalised society?
Elite private schools look like the ultimate bastions of conservatism and tradition. Ever since I attended one I have continually heard people speculate about the supposed benefits of the old-boy/old-school-tie networks. These do exist in cities like Melbourne and Sydney mainly because so many people go to private school, university and then work in the same city. This is almost uniquely Australian and quite unsustainable, if these are to be truly global cities in the 21st century. In fact the old school tie is, in my experience, more of a barrier than benefit. For the first time in 30 years I recently tried to use this brotherhood of exclusive brethren to arrange a meeting to discuss an edtech incubator idea with my alma mater. The result – complete disdain and disinterest. This may say more about the school’s corporate memory of my undistinguished time in their charge, but I had the last laugh after one email and phone call had me meeting with the senior management team of their most bitter rival.
Elite private schools are predicated on the rather radical notion (in educational circles anyway) of educational excellence and elitism. For the last 40 years this has often meant ignoring the educational trends and whims espoused by academics or attempted to be imposed by politicians (including at least two edtech ‘revolutions’).
I think the time has come for these institutions to rediscover their educational radical spirit if they want to prosper and stay relevant in the short and longer term. This will include, but also be far more than just deeply embracing edtech or tinkering with their business models. If they don’t (and soon) they risk creeping irrelevance or extinction from foreseeable challenges of an order of magnitude many times greater than any proposed reforms to curriculum or educational funding.