Struggling schools see new success in recovering school fees

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By Michelle Dickens, CEO of TPN Credit Bureau

A growing unemployment rate is leaving many consumers under financial pressure. In the past 18 months, this has impacted schools around the country as parents prioritise paying other categories of consumer credit such as mortgages or rent, credit facilities, secured credit and even unsecured credit rather than their children’s school fees.

At government schools parents have the right to apply for either a full or partial exemption from school fees. That is not an option at private schools who may cancel the basic contract due to non-payment of fees – but only at the end of the year.

Payment of school fees is cyclical in nature with the fourth quarter of every year typically representing the highest proportion of fees paid. This is likely due to the fact that some schools withhold report cards until fees have been fully paid up, or because parents receive bonuses and use this income to settle school fee arrears.

The Covid-19 pandemic and subsequent lockdowns resulted in a larger proportion of parents not paying school fees in full. Given that schools rely on this income to meet their operational costs, the knock-on effect of this non-payment is that schools are struggling to meet their financial commitments.

As a result, 66% of government schools and 65% of private schools have been forced to make budget cuts since the onset of the pandemic. Only 23% of government schools and 26% of private schools managed their budgets on the fees collected, while 11% of government schools and 9% of private schools were forced to use their reserves to cover expenses.

A total of 34% of government schools and 62% of private schools prioritised payroll during the pandemic while 42% of government schools and 15% of private schools prioritised capex projects. Repairs and maintenance were prioritised by 20% of government schools and 14% of private schools, while 3% of government schools and 9% of private schools prioritised retrenchment packages.

Of those schools who made payroll cutbacks, 38% of private schools cut back on permanent teachers. Government schools made no cutbacks on permanent staff as these employees are paid by the national Department of Education.

Private schools also cut back on administrative staff (23%) and groundsmen (22%). Only 13% of government schools, on the other hand, cut back on administrative staff. However, government schools made much bigger cutbacks on groundsmen (38%), temporary teachers (25%) and coaches (13%). Overall, most schools did not terminate teaching positions but they did reduce salaries.

Unlike businesses in other industries which have introduced innovative strategies to reduce bad debt, schools have not re-imagined how they can reduce bad debt and continued to collect fees owed by parents based on old-school collection methods.

Bad debt was an issue even prior to the pandemic but is one that has been exacerbated by loss of income or reduced income since March 2020. Prior to the pandemic 75% of parents were able to pay their school fees. In 2020, during the pandemic, only 45% of parents had the ability to pay school fees. Parents have continued to struggle in 2021 financially, prioritising housing, groceries, transport and health ahead of paying school fees.

Schools that understand the risk categorisation profile of parents are better able to manage their budgets and reduce bad debt which is why TPN created a credit check solution specifically designed for schools in order to bring them into the credit bureau environment.

The solution works by collecting payment data on parents to develop a trends analysis. Each month parents are sent a SMS from the credit bureau to thank them when a school fee payment has been made, and to notify them on how their payment has impacted on their credit profile. This acts as a powerful tool to encourage better payment behaviour and allows parents to improve their credit rating simply by paying their school fees on time and in full.

One of the first schools to take advantage of this innovative solution recovered R1.3 million in bad debt for an investment of just R3 000. What this indicates is that schools don’t have to accept bad debt as a permanent line item on their financial statements and can drive better payment behaviour.

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