Discount Rate

Introduction The following letter from the director of admission presents the experiences of a small day school grappling with the effects of implementing sibling discounts. This case study provides valuable insights into the financial challenges around discounting. In this letter to me, it is about sibling discounts. The Letter: We’re a small day school, under 300 students, and no endowed financial aid. About four years ago, our board decided to implement a sibling discount, without much thought or administrative input. This was intended as a way to say “thanks” to current families and to try to reduce attrition. However, over the next few years, the board discovered that the sibling discount had little impact on attrition, and the average annual gift didn’t increase. Since tuition doesn’t cover the full educational cost per student, siblings were essentially receiving an even better “silent” scholarship than other students. Some parents, even those eligible for the discounts, criticized the board for this costly decision and chose not to take the discount. Additionally, because our financial aid is not endowed, the sibling discounts were essentially coming out of teachers’ pockets. The board eventually phased out the sibling discount, but we’ll continue to feel the effects until the last sibling benefiting from it leaves. In short, this was not a wise decision for a school like ours. We found it much better to price tuition fairly based on the best available information, spend wisely to demonstrate financial responsibility, increase teacher pay for jobs well done, offer a quality educational product, and educate families about the process. Most families respect this approach and don’t focus on the absence of discounts. That’s our story—hopefully, it provides you with some food for thought. The Dilemma of Sibling Discounts Sibling discounts, while appearing to be a gesture of goodwill towards families, often come with unintended consequences that can affect a school’s financial health and the quality of its educational offerings. In the case outlined in the letter, the school faced significant challenges after implementing sibling discounts. Financial Strain on Schools One of the most significant dilemmas for small schools when offering sibling discounts is the financial strain it imposes. As the letter notes, tuition rarely covers the full cost of education per student. By offering a sibling discount, schools essentially reduce their revenue further, leaving them with fewer resources to cover operational costs. In the case of the school in the letter, these discounts were likened to “silent scholarships,” with siblings receiving more financial aid than the typical student. This financial gap was felt acutely because the school’s financial aid was not endowed, meaning the funds had to come from existing operational budgets, potentially even impacting teachers’ salaries. Impact on Attrition and Enrollment The initial intent behind implementing a sibling discount was to reduce attrition, keeping more families with multiple children enrolled in the school. However, the school discovered that the discount had little to no impact on reducing attrition. This raises a key question: Does offering sibling discounts really influence family decisions to stay at a school? For many families, the quality of education, community environment, and overall experience are far more critical factors than the financial relief of a discount. Thus, while well-intended, sibling discounts may not serve as the retention tool they are often believed to be. Perceived Value and Equity Interestingly, even some families eligible for the sibling discount chose not to accept it. This suggests a potential issue with the perceived value and equity of such a program. While the discount was meant to ease the financial burden, some families may have seen it as an unfair advantage or questioned its necessity. Then there is the question of giving away resources that could be used to better serve the program. Others may have felt that accepting the discount would undermine their commitment to supporting the school fully. Sustainability and Fairness For schools without substantial financial aid endowments, sibling discounts may simply not be sustainable in the long run. As the school in the letter discovered, the lack of a financial cushion meant that the discounts were a burden rather than a benefit. Moreover, fairness becomes an issue—if all families are already receiving some form of financial aid through below-cost tuition, adding a sibling discount compounds the financial gap. Schools must consider whether offering additional discounts is truly feasible and whether it aligns with their long-term financial sustainability. A Better Alternative The solution the school eventually arrived at was to phase out sibling discounts and focus instead on pricing tuition fairly, increasing teacher pay, and offering a high-quality educational product. By educating families about the true cost of education and demonstrating financial responsibility, the school found that most families were willing to accept the absence of sibling discounts. This approach not only stabilized the school’s financial situation but also allowed them to prioritize what mattered most: delivering an excellent education and fairly compensating their staff. Conclusion The experience of this small day school illustrates the complexities and potential pitfalls of offering sibling discounts. While such discounts can seem like a kind gesture to families, they often strain a school’s finances, offer little impact on attrition, and may not align with long-term sustainability goals. Schools must carefully weigh the costs and benefits of sibling discounts and consider whether other strategies—such as fair tuition pricing, offering a program that is valuable, targeted financial aid, and transparent communication with families—might better serve their community and mission.