Worried About Inflation? So Are We -- Meet the Moment, July 17, 2022

Inflation is now at 9.1%, putting pressure on the Federal Reserve to raise interest rates at an aggressive pace, increasing the likelihood for a recession.

That’s a sentence I never thought I would use to open a blog post for Academic Leaders. But, here we are. We know the impact of inflation on our own pocketbooks, but what might higher inflation and interest rates and a recession mean for our schools and thus our work leading the academic missions of our schools.
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Upward Pressure on Salaries: Harder to Hire Top Faculty and Administration
Rising inflation has already caused and will continue to cause upward pressure on faculty and administrative salaries, particularly because two of the largest drivers of current inflation are housing and energy costs. In many independent school communities, faculty and staff have been priced out of close-to-the-school housing, with already high or fast-increasing housing prices. The alternative, long commutes, looks less and less appetizing with higher gas prices. Anecdotally, we’ve heard from many Academic Leaders this summer that it is harder and harder to recruit faculty from out-of-town to a new location, because of cost-of-living concerns. All of this will create upward pressure on faculty and administrative salaries over the next few years. And, let’s remember that faculty and staff salaries and benefits already account for 63% of the average independent day school’s expenses.

Downward Pressure on Tuition: Less Resources to Fund the Academic Mission
Inflation is, of course, not even across all sectors of the economy. That is, in some sectors, inflation has risen more than 9.1% (housing, grocery, and energy), whereas in other sectors, inflation has not risen at all or only modestly. According to the United States Bureau of Labor Statistics, elementary and high school tuition have risen just 3.1% in the last year. In addition, there may be greater pressure on schools to increase financial aid (and thus have less net tuition) with a recession. And, at the upper end of the wealth spectrum, high net worth families who rely on investments for income (or grandparents who pay for their grandchildrens’ tuition) may have less ability to take on tuition increases or less appetite for development initiatives.

Value Proposition: A Need to Prove Worth (Over and Over Again)
Inflation will also mean that school leaders must focus on and communicate their schools’ value to existing families over and over and over again. As families think about where they may need to cut back in their own expenses, schools will need to remind them of their value – how their child’s education should be the last place for cost savings. Independent schools are well positioned for this following the COVID pandemic. 

A Bright Note: Increased Innovation
On the bright side, recessions almost always spawn innovation. In recessions, individuals and institutions must be more creative with limited resources. Contrary to popular belief, constraints spawn innovation. A 2019 Harvard Business Review article notes why: “when there are no constraints on the creative process, complacency sets in, and people follow what psychologists call the path-of-least-resistance – they go for the most intuitive idea that comes to mind rather than investing in the development of better ideas.” Monetary constraints can be particularly helpful in spawning creativity. Consider that the Online School for Girls, now One Schoolhouse, was founded in the 2008-2009 recession as a means for expanding opportunity and reducing costs for schools. Prior to 2008, there would have been little interest in online education as a potential solution for handling low enrollment courses on campus. Today, it is the norm at most schools around the world. Economic constraints spawned innovation. ​