Financial burden on Low-cost Private Schools is real. How to overcome it?

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Financial Burden

Roughly four years ago, Sukhbir Gir took a huge leap of faith. He started running K-Star Academy, a budget private school, in Bhadwasiya, Jodhpur, so that the rural students could get a good education and speak English. He started with only 65 students and took the number to 300 over the next few years. But the last year has thrown up several challenges he has never encountered before. 

Inspired by John Milton’s Paradise Lost, in which the author writes about a perfect garden for humankind, Mr. Bala (name changed), a thoughtful school leader from a small village in Tamil Nadu, named his school after this description. He wanted to create a space for children in which the campus facilities would promote the students’ growth and prosperity. With the little money he had saved, he founded a primary school in Tiruppur. Similarly, the owner and headmaster of a small school in Islampur are dedicated to bettering the lives of students who attend Venus Public School.

These schools have been left in shambles in light of the pandemic. Many private schools in India are on the verge of closing their doors again, and they are concerned that the third wave could be their end.

The stress among private schools

The low-cost private school ecosystem faces big decisions about finances and retaining its students. The title “private schools” conjures up images of wealthy institutions that charge high fees on the promise of holistic education for children.  However, the vast majority of private schools in India — nearly 80% — are small-scale budget facilities that offer low fees but are viewed by many parents as better alternatives to government schools. However, the resumption of the lockdown has put a lot of stress on self-financed institutions as well as thousands of children in rural India. Economic distress and depressed incomes of parents, schools got shut (again) – and the monthly fee for a less-than-satisfactory remote learning experience does not help. What happens to the millions of children who rely on these private schools?

Due to poor student turnout amid the pandemic, private schools in India have been struggling to pay their bills and loan dues to banks and other lenders. Take Sukhbir Gir’s K-Star Academy for instance. The budget private school that runs classes from Pre-primary to Eighth grade has a strength of 350 students, with most hailing from the neighbouring villages in Jodhpur. For the past 20 months, it has been surviving on poor cash flows as most of the fees it collected got exhausted in paying salaries to its staff, repaying loan installments, and running online classes.  The most difficult task he encountered was training his employees to take online classes. Another problem was that some parents were having technical difficulties due to slow internet connections. Also, school owners operating on leased land and property are finding it difficult to stay afloat.

Furthermore, many students from private schools have already transferred to government schools in the last three years, according to the Annual Status of Education Report 2020 that surveyed 16,761 schools across India. The study, conducted by non-government body Pratham in Sep. 2020, said the reasons for the switch could be “financial distress” in households and “permanent school shutdowns” among private schools.

Possible solutions

As the new variant has spread, many countries are announcing national school closures.  Many are concerned that children and youth, while seemingly less susceptible to the virus and have a much lower case-fatality ratio, may serve as carriers for the disease, putting at risk older family members in communities across the globe where multi-generational households are the norm. In such times of uncertainty, having a sound financial plan can help schools mitigate risks and reaffirm priorities.

Broad financial planning objectives

The purpose of financial planning is to figure out how a budget school can afford to achieve its strategic goals and objectives. It minimises risk, improves visibility and control for better decision-making while increasing efficiency and allowing for long-term sustainability.

Private Schools can adhere to basic financial hygiene by:

i. Developing a strategic plan: In the COVID context, short-term sustainability goals should be prioritised over longer-term goals.

ii. Preparing a budget: Budgeting gives us control over our finances by allowing us to forecast our income and expenses.

iii. Reducing unnecessary costs: Prepare a cost-cutting strategy for where to cut costs.

iv. Maintaining transparency and accountability. Keep your parents, teachers, and vendors up to date on the school budget.

Transparent communication is essential for gaining parental support, helping them understand the need for fees to be paid early, and assisting teachers in understanding the need for pay cuts.

Allocate resources in line with planned objectives

School leaders need to ask themselves tough questions and establish priorities. In the current economic climate, what expenses can you afford to eliminate? Is it worth the risk of losing your teachers to competition if you don’t pay their salaries? Should you continue to make long-term investments?

How to go about reducing expenses (example):

Fig: Framework and tool to allocate cost cuts to resources in line with planned objectives

Click here to get free access to Varthana’s Financial Planning Tool

The “Runway” method

Private schools should focus on short-term sustainability and school leaders must “keep the engine running” until schools can restart in full swing.

The “Runway” tool is used to calculate how many months a business can survive on its current cash flows and monthly operating expenses.

Varthana’s Financial Planning Tool

Proactivity and flexibility

The onus is on school leaders to be proactive with their decision-making and communication with all stakeholders. At the same time, school leaders must be adaptable and ready to reverse decisions in response to the ever-changing context.

 

Looking ahead

The situation in rural India is not entirely hopeless. Many teachers have devised new ways to educate their students, such as using a WhatsApp classroom. Schools have been able to survive in this manner by providing paperless education and lowering costs. COVID-19 is teaching us that preparedness is crucial. As the emergency phase dissipates,  schools may transition to a “recovery” mode, with governments enacting policies and steps to make up for the lost time and education. The approaches may include adjustments to the academic calendar, prioritizing students in grades preparing for high-stakes examinations, and continuing with distance learning in parallel to schools. 

In the short term, governments must ensure that all students who attended private schools before COVID-19 return to school and continue to learn. Furthermore, it is their duty to support the development of an enabling financing environment that reduces credit constraints for low-cost private schools by facilitating access to external finance for quality improvements and crisis response.

Educational administrators and policymakers can use this crisis as an opportunity to introduce new learning modes that can reach everyone – rural and urban – and prepare them for emergencies, and make the system more resilient. 

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