As we create new programs, new financial models, or innovative support systems for theological education, we may find that the traditional ways of measuring the financial impact of our programs are not as helpful as they once were. That is exactly what we have found at Northern Seminary. Today I want to look briefly at a new financial calculation I created for us to use at Northern. We have found it to be very helpful, so I am sharing it in case it is also helpful for you.
Tuition and Net Tuition
Many of us are very familiar with the concepts of tuition revenue and net tuition revenue. The image below shows the formula for each. Basically, tuition revenue is simply the number of credit hours taken multiplied by the tuition rate per credit hour. Net tuition is simply tuition revenue minus a discount. I am intentionally using the word discount because it is applicable across all schools. In this case, I am using the word discount to mean anything that reduces the tuition revenue paid by the student. It would include scholarships given by supporters, grants from the institution or a foundation, or simply a tuition discount.
Our problem at Northern was that these two numbers we not helping us explain certain types of positive financial growth. We had recently launched our partnership model of theological education and our financial strength was increasing quite dramatically. However, we noticed that the net tuition for some of these programs was lower than it was for many of our other programs. Was our new model actually having a negative financial impact on the seminary?
Direct Net Tuition
I decided to look deeper and ended up creating what I refer to as Direct Net Tuition; which is basically, net tuition minus direct instruction cost per student. The image below shows the formula. For the sake of brevity and simplicity, I am using a very straight-forward situation for this blog post. The model works for more complex situations, but those explanations work better in conversations! In this instance, I am looking at the direct net tuition for a course taught by an adjunct professor who is getting paid $3,000 to teach the course and has 8 students in his or her course. Based on my conversations with other seminaries, $3,000 is a pretty standard rate. The number of students is impacted by an institution’s average class size. I am using 8 because 8 is a pretty common average class size for schools across ATS (and the math is easy to understand!).
So how did this new calculation help us? To answer that, we first need to look at what was happening. In the image below, you will see that the net tuition for the new model (74%) is lower than net tuition for the previous traditional model (75%). This is exactly what was happening at our seminary. Our new system of theological education was producing less net tuition, but our overall finances were improving. Now, it would have been easy to point to a decrease in cost and say, “Aha! That is why!” Unfortunately, that method doesn’t help explain what is actually happening. We didn’t want to expand this model of theological education until we knew more.
Direct net tuition gave us the information we needed. In the image below, you are able to see that when direct instruction costs are accounted for, the new model provides a direct net tuition of 67% versus the traditional model’s direct net tuition of 48%. The new calculation opened doors to many different types of financial modeling and has continued to be very useful.
We first began using this calculation two years ago. It allowed us to be very innovative in the way we handled instruction costs, financial aid, and academic planning. Eventually, it allowed us to create a model where faculty could actually be paid more per course than adjunct professors in our traditional courses. Finally, because of the impact it had on our financial aid processes, not only is direct net tuition higher in our new educational models, but also net tuition is now higher as well.
Why Share This?
I am simply sharing thoughts and a financial calculation that has seemed to work for us. We are not perfect, and we have much on which to improve. However, I care deeply about the system of theological education so when something seems to work well, I like to share it with my peers; that is why I share my presentations on this site. Among other things, they show different ways we have increased student hours and how we created our partnership model. We are all serving the kingdom so hopefully some of this is helpful. I am not trying to hold this up as the example of what you should do. Instead, I hope to start a conversation about what’s possible.
Since I began using it, I have expanded this calculation to cover many different types of instruction formats and costs. I would love to hear your thoughts as well as your critiques. If you would like to hear more about how we have implemented this calculation here at Northern, feel free to contact me!