How price transparency could spur demand for Jewish institutions

Jewish institutions have adopted non transparent pricing practices in order to theoretically bolster their economics, but there may be a better way

Jun 18, 2023

Why price transparency is an issue for Jewish products & services

Recent inflationary trends have exacerbated a dynamic that has long existed at Jewish institutions. The pace of price increases have largely outstripped income growth, and as a result the cost of Jewish living has become relatively more expensive every year. A simple Google search yields reams of studies dating back to the early 90s that capitulate this finding, and it’s hard to imagine that this dynamic will reverse itself any time soon.

Fortunately, most of our institutions have financial aid programs that subsidize the cost of taking part in Jewish life. Many of our day schools, here in Boston, on average discount their tuition rates for 20-30% of every dollar spent. If you take into consideration that half the families receive financial aid, this means that those half of families are receiving a 50%+ price cut on tuition, which for some equates to over $15,000 per year. For lower priced institutions, like summer camps, because the overall cost burden is lower on families they tend to on average give away a smaller but non inconsequential % of their tuition dollars. Regardless of the rationale, our community has made an effort to minimize the cost of Jewish living relative to income through need based financial aid.

Unfortunately, the existence of financial aid programs is on balance more opaque and filled with friction than it needs to be and as a result prospective families can be deterred from participation.

Take Jewish day schools as an example. Most day schools clearly state the retail price for attending. Most also have a financial aid section that articulates sometimes multiple forms of financial aid. Unfortunately this is where the efforts at clarity generally end. Most day schools let families guess how much aid they can receive. They publish statistics on how much they give out in aggregate, but provide limited clarity in terms of what that means for each specific family. The difference between $20,000 and $10,000 for what can be a 13 year product is a large sum of money. The typical schedule at day schools for applying for and receiving an answer are applications that are due in February, with an answer in March. Based on the fact that families start approaching schools in September of the previous year this is a 6 month limbo period where they are free to entertain other options.

For other institutions the implications of aid may be financially smaller, but can nonetheless add up. If a synagogue discounts its membership by $1,000 per year and the expected membership lifetime of a family is 20 years, including compounding the impact could be $30-40K. Overnight summer camps that carry a price tag of $12,000 for a full season could be even more acute. If half the families receive aid and the net tuition discount is 10%, that means the average aid-receiving-family receives 20%*$12,000 or $2,400 per year. If 2 kids go through 6 years as campers that is close to $30,000 even without compounding.

This is a problem because in all likelihood Jewish institution prices will continue to outstrip income growth. As a result our institutions will become more socioeconomically homogenous, thereby crowding out a segment of our families and detracting from valuable diversity. This will also reduce demand for their services thereby making it harder for them to sustain themselves financially.

Why Jewish institutions avoid transparency

Most Jewish institutions indirectly experience a benefit to both hiding their financial aid benefits and creating friction for those who decide to explore them. Here are a few reasons why this benefit exists.

1. Limited perceived incentive to tell anyone

The first reason is quite simple. If the existence of financial aid is not advertised people won’t ask about it. Some institutions advertise the existence of aid more than others. Most Day School websites contain an entire page devoted to financial aid and frankly most families who enter into the funnel will take it upon themselves to at least inquire. That said, for other lesser priced products like the aforementioned summer camp and synagogue membership it might not be as obvious that discounts are offered. If potential customers don’t ask for financial aid they won’t receive it.

2. Delaying communication on financial aid benefits the sales funnel

Most Jewish institution sales ‘funnels’ are not self-serve low consideration processes. Spending thousands on camp tuition or tens of thousands on day school is a highly considered purchase. In any highly considered purchase with an extended sales cycle there is merit in getting the prospect ‘in the door’ in order to sell them before you start talking about price. This is a tactic long used by salespeople in fields as varied as selling cars to selling insurance. Negotiating price is the last thing you want to discuss with someone at the upper parts of your funnel.

3. Financial aid partner incentives are not aligned with transparency

In the US, many Day camps and Day schools use a third party product called FACTS, which is a standardized process to collect both income and expense information from prospective families. FACTS uses that information to issue a tuition discount recommendation. The FACTS process is a relatively long and arduous web form that costs families $50+ to complete. The reason institutions use FACTS is that there is some expertise associated with calculating discounts, and by using a third party the institution protects themselves from the perceived bias of having done it on their own. Unfortunately this means that our institutions are wedded to the FACTS price point (which causes application friction) and their schedule of collecting data in February. In addition, because the FACTS calculation is proprietary Jewish institutions can’t give their prospective families insight any earlier than the predetermined period. All of these factors are built into the FACTS business model, and yet many educational institutions view them as the only option for making judgments on financial aid.

4. Financial aid math is squishy

Most institutions may hang their hat on a fact based fair process. In reality most financial aid processes leave room for squishiness. As evidence of this, many processes ask prospective customers “What do you think you can afford to pay?” This question then effectively sets an anchor price for the rest of the tuition setting process. In a world where this question and other allowable negotiation conversations occur it’s quite challenging for institutions to communicate the price of their sometimes discounted product.

5 ideas to consider

1. Institutions could clearly broadcast the existence of aid

This is the simplest thing an institution can do. If an organization gives out financial aid to 50% of the people who apply to it, that number should be a headline on multiple pages on their website. If the aid given out exceeds prospective family expectations that too should be broadcast. Most financial aid pages are either buried or have a lot of words and are not reflective of how people scan the average web page. They can do more to highlight key numbers both on those pages and in other locations on their website.

2. Institutions could simplify their financial aid offerings

This idea mainly applies to Jewish Day Schools. The clarity of many Day School offerings is diminished due to the existence of multiple different forms of financial aid. A common menu includes a basic need based financial aid program with need analyzed through the FACTS process, a program for middle income families, a program for clergy and/or Jewish professionals, and a teaser rate for new families. Some of these financial aid programs can be combined while others cannot. To the average family financial aid is financial aid. They don’t care about what the aid is called or how it's marketed. They want to know the price of the product they are purchasing. Since transparency and simplicity are two sides of the same coin, schools can enhance price transparency by simplifying their offering.

3. Institutions could make their process more objective

There are two arguments for having a more objective system for determining financial aid. One is that a more objective system is a fairer system. Why should parents who are better at negotiating with the institution or those that choose a lower price anchor point benefit from such a system? Institutions should seek to make their processes fairer by judging need almost entirely based on data. No system will ever capture every data point specific to a family, but there is an ethical argument to relying more on data. A data based approach also makes it easier for organizations to forecast out financial aid, thereby allowing them to iterate on their approach year after year. Last, a more objective system will allow organizations to create systems to assess rough need more accurately early in the sales/admission cycle.

4. Institutions can broadcast rough guidance

If you systematize your process and minimize the squishiness factor you put yourself in a position to actually offer price transparency. The question is how to express transparency while reflecting the inevitable uncertainty associated with the process. Here are two levels of transparency. One level of transparency is reflected on the website of the Helicher Jewish Day School in Minneapolis. They offer more granularity with respect to the likelihood a particular family can get financial aid. They express it in this clever chart that plots simply # of children vs household income.

Another more specific approach is a calculator, where a prospective family can enter a limited amount of information and receive some kind of more specific guidance. Toronto’s Generation Trust scholarship offers their own calculator that collects 8 data points and outputs a range. Here in Boston we’ve started to build out a calculator approach for our day schools at dayschoolcost.com. Its output analyzes 4 years of historical data at each school to find the range of values that 50%+ of our tuition assistance receiving families pay. The calculator is transparent about how its values are calculated and offers a call to action to set up time for a 1:1 consultation.

5. JFNA could create their own version of FACTS

Most Jewish organizations use the same company, FACTS, to collect financial aid data. I’m quite certain that there is some sophistication to the collection and analysis of the data. At what point, however, would it make sense for a centralized Jewish organization to collect its own data? Aside from owning the timing and transparency of data collection, the side advantages of such a system would be broader Jewish communal data collection which JFNA could use to fuel insights on a broad range of Jewish organizations including a better understanding of the cost of Jewish life. If they controlled ‘the black box’ they could also better design a system to give advance guidance to families looking to understand affordability.

Conclusion

There is both an ethical and business case to be made for price transparency. Since we already offer these benefits to families, through greater transparency all we’re doing is promoting something that makes our institutions more inclusive to a wider range of constituents. If done correctly it should also increase the demand we collectively drive. Fortunately, there are tangible steps that organizations can take individually and collectively to promote price transparency. None of these solutions is a grand slam, but perhaps parts of some of them are worth experimenting with. Since the cost of living a Jewish life seems to get worse year after year, investing in this arena should pay both short and long term dividends.

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