How high can private school fees go?

The benefits to small-group learning and a thought experiment about how the private school market might evolve in Australia

An interesting new report from Grattan Institute suggests that small-group tuition is a powerful learning method that could be incorporated into the schooling system to radically improve academic outcomes.

Small-group tuition – in which educators work with just a few students at a time in short, highly focused sessions about three times a week over one to two school terms – is among the most effective learning interventions available. Delivered well, it can add, on average, an extra four months of learning over a year, helping many students catch-up. The economic benefits are also huge: if one-in-five students received high-quality small-group tuition in 2023, they would collectively earn an extra $6 billion over their lifetimes – about six times the annual cost of tutoring programs.

This report is timely and raises some new ideas for me in the context of ongoing debates about private high school fees in Australia. Some elite private high schools, for example, now cost over $45,000 per student per year. When we see a pattern of a) small-group tuition being an extremely powerful learning method, and b) the price of premium large-group tuition schools rising dramatically, we see that there is a potential market for new niche small-group tuition private schools.

This article is a brief thought experiment about how the market for private schools might evolve under these dual pressures by way of new small-group “virtual schools”.

The fundamental number relevant to the analysis of the feasibility of small-group tuition school is the cost of paying a teacher. In a public school, teachers make $75,000 to $120,000 per year, with salaries higher than this for school principals and other senior staff, and often at private schools.

Source: https://www.education.vic.gov.au/hrweb/Documents/Salary-Teacher.pdf

If we are thinking that we need $135,000 all-in cost to pay one teacher (salary plus benefits), that is only the school fees of three students at the most elite private school. If you have three children at an elite private school, it is costing you as much as employing one teacher full-time to tutor your own children! Since small-group tutoring is such an effective way to learn, this clearly seems like a good investment.

Of course, most private schools cost far less. Only the top 9 private schools in Brisbane, for example, cost more than $20,000 per student per year. In Sydney there are about 45 schools charging more than that and about 60 in Melbourne. Most private high schools charge between $5,000 and $15,000 per year.

Source: https://www.privateschoolnews.com.au/brisbane-private-secondary-school-fees

Imagine this scenario. You want your children to be literate across the core areas of language, maths, science, and humanities.

A new “virtual school” has started that offers teaching in student homes or other public locations, and social activities integrated into the broader community. They offer a program costs $9,000 per student that is

1. small group tuition (4-5 students) for 3 hrs either in the morning or afternoon, and

2. cultural activities like sports, music, excursions, etc. for the rest of the day in larger groups.

Since school is only six hours per day for 40 weeks per year, with intensive instruction three hours per child per day tutoring in small groups during those same weeks is more than sufficient. An intensive tutoring school could teach a three-hour morning session for one group of students, and then a three-hour afternoon session for another group.

This “virtual school” has one teacher per nine students for teaching, but when actually in class it is about one teacher for 4.5 students on average, just like the intensive small-group tutoring that is so effective. A school with 90 students would have 11 teachers altogether (assuming one teacher could handle 45 students for cultural activities), or about 8 students per teacher. Add a couple more people for administrative duties, and you have one staff per 7 students.

Seven children per staff means about $17,000 per child cost for the teachers and staff salaries. If your school qualifies for federal funding, you might be able to get something like $8,000 per student from the government, so now you are at $9,000 per student for the cost of the teacher. This is competitive with many private schools, and, if small-group tuition is so powerful a learning tool, probably a very academically effective way to spend money on schooling.

Source: https://www.education.gov.au/quality-schools-package/fact-sheets/how-are-schools-funded-australia

These are just initial thoughts about where schooling might evolve in the future, and there are of course major outstanding issues.

First, facilities. Schools are people but they are also facilities. The cost of private schools pays for a lot of sports and music equipment, airconditioned buildings, and more, which would be additional expenses.

Second, and the bigger challenge for new competitors in the schooling market, is that value being paid for is more than academic learning. After all, there are plenty of wealthy families paying about $100,000 per year to school their three or more children even though they could hire their own tutors to get much more effective academic learning outcomes in small groups. They send their children to these expensive elite schools anyway as an investment in social networks.

We know that peer groups are hugely influential on children’s academic and social outcomes. A “culture of success” is a real thing. These peer groups pay off not only in the form of better academic learning and important social and organisational skills during school but in the form of enduring friendship networks that can have huge payoffs over decades of working lives. Hence, the trade-off for new schools that might want small groups and virtual campuses is the loss of social network benefits that are one of the higher value attributes parents pay for at existing private schools.