The Business of Private Schools

Everyone knows private schools are expensive, but how much do you really know about the financial side of them?

Private schools are a business, after all. But how do they make money? How do they spend money? Why do people donate?

It’s more complicated than it seems.

That’s what I’ll be diving into today. I’ve got insights, anecdotes from my own experience, and even some ways to invest in private schools through private equity.

Let’s go 👇

Private schools are taking market share

The average cost of a private high school in the US is ​$15,000 per student per year​.

It’s a steep figure for sure. But parents are more willing to pay than ever.

In 2024, nearly half of US private high schools saw a ​boost in enrollment​ compared to the prior year.

This boost isn’t (just) due to a population increase; it’s because enrollment in public schools has ​declined​. Private schools are taking market share.

Parents are willing to bet that $15k/year translates directly into value. Smaller class sizes, elevated curriculums, a focus on faith in some cases, and a growing ​lack of trust in the public system​ are increasing enrollment.

A less documented (but just as real) benefit is young adult networking. Aka, the chance for your kids to mix and mingle with kids you expect to be just as successful enough as their parents.

I was in private schools for a good chunk of my childhood, and I think there’s some truth to this. Heck, my high school English teachers quite honestly gave my University of Toronto professors a run for their money!

But there’s one enormous reason private school enrollment is up, while public enrollment is down: The pandemic.

Covid caused a huge shift away from public schools

While private school enrollment is up since Covid, the bigger story here is really the shift ​away from public schools​.

The pandemic caused a notable shift in public school enrollment trends. The shift was originally driven by safety concerns, and later dissatisfaction with remote learning.

Even parents who had sent their kids to public school for years switched to private & charter schools. ​Homeschooling tripled​.

Between fall 2019 and fall 2021, private school enrollment increased 4.3%. Source: ​The Urban Institute​

As of 2022, private school enrollment in the US was approximately ​4.7 million students​, or 9% of all K–12 students.

The shift is potentially an enduring one; the hypothesis being many families who avoided public kindergarten in 2020–21 instead chose private schools, and will remain with that choice.

Private schools aren’t just for legacy families who attend generation after generation anymore. The bubble is opening up.

During the pandemic in Canada, I remember feeling shocked that Zoom classes were considered sufficient enough a replacement for in-class attendance — especially for younger kids. (Liquor stores were considered essential businesses though! You know, in case alcoholics went through withdrawal.)

We’re seeing the effects of these setbacks now. ​Absenteeism rates have doubled​. There seems to be a general consensus that missing school is ok.

The point is that covid caused kids to fall behind, and those academic setbacks were significant enough for parents to shell out the big bucks for better options.

Emily Glickman, President of Abacus Guide Educational Consulting, calls this switch “​unprecedented​.”

How do private schools make money?

Increased private school enrollment is expected to yield an ​additional $5.2 billion in revenue​ from 2022-2030.

Yet surprisingly, not all of this revenue comes from tuition. Private schools get money from many sources, sometimes even the government (!)

Tuition

Private high school tuition costs an average of $15,000 yearly. However, this average is brought down by religious schools, which tend to be less expensive.

Within private schools, Catholic schools remain the largest segment, but are no longer as dominant as in the mid-20th century.

Even before the pandemic, Catholic school enrollment was falling, and nonsectarian enrollment was growing. Source: ​NCES​

My parents paid around USD $9,000 for my private high school tuition — a Catholic school in Toronto (shoutout to ​De La Salle College​!)

But over the past decade, my alma mater has since increased tuition to about USD $13,000. As part of their faith-based affiliation, this school gets money from ​Brothers of the Christian Schools​.

Here are the prices for some secular private schools in Toronto (in USD):

  • Appleby College: $40,570
  • Upper Canada College (Boys): $31,287
  • Bishop Strachan School (Girls): $29,368

These figures are similar in the US.

The average tuition for non-religious high schools is ​$27,000​. But some private school costs are double that amount:

  • Milton College (Massachusetts): $65,980
  • The Thacher School (Ojai, California): $63,080
  • St. Albans School (Washington DC): $56,966

Tuition for private high school education keeps increasing, along with university tuition, groceries, and housing costs.

In the UK, private school costs have increased by 55% since 2003. The UK government is also slapping a ​20% VAT tax​ on private school tuition starting in 2025.

Government funding

In the US, private schools typically don’t get government funding. But that is not the case everywhere!

The Canadian government absolutely subsidizes some funds for private schools; the amount depends on the school and province.

Scandalously, ​Quebec has received flack​ for the perceived superfluous taxpayer investment in private schools. Specifically, the government will give private schools 60% of total funds per student that they normally give to public schools.

It’s a similar story in other Canadian provinces — for every $1 given to public schools, private high schools commonly receive $0.50.

In fact, Australia’s federal government actually funds private and public schools almost equally. Of the AUD $29 billion in education subsidies, an astounding ​62%​ of funds go to private schools!

This ​overfunding​ is contentious; imagine not being able to afford private school for your kids, yet being forced to fund them with your taxes. Talk about taxation without representation.

This phenomenon has led to private schools that outspend public schools ​600 to 1​, and grow richer than companies on the stock exchange, with a staggering ​42% rise in asset values​ from 2015-2019.

Australia is running a private high school economy. From 2015-2019, private school assets grew ~2x faster than the ASX, and ~4x faster than residential real estate. Sydney’s ​Shore School​ alone is literally worth half a billion dollars.

Donations

Donations make up a surprising chunk of revenue.

Just look at ​Marymount College​ in New York — a prestigious, private K-12 school for girls. At $64,600, you’d think tuition would be enough to cover everything.

Yet the school also conducts regular fundraising for their annual fund. Last year, on top of making tuition payments, 89% of parents contributed to the school’s $2.9 million endowment fund. The rest was funded through alumni.

This is consistent with findings from a recent ​CASE​ study (Council for Advancement and Support of Education), which explored the makeup of donors to private schools in 2022:

Why do parents and alumni donate money when they’ve already spent so much on tuition?

There are tax benefits, sure. But that’s not the main motivator.

There’s a whole culture that surrounds people’s decisions to donate to private schools.

One ​research study​ in the Journal of Economics, Business and Management found the following motivations:

  • Continuing the family line: Many alumni donate to schools to enhance the chance of their children being accepted.
  • Social influence: If you care about what others think, you may get a rush from the perceived elevation in social status from donating.
  • “Returning the favor”: Some donate to give back to a school they believe helped them in life.
  • Tax deductions: It’s not the primary motivator, but an undeniable perk on top of everything else.

Revenue breakdown

When you donate to a private school, the money goes into their endowment fund, which gets invested across various funds and asset classes (including ​alternatives​).

In the US, tuition and auxiliary revenue (fees, housing, food) typically account for about half of a private school’s annual revenue, while investment returns account for 33%.

Expenses

Most private high schools have similar revenue-to-expense ratios. Facility maintenance, events, salaries, and scholarships definitely take a big chunk out of the pie.

For example, your ​average private school teacher’s salary​ ranges from $90k to $168k in the US, depending on experience and location.

Interestingly, many private schools record higher expenses than revenue. The Thacher School reportedly has $22.6 million in revenue and $297 million in assets, but ​more money going out​ than coming in.

I’ve ​analyzed the financials​ for 10 private high schools across the US; focusing on revenue, expenses, liabilities, and assets.

I found the aggregate expenses exceed revenue by a small margin:

Assets vs liabilities

What’s really interesting to me here is the asset value. And when we’re talking about assets here, it’s not lab equipment — we’re largely talking about real estate.

This illustrates a common saying about universities, which are referred to as “real estate companies that just happen to be in the education business.” (Or “​billion dollar hedge funds with schools attached​.”)

But that’s not entirely fair! After all, real estate companies have to pay federal taxes. Private schools are exempt.

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Private schools have nonprofit status

Charitable status keeps taxes low for private schools.

Specifically, most private schools in the US operate as 501c3 organizations — a designation which makes them eligible for ​all sorts of exemptions​.

We’re talking:

  • No federal tax (on revenue related to education activities, i.e. most revenue)
  • No property tax (in many jurisdictions)
  • Possibly additional state & local tax breaks

These benefits are justified by the schools’ educational mission, and their commitment to operate without profit.

However, the tax exemption only applies to income related to their academic mission. If they distribute any profits to shareholders, they’ll lose their tax-exempt status.

And there’s still a gray area regarding ​tax deductions for religious charitable donations​.

How to invest in private schools

Private schools are hush-hush about investment opportunities.

While I found some private equity firms offering bonds for their portfolio of private schools, it’s extremely rare for schools to offer direct investment opportunities themselves.

Remember, schools can’t enjoy their tax-exempt status if they’re distributing profits to shareholders. This is why their funding comes from tuition, donations, and endowments, and they reinvest any surplus back into the school’s mission (including salaries for themselves).

Interestingly, I reached out to my old high school, De La Salle, and they said they’ve considered private investment models in the past, but don’t currently offer any.

Private equity & private schools

One of the few ways to invest in private schools is through private equity funds.

You may be wondering why private equity firms would invest in private schools if the schools cannot distribute returns to shareholders?

Simple: While most private schools are nonprofit, there is a growing market of for-profit private schools, especially internationally or in sectors like vocational training, online education, and private tutoring.

  • New Harbor Capital: Based in Chicago, this mid-level private equity firm invests in K-12 and post-secondary education businesses.
  • LLR Partners: This Philadelphia-based private equity firm manages a portfolio of $25m to $100m in companies within the education, health, and SaaS sector, including K-12 private schools.

Anyone in Florida? You may have heard of ​Millpond Equity Partners​, a firm that recently invested in ​Galileo Education​, a company that owns several private day schools.

“We are excited to assist [Mark Claypool, CEO of Galileo Education] and his team in building a leading PK-12 education provider serving non-traditional students and those with special needs. As the demand grows for excellent, effective private schooling that is tailored to the needs of families and students, Galileo is well-positioned to meet the needs of this market. We look forward to adding to the current portfolio.”
​Larry Shagrin​, Millpond Equity Partners

There’s also a Canadian PE firm, ​Tapestry Community Capital​, that recently introduced bond investment options for individuals who want to invest in a new location for the already established Toronto private high school, ​Kingsway College​.

With this model, you loan your money to Tapestry and collect interest. Returns vary depending on your investment and time period, but tend to be sub-7%.

Finally, private schools are becoming big business in the Middle East — especially in the ​United Arab Emirates​, which caters to high-income and international residents.

​Safanad​, a Dubai-based private equity firm, was a founding investor in Global School Management, a company that owns over 175 private schools internationally.

​GSM recently acquired the Crown Private School of Ajman​ (a city in the UAE, though the school has a British curriculum

This comes after a $200 million investment into private schools in the Middle East from Safanad and GSM in 2022:

“We see long-term opportunity for private international education in MENA, where there is strong demand from families for a high-caliber education and a commitment from governments to ensure these needs are met,”
Ron Packard, Founder & CEO of Global School Management

Closing thoughts

I do wonder about the “endgame” for many nonprofit private schools.

Revenue and demand are higher than ever before, and tuition continues to rise, along with AUM asset value (ha ha).

But do they just keep expanding forever? Continue increasing student admissions? Keep grabbing land?

Or would they rather go the Harvard/Stanford route? Turn into elite gated communities; limiting how many students they take in, and continuing to pay sky-high educator salaries?

I think it depends on the school. But one thing’s for sure: with all this tuition money comes a ton of responsibility. To the parents, donors, and above all, the students.

The entire industry relies on outcomes. Status and bragging rights only matter so much — and frankly don’t matter at all if student outcomes don’t keep up with expectations.

At some point the high tuitions are no longer worth it, and the whole thing starts to fall apart. (We see this happening with ​US universities​ compared to international ones.)

My take is that as long as parents can afford to keep paying, they will continue to do so. The public system is often stretched thin, burdened by ​rising teacher attrition​, poor salaries and chronic stress and burnout.

Some parents also crave more ​cultural alignment with their family values​, which private schools might offer, especially faith-based ones.

Yes, things are getting more expensive, but I actually think this works in private schools’ favor. I’d imagine parents want to do everything they can to give their children an advantage in life.

Rightly or wrongly, private schools are perceived to give exactly this 🎓

That’s it for today!

Reply to this email with comments. We read everything.

See you next time, Chrissy

Disclosures

  • This issue was written and researched by Chrissy Kapralos, with additional research and editing by Stefan von Imhof.
  • Thanks to Dr. Kate Barnett OAM for contributing to this issue
  • Neither author has any holdings in any of the companies mentioned in this issue.
  • Altea has no holdings in any companies mentioned in this issue.

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Chrissy Kapralos

Chrissy is a freelance writer based in Toronto, and runs a small writing agency called No Worries Writing. She started her career in communications with the Ontario Ministry of Energy before branching out as a freelancer to explore more finance, marketing, and travel content. She loves more traditional and physical investments like gold and real estate, but she enjoys investigating other innovative ways to make money. When she isn't writing, she's eating lots of Greek food and hanging out with doggies.

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