School Governance has published a series of articles over recent years regarding non-payment of school fees, commencing in 2015 with School bankrupting parents over unpaid school fees. This was followed in mid-2017 with How do you deal with parents who will not pay school fees?.
Then in early 2019 we published Students who are MIA at the start of the school year and most recently School Fees in 2040 - On the Basis of the Current Educational CPI, Will Non-Government Schools Price Themselves Out of the Market?
A common theme of these articles is the difficulties that schools face when the parents are not meeting their contractual obligations to pay fees but the school is fulfilling its contractual obligations to care for and educate the child. It is crucial to recognise that, regardless of whether fees are being paid, if the child is in attendance, the school owes the child a duty of care. That duty is not diminished by a failure of the child’s parents or carers to pay the fees.
As we have noted in our previous articles, there are many reasons why families do not pay their school fees. They include financial pressures and strained relationships among split families where, for example, one of the child’s carers does not make their payments, or withdraws the child from school without notice, so the child is Missing in Attendance (MIA).
Financial Risk to Schools of Non-Payment of Fees
We are also now seeing that some families who owe fees are prepared to share their grievances about a school with the media. Schools need to consider carefully how to manage the risk that a matter that they are obliged to treat as private may suddenly become very public. A badly-managed public spat over unpaid fees could be more financially damaging to a school than the loss of the amount of fees in contention. However, we are not necessarily advocating that schools write off a debt just because it is being discussed in a public forum.
In 2014, we wrote: “On a slow news day you might even find your school the subject of unwanted media attention. This will invariably lead to reputational damage and loss of productivity as executive staff are called in to fight the fire. A fire that could easily have been avoided if only the complaint had been heard and managed properly in the first place.” This approach is also appropriate in relation to families who are tardy with fee payments. Schools generally try to manage the late-payment situation first before it grows out of proportion.
How Can a School Mitigate this Financial Risk?
Often, families who are experiencing financial stress are encouraged to meet with the school principal or business manager to discuss their situation and to make alternative arrangements for the fees to be paid, ensuring that their child/children can continue to attend the school.
Non-government schools offer a range of strategies for families who have legitimate reasons for being unable to pay their school fees. These include deferment of the fees for an agreed period, fee remission programs, bursaries, reduced payments over time and even, in extreme cases, the writing-off of the fees for a semester or a year. Schools that choose to offer any form of fee instalment arrangement must ensure that they enter into a new contract with the parents and that the contract complies with the National Credit Code.
Schools do not want to lose students, even if they have waiting lists, because they know that the disruption of a change of school for the affected children can often be detrimental. In addition, there is a sense of genuine loss for schools when children do not return. However, given the prevalence of the non-payment of fees in non-government schools, it needs to be recognised as a financial and reputational risk that requires strategic planning, budgeting and careful development of enrolment contracts.
In 2009, David Ford of Emil Ford & Co prepared an invaluable resource for schools in “The Enrolment Contract” which he updated in 2018. Ford argues that the enrolment contract is a crucial document that ensures that schools and families clearly understand their responsibilities and accountability regarding the enrolment of a child into the school. A failure to get it right at the get-go could result in problems down the track if fees are not being paid.
A recent Supreme Court case in South Australia highlights, yet again, that a failure to get an enrolment contract right can cost a school far more that the fees that they are trying to recoup. Paul O’Halloran of Colin Biggers & Paisley Lawyers has written a very sensible reminder (read this as warning) to schools, on the basis of the ruling, to get their enrolment contracts right or be prepared to deal retrospectively with this risk.
In this case, the school was unable to recover almost $20,000 in unpaid tuition fees. O’Halloran notes that this was because the original enrolment contract signed by the parents in 2009 contained the following deficiencies:
- it did not make it clear that the relationship between the school and the parents was an ongoing one
- it did not expressly state that the contract would continue in force beyond the end of each school year unless subsequent steps were taken
- it indicated that school fees would be reviewed each year, which was suggestive of a series of annual contracts, rather than one underlying contract.
O’Halloran’s opening statement could not be clearer:
“The enrolment contract between the school and parents is a legally binding document. In the event of disputes, such as unpaid fees, the enrolment contract will be the basis of any fee recovery action. It is therefore critically important that its terms clearly outline the relationship between the school and the student’s parents or guardian. Unfortunately, many enrolment contracts we see schools using are outdated, inadequate, and in some cases contain unlawful terms.”
Ford’s paper begins with a similar statement:
“The enrolment contract is the fundamental source of the obligations that a school has to its parents and that they have to the school. Accordingly, it is vital to ensure that:
- the contract is only entered into when the school has decided that it has the resources to provide its educational offering to the student and that the parents have the resources to pay for that service; and
- the contract includes appropriate and necessary terms.”
In very broad terms, in addition to addressing crucial matters such as consent in a privacy context, a parent code of conduct, school discipline rules, and work, health and safety matters, an enrolment contract should determine the term of the contract, who will pay the fees and what will happen if default occurs.
Note that the enrolment contract is a separate document from the enrolment application form. The application is simply that - an application to attend the school. It is not a binding contract.
Schools are encouraged to have their enrolment contracts vetted and updated by legal advisers on an annual basis.
One very clear way to mitigate the financial, legal and reputational risks associated with possible late or non-payers of school fees is to have a clear and fair enrolment policy and enrolment contract.
Many schools enrol more than 100 new students per year. Even smaller schools will enrol at least one cohort into Kindergarten or Year 7. Schools should not leave anything to chance. They would be unwise to put off this action until their next registration visit.