Private School Donations

Why do private schools need to fundraise?

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Most everyone knows that attending private school usually means paying tuition, which can range from a few thousand dollars to more than $60,000 a year. Believe it or not, some schools have even been known to have annual tuition fees that hit the six-figure mark. And despite these large tuition revenue streams, the vast majority of these schools still fundraise through Annual Fund programs, endowment giving and capital campaigns. So why do these seemingly cash-rich schools still need to raise money above and beyond tuition? Learn more about the role of fundraising in private schools and the difference between each fundraising effort.

Let's find out ...

Why Do Private Schools Ask for Donations?

Fundraising. Heather Foley

Did you know that at most private schools, tuition doesn't actually cover the full cost of educating a student? It's true, and this discrepancy is often called "the gap," representing the difference between the true cost of a private school education per student and the cost of tuition per student. In fact, for many institutions, the gap is so great that it would put them out of business rather quickly if it weren't for donations from loyal members of the school community. Private schools are typically classified as non-profit organizations and hold the proper 501C3 documentation to operate as such. You can even check out the financial health of non-profit organizations, including most private schools, on sites like Guidestar, where you can actually review the form 990 documents that non-profits are required to complete annually. Accounts on Guidestar are required, but are free to access basic information. 

Ok, all great information, but you may still be wondering, where does the money go ... the truth is, the overhead of running a school is quite large. From faculty and staff salaries, which often accounts for a majority of school expenses, to facility maintenance and operations, daily supplies, and even food expenses, especially at boarding schools, the cash flow out is quite large. Schools also offset their tuition for families who can't afford the full cost with what is called, financial aid. This grant money is often funded by operating budgets, but ideally would come from endowment (more on that in a bit), which is the result of charitable donations. 

Let's look at the different modes of giving and find out more about how each type of fundraising effort can benefit the school. 

Fundraising Effort: Annual Fund

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Nearly every private school has an annual fund, which is pretty much what the name says: an annual sum of money that is donated to the school by constituents (parents, faculty, trustees, alumni, and friends). Annual Fund dollars are used to support operational expenses at the school. These donations are usually gifts that individuals give to the school year after year, and are used to supplement the "gap" that most schools experience. Believe it or not, tuition at many private schools— and the vast majority of independent schools (Wondering about the difference between private and independent schools? Read this.)—does not cover the full cost of an education. It's not unusual for tuition to only cover 60-80% of what it costs to educate a student, and the annual fund at private schools helps make up this difference. 

Fundraising Effort: Capital Campaigns

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A capital campaign is a specific period of time for a targeted fundraising effort. It can last months or years, but it has definitive end dates and goals for raising a large sum of money. These funds are typically earmarked for specific projects, like constructing a new building on campus, renovating existing campus facilities, or to significantly increase a financial aid budget to allow more families to attend the school.

Often, capital campaigns are designed around pressing needs of a community, like additional dormitories for a growing boarding school, or a larger auditorium that allows the entire school to gather at once comfortably. Perhaps the school is looking to add a brand new hockey rink or to purchase additional land so that they can increase the number of playing fields on campus. All of these efforts can benefit from a capital campaign.

Fundraising Effort: Endowments

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An endowment fund is an investment fund that schools establish in order to have the ability to regularly draw upon the invested capital. The goal is to grow the money over time by investing it and not touching the vast majority of it. Ideally, a school will draw around 5% of the endowment annually, so it can continue to grow over time.

A strong endowment is a sure sign that a school's longevity is guaranteed. Many private schools have been around for one or two centuries, if not longer. Their loyal donors who support the endowment help ensure that the school's financial future is solid. This can be beneficial should the school have financial struggles in the future, but also provides immediate assistance thanks to the small draw that the institution will take annually.

This money is often used to help schools accomplish specific projects that can't be met by annual fund or general operating budget monies. Endowment funds usually have strict rules and regulations about how the monies may be used, and how much can be spent annually.

Endowment monies can be restricted to specific uses, such as scholarships or faculty enrichment, whereas Annual Fund monies are more general in nature, and not allocated to specific projects. Raising money for endowments can be a challenge for schools, as many donors want to see their money used immediately, while endowment gifts are intended to be put into a pot for long term investment. 

Fundraising Effort: Gifts in Kind

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Many schools offer what's known as a Gift in Kind, which is a gift of an actual good or service, rather than gifting the school the money to purchase goods or service. An example would be a family whose child is involved in the theater program at a private school and they want to help the school upgrade the lighting system. If the family outright purchases the lighting system and gives it to the school, that is considered a gift in kind. Different schools may have regulations on what counts as a gift in kind, and if and when they will accept it, so be sure to ask about the details in the Development Office. 

For example, at one school I worked at, if we took our advisees out for dinner off campus and paid for it out of our own pocket, we were able to count that as a gift in kind to the annual fund. However, other schools I have worked at don't consider that an annual fund donation. 

You might be surprised at what counts as a gift in kind, too. While items like computers, sporting goods, clothing, school supplies and even lighting systems, like I mentioned earlier in relation to the performing arts department, might seem obvious, others can be quite expected. For example, did you know that at schools with equestrian programs that you can actually donate a horse? That's right, a horse can be considered a gift in kind. 

It's always a good idea to arrange a gift in kind with a school in advance, though, to ensure that the school needs and can accommodate the gift you are considering. The last thing you (or the school) want is to show up with a major gift in kind (like a horse!) that they can't use or accept.

Fundraising Effort: Planned Giving

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Planned gifts is a way that schools work with donors to make larger gifts than their annual income would normally allow. Wait, what? How that does work? In general, planned giving is considered a major gift that can be made while the donor is alive or after they have passed as part of his or her overall financial and/or estate planning. It can seem rather complicated, but know that your school's development office will be more than happy to explain it to you and help you pick the best planned giving opportunity for you. Planned gifts can be made using cash, securities and stocks, real estate, artwork, insurance plans, and even a retirement fund. Some planned gifts even provide the donor with a source of income. Learn more about planned giving here

A common planned gift scenario is when an alumnus or alumna chooses to leave behind a portion of his or her estate to the school in a will. This could be a gift of cash, stocks, or even property. If you plan to include your alma mater in your will, it's always a good idea to coordinate the details with the development office at the school. This way, they can help you with the arrangements and be prepared to accept your gift in the future. A small girls school in Virginia, Chatham Hall, was the beneficiary of such a gift. When alumna Elizabeth Beckwith Nilsen, Class of 1931, passed away, she left a $31 million gift from her estate to the school. This was the largest single gift ever made to an all-girls independent school.

According to Dr. Gary Fountain, the Rector and Head of School at Chatham Hall at the time (the gift was publicly announced in 2009), "Mrs. Nilsen's gift is transformational for the School. What remarkable generosity, and what a powerful statement about women supporting girls' education." 

Mrs. Nilsen directed that her gift be placed into an unrestricted endowment fund, which means there were no limitations as to how the gift should be used. Some endowment funds are restricted; for example, a donor may stipulate that funds only be used to support one aspect of the school's operations, like financial aid, athletics, arts, or faculty enrichment.  

Article updated by Stacy Jagodowski

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Your Citation
Jagodowski, Stacy. "Private School Donations." ThoughtCo, Apr. 5, 2023, Jagodowski, Stacy. (2023, April 5). Private School Donations. Retrieved from Jagodowski, Stacy. "Private School Donations." ThoughtCo. (accessed June 5, 2023).