Monday, 4 April 2022

With rising inflation, schools might see lower enrollment rates — or shifting student body compositions

As inflation drives up overall costs and tightens budgets, a trend of transferring children to less expensive private schools has gathered steam, Eduhive CEO Karim Mostafa said recently. Lower-middle income schools are seeing an estimated two-three times the enrollment rate of high-income schools, education investment platform Lighthouse Education Deputy Chairman Mohamed El Sherif noted in February.

So are high-income or upper-middle income schools seeing enrollment rates drop? So far, no, say sources. Demand for private education is so high that existing school enrollment rates remain high too. For high-end schools, it’s business as usual. Middle-income schools could see a change in the composition of their applicants, but not reduced enrollment. But a slowdown is possible for new schools entering the market, facing inflation and the devaluation.

A large segment of Egyptian society will always prioritize education spending: Though we’re currently seeing considerable cost cutting, “education is sacred to the Egyptian family,” says Mostafa. Squeezed families will cut down other spending habits to allocate money to education whenever they can, he adds.

Wealthier families may weather the storm of inflation: Parents whose children attend international schools with annual tuition fees above EGP 140k are likely to have more disposable income to withstand inflation and devaluation, Elsewedy Capital Holding CEO Haytham Sabry tells Enterprise.

For those attending the most expensive schools, it “won’t even cause a dent,” El Alsson Executive Director Karim Rogers tells Enterprise. People whose children attend the likes of CAC, BISC, Malvern or NCBIS pay annual fees of around USD 20-25k or EGP 300k. If they can afford this, they’re unlikely to have to look for lower-priced options due to inflation, Rogers says.

Schools above the EGP 150k price point don’t seem to be facing enrollment problems: “I haven’t heard from schools with tuition fees over EGP 150k that they’re finding it hard to fill their seats,” says AIS Director Kapono Ciotti.

AIS reports stronger-than-usual enrollment levels: “We haven’t seen the economy play a negative role — even with inflation,” says Ciotti. AIS retained almost 97% of its students from 2021 — above normal levels of around 95%, he notes. “I’d say our re-enrollment is stronger than ever. Our new cheap essay is very strong too.”

El Alsson has seen parents stretched, but no drop in enrollment rates: El Alsson, which has fees of EGP 140-190k, has “a handful” of parents struggling due to recent price hikes, says Rogers. “But I haven’t seen anyone leave saying they’re moving to something cheaper.” So far, enrollment numbers this year have been within the expected range, says Rogers. “I think people are stretched. But if they’ve chosen us, they’re committed. And they probably want to continue here.”

Schools in Eduhive’s portfolio have seen a slight enrollment slowdown, but not enough to constitute a drop, says Mostafa. Projected numbers for this admissions season are steady, but the enrollment process is slower than in 2015, before rampant inflation. “I used to fill 100 vacancies by January or February, but now it might take until April. You still fill up, but it just takes longer.”

Middle-income schools — including those with EGP 60-100k fees — will more likely see enrollment changes, as parents target lower price points, say Rogers and Sabry. “The middle class is the most hit segment of society, so here you’ll definitely see parents downgrading schools to get lower fees,” Sabry says.

But they’ll see a change in composition — not a lessening of overall demand: Enrollment rates will stay strong because Egypt’s demand for private school education is just so high, sources agree. As some parents move to less expensive schools, others will take their place, says Sabry. “I don’t think this downgrading will affect admissions. It just affects the composition of the parents.”

The Gulf English School (GES) shows these changes at work: The Gulf English School, which Rogers calls a “totally Egyptian school with an international perspective,” has the same owner as Modern English School (MES). It filled with 600 students immediately after opening, says a source speaking off the record, noting that some parents left MES and went straight to GES. “GES is full, because its fees are EGP 60-80k, and it has good facilities, teachers, curricula and management. It’s really good value for money, so it’s oversubscribed,” notes Rogers.

But even if enrollment in existing schools isn’t hit, significant challenges remain, sources note.

Sweeping demand for private education could allow low-quality players easy market access, Rogers and Mostafa fear. “There’s a definite market for B- to C-class schools. It’s very profitable,” notes Rogers. Costs can be kept low if you don’t hire expat teachers or seek international equipment or resources. “But some schools seem to target anybody with a bag of money,” he adds.

New schools that haven’t yet proven themselves in the market could face lower enrollment rates, says Sabry. Established schools generally have long waiting lists, but new operators will need to heavily invest in school construction, while trying to attract students as costs are exceptionally high, he adds. The situation could slow market entry for new schools, including international franchises, Ciotti agrees.

And high-end schools could see inflation and the devaluation hit their margins hard, because they pay expat teachers in FX: “High end schools will see their margins affected. It’s enrollment that’s not affected,” says Sabry. They might have to decrease the number or quality of their expat teachers, to pay less, he speculates. While Rogers hasn't yet felt the crunch when it comes to paying expat salaries, the EGP slide puts him in a more difficult position than he’d anticipated when budgeting. “We have a buffer, but it’s usually USD 1 or USD 1.5 over the value of the EGP — which when we set it was around USD 15,” he notes. The USD is currently trading hands at EGP 18.30.

Will these trends continue for the rest of 2022 and into 2023? Yes, and they’ll become more acute, says Sabry. But it’s hard to predict by how much. “Just as in 2014 and 2015, the markets were in turmoil, but you didn’t know where the bottom was.”

Your top education stories for the week:

  • Deadline for Egyptian-Japanese school applications extended: The deadline for 2022-2023 applications to Egyptian-Japanese schools has been extended to 9 April, the Education Ministry announced.
  • Egyptian students returning from Ukraine: Almost 1.3k Egyptian university students who fled Ukraine are applying to continue their studies at universities in Egypt, the Emigration Ministry said in a statement.
  • USAID hosts careers fair: USAID Egypt’s University Center for Career Development hosted its third virtual careers fair on 28 March to connect students with large multinationals.

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