The No-Brainer behind Private Education

While scholars continue to debate over the worth of private education, what is irrefutable is its substantial financial ramifications. Sending one’s child to attend Victoria’s most expensive private secondary school, Geelong Grammar School, can incur costs of $42792 per annum (inc. GST) for tuition and a further $29868 (inc. GST) for boarding costs. This (tuition + boarding) equates to roughly 42.2 weeks worth of the average full-time worker’s wages in Australia! For such a high investment, it would certainly not be unreasonable for parents to expect exceptional returns in academic performance, yet apparently not.

Figure 1. VCE Performance of Geelong Grammar School from 2012-2019

In recent years, the performance of Geelong Grammar students has been in steady decline [Figure 1], reaching a low of a ’30’ median study score – the mean score awarded to students state-wide. Common sense is hardly required for one to realise that this is disproportionate to the financial burden it mandates. Given such information, the rational response would be for consumers to seek elsewhere for better performances, yet this is seldom the case.

While traditional economics deems every individual to possess ‘perfect information’ (relevant and accurate information), the truth is we hold biases leading to us making sub-optimal decisions. Although Figure 1 clearly manifests the deteriorating results of Geelong Grammar, parents appear to be unswayed. In 2019, the school was able to increase its fees by 3.4% from 2018 despite its falling academic performance; evidently, demand for places at the school remains strong. Yet, this is perfectly understandable given our certain biases that prevent the maximising of utility.

For one, it is worth noting that Geelong Grammar caters for students from pre-school to Year 12. While a cost-benefit analysis would definitely deem a change worthwhile, humans are often ‘creatures of emotion’, succumbing to the ‘status quo bias’ sourcing from our adversity to change. As time passes, students develop emotional connections with their schools, effectively creating a reluctance to seek pastures new. As such, this enables independent schools to capitalise on our inflexible tendencies by implementing price increases well above the rate of inflation [Figure 2] – 2.9% (2019) in comparison to 1.8% (2019).

Figure 2. Education Prices of Victoria vs Consumer Price Index (CPI) from March 2009 to March 2019 [Australian Bureau of Statistics]

Following this, ‘vividness’ presents an explanation as to why parents continue to enrol their children in independent schools. While rational consumers will make decisions as isolated individuals, we are often heavily influenced by our personal connections. In fact, more than half (53%) of Australian parents choose schools according to their consultations with families and friends. As per the status quo bias though, we rarely question our current decisions and thus, people will more often than not, recommend their current choices to others. This also encourages the price hikes by these schools at the expense of parents, as they realise that consumers often lack rationality behind decisions.

Asides this, the selection of schools within only the private sector, further demonstrates the contradiction with traditional economic theories where consumers ranks and orders preferences to maximise utility. As price increases with demand, the highest-achieving schools should theoretically be the most expensive, yet consumer behaviours could hardly be generalised. Of the top 3 private schools in terms of VCE results in 2019, it is perhaps unsurprising that the school ranked first, Ballarat Clarendon College, had the lowest fees ($19570 per annum) of the trio, whereas Bialik College that ranked second also had cheaper fees ($35950 per annum) than Mount Scopus Memorial College ($37880 per annum) that ranked third.

The irony in this is private education might well possess zero impact towards one’s academic performance. There is an argument to be made that the excessive prices in independent schooling simply appeals to one’s illusion of self-control, despite the likelihood that such decisions might have no impacts on the outcome whatsoever. Since the commencement of school performance data collection in 2003, only 5 schools have topped the rankings. Of these 5 schools, nearly half of them are government schools – Melbourne High School and The Mac.Robertson Girls’ High School. This attraction is made even more enticing when considering the cost-free education provided by the government to teach standard curriculums. This roughly equates to 42.2 weeks worth of wages saved for the average full-time worker…

As scholars continue to debate over the worth of private education, the motivations behind parents’ decisions can ultimately be attributed to one simple rationale.

There isn’t one.

Hong Sheng QUAH

Founder & Chief Editor of Economics Discovery

*Note: The statistics provided refer to Victorian schools in Australia and may vary from other educational systems.