Debt collection for Private Schools

This week many families received Term 2 invoices from their children’s private schools.  Will they be paid?

Divorce, death and redundancies don’t just affect the families involved emotionally but have a flow on effect to their ability to pay private school fees and tutors.  This problem is likely to be exacerbated by this harsh economic climate and the pressures ‘isolating’ have put on family relationships.  It has been an on-going meme that Australians have turned to the bottle to cope with home schooling and spending increased amounts of ‘quality time’ with their loved ones, but sadly, for some marriages it has been the final nail in the coffin – particularly if financial stress has been added into the mix.

This combination of circumstances will lead to more parents defaulting – or falling into arrears – on their children’s school fees this year.  Schools are by and large compassionate institutions and where possible negotiate different payment arrangements with parents.  In some cases, scholarship funds and old collegians have come to the rescue, but this is not always possible.  The consequence is that parents either withdraw their child from a school without notice – which can leave a place unfilled for many months – or fail to keep up payments of fees but keep their child at the school.

Cash flow is as important in the education sector as in any other industry and schools must put in place a proactive and systemic approach to late or non-payment of fees to avoid compromising educational standards.

What can schools do?

Start talking to the parents early on

A default in tuition fees usually occurs because of an unexpected change in a family’s circumstances – ill health, death, a job loss or business failure or family law proceedings.  Identifying a default early and starting a conversation as soon as possible with the parents will allow for alternative arrangements to be put in place.  These discussions should be on a ‘without prejudice’ basis so as not to compromise the school’s legal position as a creditor.

Traditionally, the main reason fees go unpaid are split families arguing over the bills.  Usually, one parent wishes to continue private schooling arrangements but the other does not.  The Family Court will not make an order requiring private schooling to continue so schools must address this issue early.  It may be possible for you to negotiate deferred payment when a property settlement is reached or enter into a secured loan agreement.

What about parents who de-prioritise the payment of school fees or the parents wanting the prestige of sending their children to a private school, but who are unable to pay the fees?  These debts can spiral out of control very quickly.  The danger for private schools is that these parents most likely have other debtors that may commence recovery actions.  Private schools are unsecured creditors and thus unlikely to recover fees against secured creditors if parents are made bankrupt.  Schools must therefore have a streamlined debt recovery process.  The first step is to have a comprehensive enrolment contract.

Review your Enrolment Contract

Your enrolment contract governs the terms on which you offer educational services and the parents’ corresponding obligation to pay fees.  It should therefore be a clearly worded and enforceable contract that allows you to take the necessary action to recover school fees.  Your enrolment contract should allow you to:

  • Require up-front payment of fees
  • Terminate the agreement in the event of non-payment of fees;
  • A limited or no-refund clause in the event parents wish to remove children from the school during the term of the contract;
  • Recover interest on the unpaid fees; and
  • Claim any additional costs of recovering unpaid fees.

Further, you should make sure that both parents are party to the agreement unless there is a court order giving one party parental responsibility.  This will ensure parents have joint and several liability for the fees.

If alternate payment terms are agreed at any point with the parents, we can assist you in preparing an enforceable agreement.

Debt recovery process

If a default has been identified and you have been unable to negotiate an appropriate solution with the parents, you need to commence a debt recovery process – one that will be taken seriously and protects the reputation of the school.

Involve a lawyer.  We issue a Letter of Demand on our letterhead reminding the debtor about their obligations under the enrolment contract.  It is a firm wakeup call to the debtor of the seriousness of the unpaid fees.  The letter will put the debtor on notice that the school will commence legal proceedings if the fees go unpaid.

After that we escalate the legal proceedings in pursuit of the debt.

We are a regulated and insured profession that is best placed to ensure your legal position is preserved and your reputation is protected.

How we can help

We have a streamlined and tailored debt collection process for educational institutions.  Our process is inexpensive and efficient.  We operate on a fixed fee basis.  If your school has a problem with unpaid debts and needs to review its debt recovery processes, please call us on 1300 654 590 to see how we can help.

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