The crisis in funding Jewish education has reached the breaking point. For many families, the “Great Recession” has turned the yearly ritual of writing tuition checks from a gripe into a catastrophe.
Approximately 200,000 students are attending some 700 Jewish day schools in the United States. Tuition averages about $14,000 per student and has increased 7 percent a year over the past five years, overwhelming many families who have struggled to maintain wage levels or even stay employed.
The time has come for those of us who care about the long-term survival of America’s Jewish day schools to combine our considerable business acumen and creativity to create a long-term, self-sustaining solution to the problem of educating our Jewish children. Below I propose one such solution. The plan I put forth here will create a permanent, self-sustaining endowment that will eliminate all or most tuition costs at no cost to day-school parents.
Here’s how it works.
There are two “tranches” of endowment, both built on life insurance.
Tranche I: Upon enrollment of its first child to enter yeshiva, each family agrees to allow the school to buy a $25,000 life insurance policy on each parent. There is only one policy per parent at the school, regardless of how many children attend the school. The premiums are to be paid over a period of 10 years and remain in effect until the insured reaches 100 years of age. Again, the premiums are paid at no cost to the parents.
Tranche II: Ten benefactors to the school will each select an older person to honor by buying a life insurance policy in his or her name. The death benefit will be $5 million, again with premiums to be paid over a period of 10 years and guaranteed until the insured reaches 100 years of age.
Let’s take a look at how this will function in the real world, using the real numbers at one yeshiva to illustrate the concept. The plan is ideologically neutral and can be implemented by any school that enjoys a decent core of financial support.
Assume there are 775 pre-K through 12 students at our example school, which comes out to $11,753,535 in total yearly tuition. Those 775 students have 800 parents, with approximately 30 new parents joining the school each year.
The face value of 800 $25,000 policies is $20 million. The face value of 10 $5 million policies is $50 million. And the yearly additional benefit of 30 additional $25,000 policies is $750,000.
In 20 years – the year 2030 – the $25,000 policies would render $35 million of in-force life insurance coverage. In addition, there would be $50 million from the policies of the 10 elderly people.
By year 2065, the fund will have amassed a total of $111,250,000 in in-force life insurance coverage (assuming 85-year life expectancy for all parents). At a 5 percent interest rate, the return will be $5,562,500 – enough to make a meaningful dent in tuition costs. Obviously those costs will be more in 2065 dollars, but so too will the face value of the insurance policies.
Depending on inflation, the $25,000 policy might become a $30,000 policy with negligible effect on the cost of its premiums.
The price of a $25,000 life insurance policy is approximately $320 for a man and $292 for a woman, and that cost is paid by a benefactor. The cost of buying 800 $25,000 policies is approximately $240,000 per year, plus an additional $9,000 per year to accommodate the 30 new parents.
Obviously it is not a trivial matter to recruit a donor who is willing and able to commit to a quarter million in funding every year for 10 years. However, it is not unimaginable, especially when pitched as a way not only to ensure the doors stay open this year or next, but for generations to come. Moreover, the commitment shrinks dramatically after year 10, when the initial enrollment of the 800 parents is fully paid.
The cost to the donor in year 11 and every year after is only $90,000 – more or less depending on whether the number of new parents holds steady at 30 each year.
Meanwhile, in addition to the major donor who is willing to commit to $240,000 per year, the school also will need to attract 10 charitable donors who choose to honor a relative. Presumably this will be a parent who values Jewish education and would be pleased to know that his or her eventual demise will ensure the continuation of values he or she has supported.
A policy with a face value of $5 million on a 60 year-old male will cost approximately $129,982 per year in premiums; the same policy on a 60-year-old female will cost $106,410. One can envision these donors taking a variety of shapes. Perhaps four siblings who attended the school will honor a parent’s 60th birthday by agreeing to kick in $30,000 a year each for 10 years.
So the challenge from a fund-raising point of view is to recruit the generous donors or groups of donors who will each buy a $5 million policy to honor a loved one, plus one very generous donor who will commit to buying $25,000 policies on each parent in the school. No one can deny the scope of that challenge. But is it really so different from the level of commitment already necessary to meet the growing needs of Jewish families all over the country?
The beauty of this system is that over time, the fund would be large enough to cover partial or full tuition costs for all students – in perpetuity. The principal would remain intact and continue to accrue and compound as new parents participate each year. In addition, the insurance premiums are fully tax-deductible to the payer, as long as the beneficiary is a charitable institution.
Naturally there will be governance issues that must be addressed. The by-laws of this program must be drawn in such a way that its funding contains an irrevocable commitment never to use the principal for anything other than tuition. The policies must never be borrowed against and the proceeds should be invested only in the absolute safest instruments.
I do not offer this idea with the illusion that it represents a perfect solution. I realize that every school will have its own issues, and my intent is not to impose any particular solution. Different communities have different needs.
In recognition of that fact, one advantage of this model is that it is scalable. A school that has one donor willing to do even more than $240,000 can buy $30,000 policies, while a school that can identify only eight families who want to ensure the life of an elderly person can do so without undoing the core value of the program. Further modifications are possible, as well.
I offer this solution as a way of starting the conversation, not ending it. But make no mistake, we must do something.