Illustration by M. Jeeves

“COMPARED with last year, applications are up 14%,” says Mark Stanek, the principal of Ethical Culture Fieldston, a private school in New York. All through the application season he and his board of governors had been on tenterhooks, waiting to see if financial turmoil would cut the number of parents prepared to pay $32,000-34,000 a year to educate a child. Requests for financial help from families already at Fieldston had been rising fast, and the school had scraped together $3m—on top of the $8m it spends on financial aid in a normal year—in the hope of tiding as many over as possible. Nothing is certain until pupils turn up in the autumn. Some parents could get cold feet and sacrifice their deposits. Yet so far the school is more popular than ever.

Across America the picture is patchier, but there is little sign of a recession-induced meltdown in private schooling. Catholic parochial schools and some in rural areas are finding the going harder—but this is merely the acceleration of existing trends. Private schools in big cities with rich residents, and those with famous names and a history of sending graduates to the Ivy League, seem to be doing rather well. “Some parents weighing up their options may be worried about what recession will do to public-school budgets,” says Myra McGovern of the National Association of Independent Schools (NAIS), which represents around 1,400 of the country's 30,000-odd private schools. “And some may think that if other people are struggling, that will mean their children are more likely to get in.”

In Britain the story is similar. “Requests for financial help do seem to be up,” says David Lyscom of the Independent Schools Council (ISC), which represents 1,280 private schools, including most of the long-established ones. “In the long run we may see some smaller schools merge in order to gain economies of scale. But pupil numbers are steady and head teachers are saying parental interest remains high.”

At first sight, private schools' seeming immunity to recession is odd. Fees have risen faster than earnings in both countries for many years and have doubled in real terms (ie, after adjusting for consumer-price inflation) in the past quarter-century. The average price of a year at an ISC secondary day school is more than £12,000 ($20,000). The parents of 12th-graders at an NAIS establishment can expect to pay something similar. Many of the professionals who used to be natural customers have been priced out.

So schools have become more reliant on parents who work in financial services, an industry which has taken a beating. The recession has made it harder for parents to raise cash from sources other than earnings. Falling house prices mean less equity to raid. Anyway, there is a mortgage drought. Low interest rates make it harder to fill the gap from investments, either parents' or grandparents'. At least stockmarkets have been rising in recent months.

But any notion that fees will decline in line with ability to pay is wishful thinking. Few private schools are intending even to freeze fees. Their precise plans are hard to divine, because in recent years antitrust regulators in both countries have made schools wary of publicising planned fee increases until all have set fees and told parents. (Signalling them sooner, competition authorities believe, could facilitate collusion.) But a straw poll suggests that many will raise fees this autumn by 2-4%.

That is because, despite some parents' pleas for financial help, schools are under little pressure to cut fees. In both America and Britain income inequality is high by rich-world standards, especially at the top end, so there are people who can pay for the most illustrious schools with little or no pain. Further down the income scale, parents with children already at school do all they can to keep them there, even if it hurts financially. And despite the incumbents' high and rising prices, schooling is an industry in which it is remarkably hard for new entrants to establish themselves. Reputation—in particular, a name for providing a way into leading universities—is what counts. By definition, a newcomer cannot offer that.

Past experience bears out the resilience of private schools in hard times. It has taken several years for previous recessions to affect demand. Eventually, some whose confidence has been bruised by recession decide not to buy in at all. Some, but not many. Britain's most recent recession, in 1991-92, dented total enrolments in ISC schools by only 2.4%. The trough did not come until 1996, by which time the recession was a distant memory, and numbers recovered soon after. The most famous and expensive institutions rode out the bad times best. The 250 confusingly named “public” schools in the Headmasters' and Headmistresses' Conference saw rolls fall only in one year, and by a mere 0.5%.

Palaces of learning

No one knows how many children are privately educated worldwide: many private schools are invisible to officialdom; some are in slums. James Tooley, a professor of education at Newcastle University, has found many children at fee-charging schools in Africa, China and Latin America. The elite institutions of popular imagination are far from representative of private education more generally.

Yet in a few places such schools exert an influence out of all proportion to their share of pupils. In Britain only 7% of children are educated privately at any one time. Yet according to the Sutton Trust, an education charity, two-thirds of leading judges and barristers, half of well-known journalists, the chief executives of half the companies in the FTSE 100 index and a third of MPs attended private schools.

A private education is widely seen as the way to move up a class or three. When Jade Goody, a 27-year-old Briton who travelled from unpromising origins to stardom via reality television, found out earlier this year that her ovarian cancer was terminal, she sold the spectacle of her final days to the highest bidder, for her sons' sake. “If I earn enough money while I'm sick there will be enough for them to go to private school until they are 18,” she explained.

In America around 11% of children are privately educated, a figure that is greatly boosted by the country's strict separation of church and state. Although no school has the history of, say, the King's School, Canterbury, or Wells Cathedral School (two English public schools both well over 1,000 years old), institutions such as New York's Ivy Preparatory School League (of which Fieldston is a member) or Phillips Exeter in New Hampshire, which has an endowment of more than $1m per student, have similarly gilded reputations.

Illustration by M. Jeeves

But it is not only history or money that gives these schools their privileged place. In both America and Britain the gap in performance between state and private education is wide. (Canada has “public schools” along English lines, but its state schools do very well in international comparisons, making it harder for private ones to shine.) The cities where the rich live have particularly poor state schools—in some inner London boroughs, a quarter of children or more are privately educated. Above all, America and Britain are home to the world's most prestigious universities. The first university from another country in the Times Higher Education ranking comes in at number 16; in the Shanghai Jiaotong ranking, at number 19.

The main commodity that elite schools in the two countries are selling is an edge in university admissions—a commodity that matters as it does nowhere else. In America, private schools offer knowledge of the ins and outs of selective universities' admission methods, and carefully cultivated relationships with their admissions tutors. In England more than two-fifths of the students at Oxford and Cambridge were privately schooled; each year, the two universities admit more boys from Eton than from the country's entire pool of lads poor enough to get free school meals.

That the schools know this is their main purpose is clear from the prominence of the university destinations of alumni in prospectuses and on websites. Parents know it too. Last year, for the first time anyone could remember, Dalton, another member of the Ivy Preparatory School League, failed to send a single student to Harvard. It made headlines. “The school took its eye off what it's supposed to be about,” a parent told reporters.

When challenged by parents, head teachers can readily say what the ever-rising fees are spent on. Between two-thirds and three-quarters goes on staff pay, which has been rising faster than consumer prices. Increasing amounts go on financial aid for poorer pupils. And schools meet little resistance from customers because a private education is painful to abandon part way through. Children who are pulled out often end up at the state schools no one else wanted, because the others are full. As long as fees do not go up unbearably in any one year, parents, like frogs in slowly boiled water, stay rather than jump.

Nor can new competitors easily creep in and undercut incumbents. In big cities, where people want private education most, property is scarce and dear, and local officials are obstructive. “Planning departments put all sorts of obstacles in your way,” says Robert Whelan of Civitas, a think-tank that runs three rare low-cost “New Model Schools” in London. (Fees, at just over £5,000, are little more than half the average for private day schools in the capital.) “They seem to care more about their traffic plans than anything else.”

As for kitting out a school to compete at the luxury end of the market, the expense puts off all but a few. Claremont Preparatory School is a rarity: a new school in Manhattan. Housed in a former bank building, it has an indoor swimming pool and basketball court, a rooftop adventure playground overlooked by the stock exchange, a ballroom-sized auditorium on the former trading floor, and much more. After four years, it is in the black on running costs, but the upfront investment was huge. “It cost $28m just to open the doors,” says a spokeswoman for the school. “Michael Koffler [the owner] will make a profit, but no time soon.”

In 2001 MORI, a British pollster, asked parents with children at private schools why they had made their choice. Eight in ten said reputation had been very important. That is understandable, because the quality of education cannot be checked until after it is consumed. But it further entrenches incumbents—as does the need for schools to show parents a track record of admission to elite universities. “We will only recommend schools that have at least a decade of history behind them,” says Amanda Uhry, the owner of Manhattan Private School Advisors, a company that helps parents choose schools and get their children in.*

With such high barriers to entry, it is unsurprising that most purveyors of elite education are old, and many are charities. But far from charitable status keeping fees down, some think it is one reason they have soared. Anders Hultin, a founder and former chief executive of Kunskapsskolan, a for-profit company that runs 32 schools in Sweden and is trying to break into the English market, ascribes the success of his home country's “voucher” reforms in the 1990s to allowing such schools to be run for profit. The share of Swedish children educated privately but at the state's expense grew from negligible to around 12% in just 15 years. “Without the profit motive, private schools just become choosier about whom they admit, rather than expanding or opening new schools,” he says. “I sometimes think non-profit schools should be banned.”

The hole in the middle of the market

Every now and then a company or charity promises to blow the schools market wide open by charging around the same as the state spends on each child, but to better effect. Such promises rarely come to much. Not only is the private competition well set, but the fact that state schooling is free at the point of use makes cheap-to-middling schools hard to sell. Parents might grumble at what the state provides, but unless it is worth almost nothing, most will balk at paying all over again out of taxed income. More efficient, they will think, to top-up with private tutoring. This is the norm in Japan, say, where state schools are generally good enough for parents not to turn their backs on, but university admissions are increasingly competitive.

When cheap private schools do succeed, it is often because they find parents who think state education is valueless: fans of Montessori or Steiner, or people who refuse to send their children to godless institutions. Such schools may even spend less than the state, and some British Islamic schools much less. The New Model Schools squat in church halls and the like while seeking permanent homes, yet have long waiting lists. Parents are mostly of modest means, but desperate. “They care passionately about education and are not happy with the poorly performing state schools that would be their only alternative,” says Mr Whelan.

Even for those with higher incomes, the existence of a free competitor reduces demand. Last year MTM Consulting, a British education-research company, asked rich families that did not use private schools: why not? Many said they could not afford it, or it was not worth it. Many choose instead to buy a house near a nice state school. The cost can be recouped by selling once the children are grown.

Illustration by M. Jeeves

If a school were to attract these people by cutting frills and squeezing fees it might not please the customers it already has. In MORI's poll, price came low among parents' reasons for choosing a school. Small classes, individual attention and fancy facilities—all unavoidably expensive—were at the top. For some, elite education is a “Veblen good”, named after the economist who noticed that a high price was part of the value of luxury goods. “If things don't turn out the way parents hope, they want to know they have done everything possible for their child,” says the headmaster of one venerable English day institution, when asked what exactly his school offers that is worth £16,000 a year.

Indeed, for the most prestigious schools at least, the puzzle is not why they are so expensive, but why they are so cheap. The existence of companies like Manhattan Private School Advisors—which charges parents $18,500, non-refundable, to help them apply for school places—suggests that some schools' fees are well below the market-clearing rate. Other signs are colossal waiting lists, onerous application procedures and the expectation that children are already at a high standard. Though the last is billed as ensuring that only pupils who can benefit are admitted, it can also be read as a requirement that customers do much of the schools' job in advance.

So why aren't fees even higher? Sheer embarrassment may be one reason. Non-profit (or charitable) status is hard to defend with a straight face if fees are outrageously out of line. A more likely explanation, though, is that schools' quality would decline if they simply sold places to the highest bidders. Part of what they offer is the chance to learn with clever classmates, and if fees were too high the pool of brainy potential pupils would become too shallow. Schools with stellar reputations have some room before their fees pass the point at which too few clever children apply.

The recession will no doubt cause some pain to some private schools: the less prestigious, the badly managed and those that have relied on high returns from big endowments. If bonuses never return, or income inequality falls markedly for some other reason, even the elite could find the going harder. Pricing by ability to pay, already normal at American universities, may become more common, and could be given a shove by schools with a lot of parents struggling to find the fees. A dramatic change to the free competition would also have a big effect. The one part of the United Kingdom where private education is almost unknown is Northern Ireland, which kept academically selective state grammar schools when a Labour government abolished them almost everywhere else (although they are now under threat).

In truth, the future of elite schools in both countries depends less on the government, or even the global economy, than on the elite universities that are the main reason that they have flourished. That America's have travelled much further down the road to price differentiation than Britain's can be seen as a reflection of differences in university admissions.

Admissions officers at selective American universities put enormous effort into creating “balanced” classes—by which they primarily mean a mix of races and parental incomes. So in the game of selling past pupils' university offers to prospective parents, prestigious schools can attract full-price customers by offering a scattering of scholarships to the poor and non-white, non-Asian children whom universities are likely to favour.

In Britain, by contrast, attempts to offer scholarships to poor children tend to be characterised as “robbing” state schools of their brightest students. And the discussion of diversity in university admissions centres neither on race nor on riches, but on where students went to school. That means any direct attempt to increase diversity in universities poses a direct threat to private schools' main selling point.

To see how serious that threat could be, consider Laura Spence. In 2000 Ms Spence, a clever state-school pupil, was rejected by Magdalen College, Oxford, where she had applied to study medicine. Never mind that the college had 22 applicants for five places, or that it took other state-school pupils: Gordon Brown, now prime minister, then chancellor of the exchequer, called her rejection an “absolute scandal”. It kicked off years of political sabre-rattling.

Before the Spence affair, the number of 17-year-olds in private schools—ie, pupils starting A-levels, the exams used for university entrance—was 89% of the number of 16-year-olds. Since 2002 that ratio has fallen to 85%, as some parents shied away from displaying their child's private education to universities. A small change? Maybe. But a few intemperate words from one powerful politician had almost twice the impact of Britain's last big recession on demand for private schooling.





An interview with Ms Uhry can be heard here