A lesson from Mowbray's bad books

The collapse of Mowbray College in Victoria is a timely reminder for the 1000 independent school boards in Australia: if you have high debts you are a hostage to maintaining close to a full school – not easy in tough times.

It is also a reminder to state and federal governments that at a time when the cost of educating children is rising faster than the CPI a large number of highly leveraged independent schools live on a knife edge and major reductions in government money will endanger the survival of many, including some at the top of the tree.

In essence, Mowbray failed because it borrowed about $15 million to set up a new campus and then watched enrolments fall from around 1800 to some 1200.

As those Mowbray enrolments began to fall the board appears to have become reluctant to pass higher costs into fees. At the same time they did not press parents for fee payment with the necessary vigour, either on social grounds or because they feared making the enrolment situation even worse. Whether the high number of parents on the board played a role in the low fee and low collection levels is not known.

Most independent schools have faced anger from parents who have not understood that teachers and other costs have been rising faster than the CPI and that government money has not always matched these cost rises, so multiplying the required fee increases. On Mowbray's closure there were more than $2 million in unpaid fees.

As the Mowbray enrolment downturn gathered momentum there was a succession of principals, indicating relations between the Mowbray educators and the Mowbray board had deteriorated. There was also a teacher strike, which would have propelled parents to withdraw their students at an even faster rate.

When the school appointed an administrator, Mowbray owed some $16 million to the National Australia Bank and about $2 million to teachers. There will be a string of unsecured creditor suppliers. With the school now closed and students now gone to other schools, either a new school must be established on the sites or some other use found for the buildings, or the property values become simply land value.

I am an immediate past chairman and currently a director of a private school, and with my co-directors we have funded our capital works to date without debt, partly because we never wanted to risk our school becoming a Mowbray.

But, as I understand it, debt is prevalent in many private schools, which now must raise fees a level to repay and service that debt.

Schools in the Roman Catholic system, or those that have very close links with a church or religious organisation, may feel they have someone to help should they get into trouble. But if in tough economic times governments play hard ball, and there are a few school collapses, ‘big brother' may not be there to help.

Sometimes it is very hard on parents to raise fees to cover costs and contribute to capital works but schools that do not undertake this task (or can't raise fees) face the danger of being a Mowbray.