The Face of Private-School Growth, Familiar-Looking but Profit-Making

Jennifer S. Altman for The New York Times

William T. Phelps said the British International School had more room to experiment.

By JENNY ANDERSON

The British International School of New York offers spacious waterfront classrooms, small computers encased in rubber for small people who tend to drop them, and a pool for the once-a-week swimming classes required for all students.

Jennifer S. Altman for The New York Times

The admissions director, Kristin Geiger, and the headmaster, William T. Phelps, at the for-profit British International School of New York. “There’s a can-do attitude here,” he said.

Jennifer S. Altman for The New York Times

But there is nothing within its halls or on its Web site that indicates what differentiates British International from the teeming masses of expensive private schools in New York: It is run for profit.

It is one of a small number of large for-profit schools that have opened recently or plan to open in New York City next year. While they are a speck on the city’s private-school landscape, for-profit schools are practically the only significant primary and secondary institutions to have started up in the last decade, and may represent the future of private-school growth.

Parents and consultants have begun to take notice, and the Independent School Admission Association of Greater New York, the umbrella group for the city’s elite private schools, is contemplating withdrawing its requirement that members be nonprofit, two association members said.

James Williams, executive director of the National Independent Private School Association, whose members are for-profit schools, said that although private-school enrollment nationally had fallen because of the recession, he had seen a small upswing in applications for accreditation from for-profit schools, with significant growth in schools for children with special needs.

Parents may be hard-pressed to see much difference between for-profit and nonprofit independent schools. Both cost a lot, both depend on the children of wealthy people to attend, both pay their headmasters large salaries.

But nonprofit schools enjoy generous tax advantages, including low-cost benefit packages, property-tax exemptions and grant eligibility. They also must bridge the gap between tuition revenue and the expense of running the institution with donations, no surprise to parents who face frequent solicitations for pricey galas and the ever-needy annual fund. For-profit schools pay taxes but generally refrain from soliciting parents, instead securing money from investors who hope to make money later, if the school is sold or the company that owns it goes public.

It remains unclear how profitable a for-profit school can be, especially since private corporations are not required to disclose their financial information. But the market for private-school enrollment generally seems robust: according to one study conducted for a new school, the number of school-age children in households between Battery Park City and 72nd Street with annual incomes above $500,000 soared to 15,700 in 2010, from 4,300 a decade before. According to the study, the top dozen schools in the city — all nonprofit — have only 11,000 seats.

With real estate acquisition and construction so expensive in New York — estimates range from $50 million to $100 million to build a top-flight school for multiple grades — starting a school requires either a huge donation or significant venture capital.

All the leaders of new for-profit schools believe there is money to be made — efficiencies to be exploited, though they are loath to say as much — in running a school in a city where parents go to extreme measures to secure their children space in elite schools that charge more than $35,000 for kindergarten. But those leaders are also conscious that the notion of profiting from the noble aspirations of educating children can seem a little unsavory, especially in light of recent scandals involving for-profit colleges and commercial companies managing public charter schools.

“I don’t think for-profits or not-for-profits have a corner on educational efficacy,” said Christopher Whittle, who in 1991 founded the Edison Project, a plan to open up to 1,000 technologically advanced for-profit schools that would operate more efficiently than public schools He is now focused on creating Avenues: the World School, a for-profit school scheduled to open on the West Side of Manhattan next year. “They’re both capable of really good things and less than great things. The main difference is their capital source.”

Susan Wolford of BMO Capital Markets, a boutique investment bank, said that for-profit schools had profit margins of 20 to 25 percent, before taxes and interest on debt and amortization.

The key revenue drivers are tuition and enrollment. While competition is fierce for admission to the brand-name schools, it remains to be seen if newcomers will be able to lure the same crowds. “Parents like schools with a long history and reputation of excellence,” said Victoria Goldman, author of “The Manhattan Family Guide to Private Schools and Selective Public Schools.” “Certainly if they pay $30,000 to $35,000, they want tried-and-true.”

But owners of for-profit schools say they will have more freedom to experiment without a backlash from parents, teachers, administrators and alumni.

“There’s a can-do attitude here,” said William T. Phelps, the new headmaster of the British International School. “If I say, ‘Can you try this out,’ 95 percent of the time the answer is ‘Yes.’ In established schools, you try to move a painting and there’s a backlash.”

Some of the city’s for-profit schools have been around for decades, including the Dwight School, York Preparatory School and the Mandell School.One of the newcomers, Claremont Preparatory, is part of a company called MetSchools, which owns 10 schools and preschools in New York City. Among them are for-profit and nonprofit schools, including the Rebecca School and the Aaron School, which cater to children with developmental disabilities and rely heavily on government money.

Claremont’s experience is a study in contradictions. It was founded in 2005 with 54 students. This year, 575 children will stretch out over the school’s 325,000 square feet. (It has a pool and a banquet hall, which can be rented for parties.)

But the school has had three headmasters in five years and was sued last year by a former school psychologist who said she was fired for reporting to child welfare authorities that a student had said his mother had hit him.

In its response to the suit, Claremont denied the psychologist’s accusations and said she had breached her contract and failed to use her training to properly evaluate the situation. Lawyers on both sides did not return several calls for comment.

In June, Claremont’s founder, Michael Koffler, abruptly announced that the headmaster would be leaving, angering parents who had already put down deposits for the fall. And while enrollment has grown, it is nowhere near the school’s onetime goal of 1,000 students by 2007. Mr. Koffler declined to comment; a spokeswoman said he was too busy with the start of the school year.

To attract students, the new schools often try to offer something special. Claremont, which has little competition in its Wall Street neighborhood, has its modern, spacious campus. The Avenues school intends to let students transfer seamlessly among its planned 20 schools in major cities around the world — if, for example, their parents’ high-salary jobs require them to move abroad.

The World Class Learning Academy, in the East Village, another for-profit venture, will use the patented International Primary Curriculum, which it says is used in 1,000 schools worldwide (5 in the United States). Originally scheduled to open in 2011, World Class announced this spring that it would instead start in September, only to back away from the decision soon afterward, citing construction issues and the fact that it had enrolled only a small number of children.

Initial plans for Avenues give a sense of where for-profit schools might try to find savings: class size will be roughly the same as at top Manhattan schools, but there will be fewer teachers, and they will be expected to spend a larger percentage of their day in the classroom. One person involved in the project, who spoke on the condition of anonymity since the plans were still fluid, said the school also planned to pay the teachers more than the notoriously low salaries of private-school teachers.

And administrators of for-profit schools are eager to highlight that they do not go hat-in-hand to parents every few months. “Those donations come with strings and baggage,” said Gabriella Rowe, head of the Mandell School.

Andrea Greystoke, the British International School founder, who has six children of her own, said, “After paying six lots of school fees, I have a great antipathy for fund-raising.”

Not so at Claremont. It has a separate nonprofit parents’ association, which Mr. Koffler said in an interview earlier this year had raised $250,000 for financial aid last year, about 10 percent of the $2.5 million in aid that the school provided students.

But such arrangements could raise concerns about whether tax-deductible donations are being used to support a for-profit enterprise. Roger Colinvaux, a law professor at Catholic University in Washington who worked for the Congressional Joint Committee on Taxation, asked, “Is the not-for-profit primarily helping the student get an education or primarily helping the for-profit get tuition?”