Education Matters – COVID-19 and its effect on fees

The COVID-19 pandemic has forced education providers to radically rethink the delivery of educational services, stripping educational services to their core.

With only limited exceptions, once wide-ranging programmes have been reduced to the delivery of remote teaching extra-curricular activities, pastoral services, the provision of accommodation and access to specialist facilities become difficult, if not impossible, to offer.

For providers who charge fees, this raises the tricky question of the extent to which the fees they charged pre-pandemic should be adjusted to reflect the enforced changes in service delivery. In this article we’re going to consider this question further, considering:

• what the law actually says
• the type of approach providers could take in assessing the level of fees they charge; and
• the approach taken by the Competition and Markets Authority.

The law – a summary

In most circumstances, providers will be contracting with consumers (that is, people contracting for a purpose other than in connection with their trade, business, craft or profession). This means that, in the main, the relationship between providers and their students/parents will be subject to consumer regulation.

The law in this area is clear: consumers should not be charged fees for services they aren’t receiving. Education providers need to ensure the fees they’re charging reflect the reduced and/or altered delivery of services. The question is how they should do this.

What fees are chargeable?

In general terms, the equation is:

fees chargeable = (pre-pandemic fees – the value of services not being delivered) + any 
increase in providing the services which can, or will be, provided.

Whilst simple in theory, applying this equation in reality is not. Providers are discovering that a reduced fee income won’t cover their fixed costs and are asking what they can do.

Shortfall between fixed overheads and fees receivable

Where fees receivable don’t cover fixed costs, the provider needs to do all they can to mitigate their losses. If a short-fall still exists, providers have options including:

• to maintain goodwill (and if it’s able to do so), absorbing the shortfall
• trying to recover a proportion of such shortfall from students/parents; or
• doing nothing.

The first option is self-explanatory, but requires monitoring to ensure the position is sustainable (no one’s sure how long restrictions will subsist).

As for the second option, this could be achieved by suggesting to students/parents that the payment of such additional costs is required to ensure that the student has firstly, somewhere to return and secondly, somewhere ready and able to deliver the services once the crisis is over. Providers could make such payment either:

• mandatory (although this could be problematic from a consumer regulation perspective); or
• optional, i.e., a “donation”, (although this will need careful consideration to ensure that the payment is genuinely a “donation”, i.e., freely given).

Regulatory enforcement

Since the start of the pandemic, the CMA has received a record number of complaints from consumers. In response, the CMA set up a dedicated COVID-19 Taskforce to manage these complaints. The Taskforce is concentrating on certain key issues including cancellation and refund rights. So far, the CMA’s efforts have centred on the holiday and events sectors, as well as nursery and child care providers.

The relevance of this to education providers is that, whilst no formal investigation has yet been launched into the education sector, the issues which are currently being investigated go to the heart of the above issues in respect of fees. That is, circumstances where businesses have charged consumers for services that (because of COVID-19) have not been provided.

It’s therefore not inconceivable that the CMA will, once again, turn its attention to the fee-paying education sector. There’s no information as to the number of complaints the CMA has received which relate to education, but predictably this will increase. This is especially the case for the private school sector where it’s not unreasonable to expect that complaints, previously withheld by parents for fear of rocking the boat when Schools are now so actively involved in exam assessment, will be made once exam results are released.

All education providers need to make sure their houses are in order and that they’re not breaching consumer rights. The publicity alone (not to mention the potential financial liability which could arise) would be severely damaging if the CMA were to investigate.

Conclusion

Deciding the level at which to set fees will vary from provider to provider. Whilst providers will, naturally, want to try and follow what the rest of the market is doing, what amounts to a reasonable reduction for one provider may not be so for the next. Linked to this, providers should exercise extreme caution to ensure they aren’t engaging in unlawful information exchanges in breach of competition law (possibly another thing the CMA will look into once the COVID-19 dust has settled).

Charitable providers also need to be mindful of their charity law obligations during decision making processes. The Charity Commission has recently updated its guidance on the reporting of Serious Incidents including financial issues to reflect the COVID-19 new world. It can be found here.

Whilst advice should always be sought on specific circumstances, Edward Bouckley (Education Contracts) and Sara Sayer (Education Disputes) are more than happy to discuss the issues explored above in more detail with you.

This article is from the June 2020 issue of Education Matters, our newsletter for our clients and contacts in the education sector. To download the latest issue, please visit the newsletter section of our website. Law covered as at June 2020.