Technology is pervasive across our society. It touches all facets of our lives. While technology in education has increased significantly over the past decade, the need to integrate technology into lesson planning, classroom use and for remote access has placed demands upon IT departments that weren’t present as little as ten years ago. This explosion of technology in order to prepare students for the next stages of their lives and careers has put pressure on educational institutions to fund technology on a sustainable basis.
Most technology assets have a short useful life. Wear and tear on laptops and Chromebooks, increased memory and speed requirements to provide adequate software performance along with a focus on light/sturdy devices for mobility creates a shorter lifespan for technology assets.
How have educational institutions attempted to meet this changing need and increased budget challenges? Many schools continue to purchase technology assets using funds from the capital side of the budget. Schools may also use grants when available or applicable to reduce the budget impact. Adding pressure to school budgets is shrinking school populations creating less revenue putting the purchase model when coupled with the need to replace obsolete devices in jeopardy. Grants while available are not a reliable source of funding.
Some educational institutions have turned to commercial banks to borrow funds at high interest rates in today’s marketplace. This allows the school to pay back the loan over time in an attempt to match revenue to expenses. While this is a step in the right direction since it moves the funding of the technology assets from the capital side of the financial statements to the operating side of the budget it can be a costly option. Why move the acquisition of technology assets from the capital to the operating side of the budget as an expense? As mentioned earlier technology assets depreciate rapidly. In essence the life of an asset gets used up each day. Capital funds are best used for assets that have a long useful life like buildings, land or infrastructure that exceeds ten years of useful life.
A more efficient use of a school’s financial resources is to consider leasing as a way to fund technology. Leasing looks at an asset like a utility. Something you need to function in the classroom environment like electricity which gets consumed in increments.
If a lease is structured properly in can provide flexibility, cost savings and revenue matching capabilities. The two most common lease types are the Dollar Buyout (DBO) and the Fair Market Value (FMV) lease. The Dollar Buyout lease is like a loan with generally lower rates than a bank loan because the Lessor will have access to a lower cost of funds. The Fair Market Value lease factors into the calculation the residual value of the equipment at the end of the lease term which generally lowers the lease payment from 10 percent to 15 percent of the cost of a comparable Dollar Buyout lease or bank loan depending on the lease term selected. The traditional FMV lease does not allow the educational institution to share in the residual value of the equipment if the equipment is worth more than the expected residual value. The FMV lease also doesn’t offer a cost-effective solution if the equipment is not available to be returned at the end of the lease term.
The COVID era gave birth to a third type of lease appropriately named the HYBRID lease. This lease type offers the flexibility of owning or financing with upon returning the equipment at the end of the lease term the educational institution shares in the residual value of the equipment at up to 80% of the funds received by the Lessor. The HYBRID lease substantially lowers the overall cost of acquiring technology assets while providing the opportunity to manage equipment obsolescence.
The HYBRID lease also offers flexibility in the instance where a replacement device might not be available for reasons like supply-chain shortages. A traditional FMV lease would require payments to continue even though the initial lease term may have ended. The HYBRID lease requires no further lease payments beyond the original term while the school continues to use the equipment.
This is one of many compelling reasons for educational institutions to consider the HYBRID lease as a method to fund a sustainable technology program.