Better Than Buying
Tight on cash? Worried about being saddled with yesterday's technology? Think about leasing the equipment you need.
Photo: © Stockdisc(RF)/Corbis
Deciding on the right mix of new computers, projectors, and networking equipment to outfit a school turns out to be the easy part of transforming it for digital learning. Figuring out how to pay for all the stuff is the trick that eludes many administrators. With computer gear rapidly becoming one of the largest single expenses a school can face, many institutions and districts are choosing to avoid the huge up-front costs by leasing it instead. Not only is the cost spread out over the equipment’s usable life, but leasing also brings technology within the reach of cash-strapped schools, eliminates obsolescence, and makes the most of scarce capital.
It adds up to a win-win situation for schools, students, and administrators. With technology changing as fast as hairstyles, this large price tag can pop up every two to three years for schools wanting to stay up-to-date. While some schools float special bond issues or pay for new equipment out of regular operating funds, more and more districts are turning to leasing to fill classes with computers and other educational equipment. Knowing what to expect can help ensure your school always has the right stuff at the right price.
“The goal today is to outfit schools with one computer per child,” explains Dave Russell, director of the one-to-one initiative at Apple, “because it’s the best first step to improving how children learn.” On the downside, when adding projectors, networking, and software, the cost swells to a minimum of about a thousand dollars per student, putting it out of reach for many school districts and individual schools. “This stretches school budgets to the breaking point, making leasing computers an attractive alternative that many districts are choosing because the payments are more manageable.”
The basics of leasing computers are simple enough for even the most serious math phobics to grasp, and can make even the district’s financial officer smile. Think of it as the equivalent of leasing a car, with the goal of stocking a school with computers, projectors, and networking equipment instead of wheels. Rather than a lump sum, the school pays a little at a time for the use of the equipment and promises to return it at the end of the leasing period. The typical academic lease runs between two and four years.
For the Kershaw County School District in Camden, South Carolina, leasing computers meant that it didn’t have to write a check for close to $5 million to equip each of its high school students and teachers with HP Compaq nx5000 notebook computers. Instead, the school’s four-year lease on equipment required payments of $1.2 million a year for 2005 and 2006 and payments of $2.2 million a year for 2007 and 2008 as more students are added to the program. “This way we can get what we need and not overload our finances every few years,” says Herb Berg, the district’s superintendent. “It’s regular and predictable.”
But that’s just the beginning. By spreading out the payments, leasing can free up resources to take care of other important items, from maintenance and after-school activities to capital projects. That way, a technologically up-to-date school doesn’t have to settle for a crumbling infrastructure or dirty bathrooms.
Rather than leasing the 5,000 notebooks all at once, the Kershaw program started in 2004 with ninth graders. Since then, every incoming class is equipped with new machines at the start of the school year. Every student carries the same system throughout high school, and surrenders it before graduation, when the lease ends.
Leasing is so popular for companies, schools, and individuals these days that just about any piece of tech gear—from systems to networking equipment—is available on a payment plan. For example, a Dell Latitude D620 notebook with a midrange processor, 2GB of memory, and a 14.1-inch screen might cost about $1,500 to buy outright but can be had for roughly $80 a month on a two-year lease. The good news is that the lease often includes training, software, and services.
When Pascack Valley High School in Hillsdale, New Jersey, decided to lease a Sony notebook for each student and faculty member in 2004, administrators could hardly have imagined the effect it would have on teaching and learning. The machines are on a four-year lease, and each Pascack Valley student got a Sony VAIO S model with a 13.3-inch screen, while teachers received the larger and heavier VAIO A or FS systems with 15.4-inch displays. With the new machines, instruction at Pascack Valley High has moved beyond the printed word to access to 25 online resources and five all-digital classes. “It’s really the curriculum driving the laptops, not vice versa,” explains Eric Tusch, Pascack Valley High’s director of IT.
In leasing, neither the district nor the school actually owns the hardware, which turns out to be a big bonus at the end of the system’s life. By leasing instead of buying, the school is relieved of the financial burden of system disposal. While schools that own computers typically hold onto them longer when they become antiquated and pass them down to less demanding users, even the best computer must meet its maker eventually. It can cost between $50 and $75 per machine to safely dispose of a computer. “We make the machines disappear at the end of the lease,” says Brandon Casement, financial area manager for HP Financial Services, “if they want us to.”
At the end of the lease, the school generally has the choice to return it to the supplier or buy it. Most schools give the machines back. But there’s also a third choice that’s becoming increasingly popular. “Many schools choose to trade up to the latest hardware,” offers Mike Schmedlen, education-industry executive at Lenovo. By trading up at the end of the lease, the school never has systems older than two-to-four years. “Leasing is the best way to stay on the technology wave.” A school with a lease that’s expiring on Intel Celeron notebooks from 2003 can trade them in for fresh Core 2 Duo systems with more memory, larger hard drives, and better graphics. Even better, the school’s lease payments for the new, more capable equipment are often the same as they were for the old items.
The Value Proposition
Leasing is not a cure-all that can magically grab any equipment out of thin air and put it into students’ hands. It works best with items like cars and notebook computers that are still worth something at the end of the lease. This residual value lowers the lease payments along the way, making the machines more affordable. Every dollar that the equipment is worth at the end of the lease is one dollar less the school has to pay while using it. It doesn’t work well for items like networking gear and desktop computers, which have close to no value after two or three years. “Desktops depreciate so quickly that at the end of a lease there is little or no value left,” adds Lenovo’s Schmedlen. “We finance them rather than lease them.”
The practicalities of leasing are a little more complicated than buying, but all the manufacturers either offer leases directly or through a financing subsidiary. There are also third parties that buy equipment and rent them to schools on a short-term basis (see “Instant Computers” on page 32). The best bet for savvy schools is to get vendors to fight over your business by soliciting bids from all the major system makers and leasing companies.
Regardless of who ends up supplying it, the equipment is typically delivered to the school with asset-management software and ID labels affixed, which allows the school to keep track of who has what. This makes it a lot easier to round up the systems at the end of the lease. Many firms offer set-up services that range from installation and configuration to software loading and training.
Creativity is Key
Leasing isn’t for every school. It sometimes makes more sense to buy. Wilson Elementary School in Sanger, California, was pinched for money to outfit its classrooms and adult-education program with new computers, so the district tried a different approach. Instead of getting separate computers for each student to use, the board realized that since they were needed at different times of the day, the systems could be shared. “The key is to be financially creative,” observes Apple’s Russell. “Buy when you have to, lease when you need to, and fill out as many grant applications as you can.”
In fact, many computer makers and leasing companies are flexible enough to structure the payment schedule to accommodate the peculiarities of a district or school’s cash flow. While most prefer the predictability of making monthly payments, others might want to schedule an annual payment for when property taxes are disbursed, private-school fees are paid, or even when an annual donation drive ends.
As a parochial school with limited resources, most of the income for the St. Agnes Academy and St. Dominic School in Memphis comes directly from parents’ tuition payments, which flow into the school at the start of each term. In 2003, the school set up a lease with Apple Finance to equip its 800 students and 100 faculty members with notebooks as well as wireless networking gear to link them as they roam the four-building campus. The school sends checks to Apple twice a year—after its coffers have been replenished with tuition payments.
“We couldn’t afford to buy what we needed,” recalls Bobby Ireland, the school’s IT director. “Leasing became our way of getting computers into the hands of our students.”
The Color of Money
It’s not a surprise that computer makers and leasing companies don’t lend schools the equipment out of civic duty. Like car-finance companies, they charge interest to pay for the equipment, their expenses, overhead, and profit. At 5 to 15 percent a year, the interest charges can add up quickly, and over a three-year lease, the school might actually pay an extra 25 to 50 percent. “It’s a small price to pay for spreading the payments out,” explains Ireland. “It’s predictable, and there are no big expenditures that can bust the budget."
Even when things go wrong--and with computers they often do--leasing has the advantage of including full support and repair services for the life of the lease. That's because it makes sense for leasing companies to take care of the equipment; sooner or later they're going to get it back. At Pascack Valley High School, the 2,000 leased notebooks get special treatment from an in-house computer repair center that takes care of everything from a fried hard drive to a broken screen. "As part of the contract with Sony, we have repair technicians on-site to fix broken systems," says Pascack Valley High's Tusch. "All we do is give them some space to work in. Our laptop hospital is essential to keeping every machine running."
All good things must come to an end. At the end of a lease, normal wear and tear is not a problem, but anything that's missing or broken must be fixed or paid for. A key part of any successful leasing program is to insure the machines against theft and accidental damage s that at the end of the lease, every machine can be returned. "Even the most forgetful or clumsy student or teacher is covered," adds Tusch. Each user pays $50 a year for the insurance, a nominal price considering the school's potential exposure if a notebook thief decides to strike. A lost or stolen machine requires a $100 deductible.
When you come down to it, leasing versus buying computers makes no difference to the student, teacher or office worker because the machine can be treated as the school's own during the term of the lease. It all comes together when the kids take their notebooks home with them at night. Learning is not an 8:00-3:00 activity that happens only within the walls of a school. "The notebooks are just the beginning," adds Apple's Russell. "It can start a curriculum revolution in schools where learning is the result."