Why is child care so expensive? Owners share unique costs and challenges of the business

Child care can cost parents in Michigan as much as some college tuition annually. Yet, the owner of your child’s school may be taking home no pay and their teacher is likely not making much more than $15 an hour.

How does that figure?

The business of child care is complicated. Early education professionals say both parents and policymakers often don’t fully recognize the extent of their conundrum.

For child care businesses, state-mandated teacher to child staffing ratios mean paying teacher salaries and benefits dominate the majority of their budgets, while capped capacity in classrooms mean providers are significantly limited in how much money they can bring in by enrolling more kids.

Add to that a whole slew of additional rising costs — including food, liability insurance, utilities and the expenses associated with staff turnover, along with a customer base (parents and guardians) which, on the whole, cannot afford to be charged any higher, and the lack of public funding, according to experts.

These businesses — the majority of which are small, local and independently-owned — are uniquely squeezed. Owners are left to foot the bill of the true cost of caring for and educating Michigan’s youngest, according to Kathy Ligon, who has nearly 40 years of experience in early education and runs a child care consultancy.

“Parents and government systems’ ability to pay true cost of care is our main issue in the industry — we’re not able to charge and receive what quality early childhood education costs,” she said. “This is the most critical time in a human being’s development, and we don’t make that investment.”

There are solutions in the works, many being floated in Lansing. But in the meantime, child care owners must often offset costs in ways that hinder their own financial security, which many owners grow accustomed to accepting, Ligon said.

More: What Michigan has done to help keep child care businesses afloat and what it could try

For Jacqueline Taylor, who owns Little Dreamers Early Learning Center in Lansing, supplementing meant taking home inconsistent pay for six years after she moved from being a home-based provider to a center — some weeks she’d take home minimum wage, other weeks she’d take home nothing depending on what her budget allowed.

“I have tried to absorb the cost myself,” Taylor said. “I cannot do that forever.”

Due to her site’s recent expansion and business guidance from a number of mentorship programs she has partnered with, this is the first year she has been able to take home a consistent paycheck, within the wide range of what child care business owners typically bring home annually, which is between $45,000 and $100,000, according to financial modeling from Wonderschool, a tech platform that helps people start their own child care businesses.

While taking home little to no paycheck within the first few years can be common among small business owners, said Kevin Ketels, the tricky balancing act child care owners play to maintain profitability is not. Staffing ratios and the variability of enrollment can quickly throw child care businesses, which have average margins as low as 1%, into the red.

“It would be very easy to hire too many teachers, lose a few customers and become unprofitable,” said Ketels, the director of entrepreneurship and innovation at Wayne State’s Mike Ilitch School of Business. “That’s part of the reason you don’t see corporate investment in this industry, because of all the difficulty.”

In the last three years, over 2,000 child care licenses have closed in Michigan, according to state data. Because the state keeps track of child care center license closures, as opposed to site closures, it’s difficult to parse how many are a result of routine licensure changes — for example, a provider increases in size, closes their old license, and opens a new one, versus the result of not being able to pay the bills.

Difficulty keeping businesses afloat is a challenge across the state, not just in lower-income areas where sites rely on reimbursement from the state child care subsidy. Even providers in affluent areas, where they can charge parents high tuition, said they find it difficult to keep up with the sky-high cost of quality early childhood education.

“It’s challenging every day,” said Gretchen Preston, who owns Gretchen’s House Child Development Centers in Ann Arbor, which charges between around $2,000 to $3,000 a month for full-time enrollment. Preston said she’s still worried about being able to pay her teachers a living wage.

The business challenges facing the early education industry amount to market failure: Businesses can’t keep up with demand and customers don’t have access to supply, said Katie Sloan, a professor at Oakland University’s Birth to Kindergarten program. Sloan interviewed hundreds of providers as part of her 2022 dissertation.

Early education business owners say they’re often left wondering where exactly their money is supposed to come from and where they can cut costs while still maintaining high quality care and education for their kids.

“Do I serve quality food or pay my light bill? Do I send teachers home?” said Maria Robertson, program director at Little Dreamers. “What do I cut and which part are the children gonna miss out on?”

Here is what providers say makes early education such a tough business:

Child care is a labor intensive industry, state ratios send these costs through the roof

In Michigan, as in other states, teacher-child staffing ratios exist to maintain safety and quality in early childhood education. For infants and toddlers, the ratio is one teacher to four kids. For preschoolers, it’s one to eight and for pre-K it’s one to 10.

This boils down to a huge portion of providers’ budgets, between around 70% and 80% on average, getting eaten up by staffing costs. Providers said labor was what they are most worried about paying for.

For Betty Favors, who owns Cribs2College Academy in Detroit, $10,000 of the roughly $14,000 in tuition she’s bringing in every two weeks goes to payroll. Part of this is also overtime pay, which can be a financial hit on top of an already tight budget.

“It is a big inconvenience when parents don’t show up by closing time,” she said.

While 80% of Preston’s budget goes toward labor in order to pay her full-time teachers an average annual salary of around $40,000, she said “that is not enough” to live on annually when you look at living wage calculators.

Preston’s labor costs are even higher because she chooses to maintain lower ratios than what the state requires, which means hiring and paying more teachers. This is important to her because it means a higher quality experience for the children, she said.

Staffing costs also add up for the providers who can afford to hire additional staff to support lead teachers and allow for staggering schedules.

“Otherwise, we’d have teachers working 60 hours a week,” said Rhonda Meyers, owner of Heartfelt Impressions Learning Center in Lake Orion.

Taylor and Robertson said payroll is expensive because, in addition to wages, it can include paying for benefits like vision and dental, Social Security taxes and professional development. Keeping up with increases in the minimum wage and policies like paid sick leave have a huge impact on them because their budgets don’t have much wiggle room, they said.

And high labor costs are exacerbated if a classroom isn’t at full capacity.

“If I’ve gotten one extra kid, I have to be in ratio for them, so I gotta hire,” said Favors. “(That teacher) gets full pay, but I’m only dealing with one kid over ratio.”

Constant staff turnover is expensive

Because overall staffing costs are so high and revenue is limited either to what parents can pay or what the state reimburses them — which is between around $5 to $10 an hour, depending on factors like age of the child and a site’s star rating — providers can often only afford to pay their teachers minimum wage, said Taylor.

Low pay means providers lose staff to other industries.

“They can go to McDonalds and make more than $15 an hour,” said Favors. “We can’t afford to start them more than that, the money isn’t there.”

Meyers estimates that 30% of her staff turn over annually, often because, after five or so years of teaching, they’re looking to find a teaching role that will pay better, in a school district, for example. Owners often also struggle to reach full capacity at their sites because they can’t find teachers to staff classrooms.

Hiring new staff is expensive. For Meyers, this amounts to thousands of dollars spent on each new hire for onboarding costs, including fingerprinting, paperwork and two weeks of paid training.

Insurance rates are skyrocketing

Aside from payroll and maintaining high enough enrollment to afford it, paying for insurance, especially liability insurance, is another big budget item of increasing concern for providers. Both finding and affording it has become a “crisis” in the early education industry, said Ligon.

“Either they’re priced out of reach or more commonly, dropped all together,” she said.

In 2024, 80% of providers surveyed across the country said their liability insurance went up that year, according to a report from the National Association for the Education of Young Children.

This is because of an increasing amount of insurance claims and high payouts that insurance companies point to in order to justify hiking up premiums, increasing restrictions for coverage or dropping child care owners, said Samantha Phillips, an insurance agent who specializes in helping early childhood education business owners across the country find insurance. Phillips said in 2025, the average annual cost of insurance premiums for her clients was $25,000, as compared to an average of $10,000 in 2023.

One source of increased claims comes from parents, according to Phillips, who said she has seen more lawsuits filed against her clients for “frivolous claims” in the last two years than in the previous 10 combined.

Recently, for example, a parent filed a claim for negligent supervision against the child’s center, because their kid ran into another kid on the playground.

“Increased liability claims come from people seeking a payout from what would be perfectly fine at Nana’s house or a friend’s down the street,” she said.

One of Phillips’ clients was dropped by their insurance company after a claim was brought against them by a parent whose child is still currently in their care.

Left to find another option, this child care center found itself in the Wild West — a rapidly shrinking market where affordable options are few and far between. Phillips said there are only three insurance companies actively insuring child care programs left in Michigan, compared with about 10 that existed at the beginning of 2024. The client ended up finding an insurer, but their premium went from $50,000 to $230,000 annually.

With incredibly low margins, child care budgets are not equipped to withstand these significantly increased costs. Ligon said the system is also difficult to navigate for providers, many of whom are first-time business owners.

Food, utilities are rising, so providers find creative ways to cut 

Robertson and Taylor said the cost of food is their second biggest expense outside of payroll. They estimate spending between $3,000 to $4,000 on it each month. Serving nutritious food is a key tenant of their early education site, considering 80% of brain development is happening in a child’s earliest years, they said.

Utilities, too, are costly line items of concern to many providers.  As a home-based provider in Detroit, Peranica Williams said affording utilities is one of her most pressing financial worries. She estimates gas and electric eat up around a third of her budget at her child care business, My Nanny Extended Childcare Services LLC.

Providers say they’re often left considering where they can shave down costs without sacrificing some element of high-quality care.

Meyers said she has learned to be frugal in all the places she can. For years, she wore the marketing, sales and human resources hat while her business partner took care of bookkeeping and payroll. Because she couldn’t afford someone to do maintenance, she learned how to snake a toilet.

Robertson and Taylor have created a family advisory board who often volunteer to help out free of charge.

“Dads will come fix the door; moms or grandmas will donate food to us,” Taylor said.

They’ve also founded a nonprofit called Little Roots, through which they partner with producers to get lower food prices and hope to eventually grow up to 90% of their produce.

“We can reallocate those funds to paying our team a livable wage,” Taylor said.

Little public funding leaves providers in the lurch

Providers have two main issues with Michigan’s Child Development and Care, or CDC, the state subsidy that reimburses them for child care costs for low-income families who cannot afford it.

Both of them make providing child care and education a financial headache, they say.

The first issue is that providers get reimbursement payments from the state after providing service; CDC kids are in their classroom and every two weeks, a provider bills the state for that time. Two weeks later, they get paid for it.

Meyers estimates up to 17% of students at Heartfelt Impressions receive the CDC.

“We have to balance our budget without that money,” she said. “That is a huge chunk of money.”

Taylor said in the past at Little Dreamers, where she estimates 60% of her kids use the CDC, they’ve also had to wait months for a kid’s CDC registration to get turned on and recognized by the system.

“Sometimes, I need to hire a staff member knowing that I’m not gonna get paid right away,” she said. “I have to float that team member … and make ends meet while waiting for the gap to be filled.”

But Taylor said she’s currently hopeful because lawmakers are looking to fund “prospective payments” in the upcoming budget, meaning providers that take the CDC would be paid in advance.

The second issue providers have with the subsidy is that it doesn’t pay them back what they actually spend on the care and education of their kids. In Michigan, the state would need to pay providers around twice the amount they’re currently getting reimbursed if rates were to reflect the actual cost of care, which would total a state investment of over $3 billion, according to a 2023 Think Babies report that analyzed what it would cost to pay providers what they spend on care. Since the report was published, the state has increased rates by 15%. However, the report details that current state CDC funding amount falls short by approximately 80%. While a 15% increase in rates reflects some progress toward the true cost of care, it doesn’t close that gap, according to report author Jeanna Capito.

Robertson and Taylor said that, as a highly rated provider, the state reimburses them at about $9 an hour or less, depending on the age of the child in their care.

“That is drastically below minimum wage,” Robertson said. “In order to responsibly pay early educators and feed kids, it would be well over $600 a week but we need to make ends meet with $300 a week from the state of Michigan.”

This impacts lower-income communities the most, since more families require child care subsidies.

“There comes a point when these lower rates make it difficult for the child care provider to afford the staff needed to responsibly operate,” said Brian Gutman, vice president of policy and government relations for the Learning Care Group, a national child care corporation with sites across Michigan.

A provider might have to decide whether to continue running in hopes that reimbursement rates will eventually improve or to shut down because they can’t afford to pay their staff.

MiLEAP, the state agency overseeing early education initiatives, has said it continues to work to support providers, pointing to a number of investments the state has made, including piloting raising provider wages and supporting child care business owners in opening or expanding over 3,600 sites.

Low reimbursement rates reflect the broader issue: lack of public funding for early childhood, according to Anna Powell, who studies the industry at the University of California Berkeley’s Center for the Study of Child Care Employment.

Most educational settings, like K-12, receive substantial amounts of government funding, so that parents are not paying the majority of the costs, she said. This is not the case for early childhood, the vast majority of which is paid for by parents in the United States, said Gutman.

If the business is so hard, what brings people into it? 

Providers certainly don’t enter the industry for the money, said Ketels. When unique limitations squeeze you at each end, profitability is a constant struggle, costs are absorbed through years of sacrificed income or debt, and business longevity is a question mark, the main factor attracting people to and keeping them in the business of child care is passion.

“It’s a mission, a calling,” said Holly Brophy-Herb, a professor at Michigan State University’s Department of Human Development and Family Studies. “They are committed to children and families, they value the role they have.”

This is true, said Robertson, who says early educators are tasked with no small feat: “building the foundation for humankind,” she said.

Yet, in the business of child care, providers are often unfairly asked to sacrifice their livelihood in service of this passion for the education and development of young children, said Taylor.

The challenges providers deal with don’t allow for a business to thrive, Favors said. Barely making ends meet and being spread to the limit, month after month, is a distraction from being able to do her job, she says.

“I don’t want your money,” Favors said. “I want to make sure your kids are safe, loved and potty trained.”

Beki San Martin is a fellow at the Detroit Free Press who covers child care, early childhood education and other issues that affect the lives of children ages 5 and under and their families in metro Detroit and across Michigan. Contact her at rsanmartin@freepress.com.

This fellowship is supported by the Bainum Family Foundation. The Free Press retains editorial control of this work.

This article originally appeared on Detroit Free Press: Child care business owners share why they’re ‘uniquely squeezed’