The Chronicle of Higher Education, April 4, 2008, Friday
Copyright 2008 The Chronicle of Higher Education
All Rights Reserved
The Chronicle of Higher Education
April 4, 2008, Friday
SECTION: STUDENTS; Pg. 23 Vol. 54 No. 30
BYLINE: ELIZABETH F. FARRELL
BODY:
A recent flurry of announcements from some of the wealthiest and most competitive private colleges brought welcome news to lower- and middle-income families. Many Ivy League institutions, along with dozens of smaller colleges that also attract high-achieving students, unveiled student-aid plans that will drastically lower the cost of attendance for those families.
The new programs vary in scope and generosity, but most either replace loans with grants for all students or significantly decrease the debt burden for families below a certain income threshold -- on average, about $75,000 per year.
But the nation's two wealthiest colleges -- Harvard and Yale Universities -- increased student aid for far-more-affluent families. Harvard announced in December that families with annual incomes as high as $180,000 would have to pay only 10 percent of their incomes toward tuition. Yale also sharply increased aid, for families that earn up to $200,000.
Those packages for families that are among the top 5 percent of earners in the country have changed the definition of "middle class" and put pressure on other top institutions to be equally generous, many higher-education experts say.
For institutions at the top of the pecking order, the offer of more student aid involves little more than getting the approval of trustees and administrators to dip into bulging university coffers.
But their new policies have a trickle-down effect: As colleges with fewer financial resources attempt to remain competitive with their richer peers, many student-aid professionals and higher-education experts worry, they might divert funds from the poorest students to give more money to middle-class ones in the form of merit aid and debt relief. Another concern is that those institutions will raise their overall tuition, and students who pay full price will finance programs for poorer students, in effect, recycling tuition revenue.
"The marquee institutions with a stunning oversupply of students are going to be fine no matter what," says Daniel M. Lundquist, founder of the Education Consultancy, an admissions-advising firm. "Others on the cusp, who are highly tuition-dependent, will be faced with some tough questions about how they are going to finance such programs to remain competitive."
Realities of Endowment Money
At the wealthiest 10 percent of private colleges and universities, endowment per student is, on average, about $450,000. But for all private colleges, the median endowment per student is only $15,000.
Even among the universities with the biggest endowments, variations between the extremely wealthy and those with just average wealth are drastic.
Harvard University was able to use its $35-billion endowment to replace all loans with grants and drastically reduce the tuition that even upper-income families have to pay. Yale will be able to pay for its new student-aid plan with money generated by its $24-billion endowment. And Princeton University, with a $13.5-billion endowment, the third-wealthiest institution in the country, eliminated loans from its aid packages seven years ago. Last year the university also awarded an average aid package of more than $17,000 to about 80 percent of families with incomes between $150,000 and $200,000 who applied for financial aid.
It is hard to keep up with those three, even at other Ivy League institutions. Ronald G. Ehrenberg, director of the Cornell Higher Education Research Institute, says his university's $5.5-billion endowment amounts to only 15 percent of what Harvard has per student and 12.5 percent of what Princeton has, because Cornell has a significantly larger undergraduate population than either of those institutions.
With Cornell's relatively high aid budget of $117-million, only $30-million comes from endowment returns, and the rest is financed by tuition revenue.
"If such a large proportion at Cornell is coming from tuition revenue, what is happening at other institutions?" says Mr. Ehrenberg, who is also a trustee at Cornell. "It's not going to be possible for other institutions to drastically increase aid without raising tuition more. That's why a lot of lesser-endowed institutions are not very happy about the actions of their richer colleagues."
Cornell announced a new aid plan in late January that will eventually eliminate loans for families with incomes less than $75,000, and cap them at $3,000 annually for families with incomes between $75,000 and $120,000. But it cannot match the plans offered by Harvard and Princeton.
The university's new plan has an anticipated additional cost of $14-million annually, and will require the university to reallocate some money in its budget in addition to spending more of its endowment money and soliciting outside donations through a new capital campaign. Tuition for undergraduates will increase by 4.9 percent in Cornell's endowed colleges in the next academic year.
Lafayette College will use a similar strategy taken to pay for its new aid program. Announced in mid-March, the program will eliminate loans from aid packages for families with incomes less than $50,000, and will cap loans at $2,500 per year for families that make between $50,000 and $100,000.
With an endowment of about $730-million, the college will have to cut back in other areas of the budget to fully cover the anticipated cost of the program, says Arlina B. DeNardo, director of financial aid. A new fund-raising campaign will help. Overall tuition will increase by 7.1 percent next year as well.
"The competitive environment certainly helped expedite the implementation of this program," says Ms. DeNardo. "There's not many of us colleges with endowments below a billion doing this."
Only three institutions that have introduced new aid programs have endowments smaller than $600-million.
Economic realities further challenge colleges, as endowment returns are not expected to be as high in the future, calling into question how institutions can sustain their new programs. And pressures to increase faculty salaries and finance the retirement benefits of older professors create further financial constraints.
Merit Money
Colleges may trim from other parts of their budgets to finance new debt-reduction packages, but many are loath to dip into their merit-aid budgets to finance them.
Lafayette will continue to offer two types of merit scholarships to students who meet high academic standards. Marquis Scholars at Lafayette receive $16,000 grants each year, and Trustee Scholars are awarded $8,000 annual discounts. Ms. DeNardo says about 15 percent of each class benefit from these awards, and about half of those students would not qualify for any aid. The merit-scholarship budget, however, is separate from the one for student aid and will not be affected by the new program, she says.
Furthermore, some institutions that have publicly criticized the new aid plans, and said they cannot keep pace because of their smaller endowments, still offer generous merit programs. Jonathan R. Burdick, the University of Rochester's dean of admissions and financial aid, said he worries that plans like those at Lafayette and Harvard send mixed messages to students and families.
"It muddies the waters by rebalancing a formula for calculating aid that many of us have worked for a long time to make consistent across the board at our schools," he says.
At Rochester, the annual budget for merit awards is $12-million, and the total undergraduate aid budget is $55-million. According to Mr. Burdick, the university has consistently lowered its merit-aid budget over recent years, and 19 percent of its students receive Pell Grants, higher than the average at many other competitive private colleges.
Claremont McKenna College, which has an endowment of $474-million and unveiled a program in March to replace all loans with grants, offers 20 merit scholarships of $10,000 to students from each class.
Harvard and Yale do not technically offer merit-based aid. But, says Richard Vos, dean of admission and financial aid at Claremont McKenna: "If you're good enough to get into Harvard, that is, in effect, a merit scholarship. It's just packaged in a way that is not as controversial as saying it's a merit-aid scholarship."
At some of the richest and most-competitive institutions, including Harvard, the aid offered to students at the lowest and highest ends of the financial spectrum is strikingly different.
An analysis conducted by the Project on Student Debt, a nonprofit organization that analyzes aid policies, found that beyond tuition, the costs of room and board could create vastly different aid packages.
Consider the differences in aid offers between Harvard and the Massachusetts Institute of Technology for upper-middle-class and low-income students, when accounting for room and board expenses.
Families making $120,000 a year get a $30,000 discount from Harvard on the total cost of attendance, while the same families get only a $6,000 discount from MIT. From families with incomes of $20,000 or less, however, MIT expects only $440, while Harvard asks for $5,900 toward room and board.
"The problem is if you make it really generous down at the bottom, you don't have enough money to make it generous at the top," says Mr. Ehrenberg, at Cornell. "Universities have to decide where they're going to put the cutoff."
Politicians and the Public
Political pressure is one of the main drivers behind the recent push at many institutions to offer greater financial relief. In late January, two leading members of the U.S. Senate Finance Committee, Sens. Charles E. Grassley, a Republican from Iowa, and Max S. Baucus, a Democrat from Montana, sent a letter to 136 colleges with endowments of $500-million or more, requesting data on their endowment returns and student-aid policies.
The senators have their eyes on the impressive returns colleges were seeing on endowment investments. Colleges with endowments over $501-million had an average return of 19.3 percent in 2007, according to a recent survey by the National Association of College and University Business Officers in conjunction with TIAA-CREF Asset Management.
Those returns moved legislators to step in and pressure colleges to stop hoarding and start spending.
"Tuition has gone up, college presidents' salaries have gone up, and endowments continue to go up and up," Senator Grassley said in a news release accompanying the letter. "We need to start seeing tuition relief for families go up just as fast."
For years, many of the richest colleges have offered relatively generous aid packages to the poorest applicants. But many families, it seems, have been too intimidated by the sticker prices at those colleges to even consider them. Despite efforts by many wealthy private colleges to increase their proportions of lower-income students, they have remained quite low.
According to 2006 data collected by The Chronicle, at the country's 59 wealthiest colleges, an average of just 14 percent of students received Pell Grants. And as Robert J. Birgeneau, chancellor of the University of California at Berkeley, is fond of saying, his institution has more Pell-eligible students than all the Ivy League institutions combined.
When Dartmouth College announced in January that it would provide free tuition for families with incomes under $75,000, the admissions office received numerous calls from students who said the tuition rates had previously scared them away from applying. Maria Laskaris, dean of admissions and financial aid, says her office has made some exceptions to its application deadline and considered each student request on a case-by-case basis.
Even before Claremont McKenna announced its plan to replace loans with grants, Mr. Vos said his office regularly received calls from students who asked if the college would be offering similar financial relief.
Though more students seem interested, most colleges with these new programs predict fairly modest increases in yield among the income groups affected by them. Both Lafayette College and Claremont McKenna, for example, expect about 3 percent more of those students to accept admissions offers.
Over all, only 20 to 30 colleges in the country are truly need-blind in admissions, according to Mr. Ehrenberg, and the bulk of the poorest students will remain unaffected by policy changes at the wealthiest institutions.
"The concern is that this doesn't really get at the underlying social problem, which is that we have dramatic inequality in terms of access rates to college," says Mr. Ehrenberg. "To the extent that we're giving more money to middle-income families, it could reduce the amount of money that is available for students who really have need."
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