Colleges Face Challenge of the Class Divide

Parents Forum
181

<p>We can argue back and forth until blue in the face. The point that I tried to make is that schools like Amherst, whatever they do will make little difference to the class divide which is broadening at an alarming rate. </p>

<p>What we need is for state legislatures to see that the "middle students" who are the backbone of our society are being squeezed out. Their credentials are not strong enough to get merit aid or to get into an elite college where FA will be generous. If these students are being prized out of flagship state u's or not getting a decent education at such places, then we will certainly not be providing an adequate workforce to be competitive in this world economy.</p>

182

<p>Mini may be correct that everyone is provided a subsidy because the expenditure per student may be greater than the full-pay amount at the elite school.</p>

<p>However, lots of us frugal, home-paid-off-and-full-pay parents can't shake the idea that we are subsidizing the tuition of the recipients of financial aid.</p>

<p>This especially applies when we are looking at private LAC's of a lower tier that give out massive amounts of merit aid.</p>

<p>I guess I wouldn't mind as much if I got a charitable deduction for my full-pay tuition check (just kidding :))</p>

183

<p>"If there is any differential in pay, it should be based on implicit social value."</p>

<p>Umm but how to determine implicit social value? You may think a classroom teacher ought to be paid as well as a stockbroker but the fact is it is not very hard to be teacher else there would not be a ready supply of them at such dismal wages.</p>

<p>Are stockbrokers paid too much? Apparently the people highering them don't think so because nobody is holding a gun to their heads and forcing them to pay such huge wages. Is their work implicitly of less social value? I don't know but they have certainly done a whale of a job for Harvard and harvard's endowment. What is it worth to society to have capital efficiently employed - directed quickly and efficiently and in sufficient quantity to build that new middle school down the street? Or that new water treatment plant up river. When government needs to borrow money to finance new highways, bridges, schools, ports, or levees the efficient movement of money within the economy saves billions of dollars in finance costs and interest.</p>

<p>Of course if I am going to argue free markets I guess I have to accept that the willing seller can sell at whatever price he chooses and ought to be able to sell the same product for $2, $1, or $0.01 on whatever basis he wants including the looks of the buyer. On the other hand the merit blind schools can only do this because they are allowed to collude on pricing. They can do it because the refuse to compete on price, have basically been granted an exemption from federal law and because they have effectively prevented entry to the market or at least their segment of it. They also as this thread points out enjoy a significant information advantage over the consumer.</p>

184

<p>Jaybee, life is full of choices, some of which are happily serendipitous and some of which are not. You're not really envying people who lived as if there were no tomorrow, and who get to tell their HS kids that college may or may not be in the works... sorry kid, we love you anyway, but mom's making martini's by the pool gotta go. Nor could you be envying the truly poor (Mini claims that enough of them don't go to private colleges for us to care about their fin aid packages at private colleges) since their lives are a constant jump from being marginally employed to waiting 14 hours in an ER to see a pediatrician to diagnose an ear infection.</p>

<p>So I think you should take pride in having been a responsible adult, being a prudent steward of the resources you had/have, who now get to help your kid make a good decision about college which you can all live with... financially and otherwise. Whether a dollar on the margin goes to someone "less deserving" can't keep you up at night, anymore than I can worry about how my property taxes pay for a private taxi service to take my neighbor's kid to middle school- he's got asthma, they sued the school system, fact that the kid plays competitive sports is apparently not relevant in deciding if he can walk a block to wait for a school bus.</p>

<p>Hey, someone's always got a way to work the system but I can't let it ruin my life, nor can you.</p>

185

<p>"Actually, it's quite true. I haven't looked at Amherst's annual report, but I've looked at Williams' and Swarthmore's. Those numbers are about right.</p>

<p>Swarthmore spent $73,691 per student for the 2005-06 academic year.</p>

<p>Revenues included $29, 161 per student in tutition, room/board, and fees (after aid discounts).</p>

<p>Plus, $36,067 per student in spending from endowment returns.</p>

<p>The remaining $8,463 per student revenues came from corporate and government grants, annual giving, interest from operating cash, and miscellaneous income (summer sports camps, bookstore sales, etc.).</p>

<p>Williams numbers are very similar to Swarthmore's. I expect Amherst's are as well -- their endowment is similarly huge. Swarthmore finished the year with an endowment of $862,383 per student. They believe that they can continue subsidizing the operating costs of the college and grow the endowment (after inflation) by holding annual endowment spending to a long-term average of 4.25%. Last year's endowment spending was slightly below that, at 4.17%, although it can fluctuate from a target of 3.25% to 5.25% from year to year."</p>

<p>So basically what you are telling me is that the non-profit conglomerate Williams College is in a number of business segments - education, investing, book sales, research, housing, food sales etc etc. Now explain to me how Williams Industries would have acquired this immense endowment without its students and the favourable tax treatment it recieves because it is a "non-profit" educational institution. </p>

<p>What you have done is simply divide the number of students by the total yearly expenditure of Williams Industries and asserted that is the "cost" of the education. It is the same as saying the cost of a pound of baloney is Total Corporate Expenditure divided by pounds of baloney produced ignoring the fact that dozens of other "products" were produced at the same time.</p>

<p>Are the brokerage fees Williams paid the investment manager of their endowment spent on education? Are the fund raising expenses Williams incurs and trust me they are substantial educational expenses? Are research contracts Williams College gets from the federal government and private industry educational expenses? I don't think so. I think those are all separate product lines and any economist would agree with me.</p>

<p>Again no matter who asserts it and no matter how loudly there is no such thing as a free lunch. It is as true as any law of physics.</p>

186

<p>"What that means (if true of course) is that all three colleges have decided that subsidizing the wealthy is overwhelmingly the best use of their financial resources."</p>

<p>Actually mini what that means is that Williams has allocated all of their overhead to one of their many products. When they contract to say build a lab and conduct research for the government or private industry is that lab an expense of educating an undergraduate or is that an expense of fulfilling that contract.</p>

<p>When they pay an investment manager to invest their endowment is that an expense of educating an undergraduate or is that an expense of their investment business?</p>

<p>These are not trick questions. Go back and take econ 101 and I am pretty sure the professor can explain it better than I can.</p>

187

<p>jaybee,</p>

<p>"However, lots of us frugal, home-paid-off-and-full-pay parents can't shake the idea that we are subsidizing the tuition of the recipients of financial aid."</p>

<p>Sorry you find us and our children so offensive.</p>

188

<p>I'm sorry, as well, if you'd prefer we not go to college at all.</p>

189

<p>In that case, I'm sorry, too.</p>

190

<p>Not so touchy!! :) The funny thing is that I could choose to be on either side of the coin--Aim higher, and pay full price, or lower and be on the receiving end. </p>

<p>I don't have to be crazy about the system, but I'm grateful to all here that I at least understand it better.</p>

191

<p>


I'd like to point out that the very rich also pay less. I stumbled across something on my daughter's college web site -- they offer a "tuition stabilization" plan - if you prepay all 4 years at the beginning, that's it: no increases. If I was a multi-millionaire, that would be an easy check to write.</p>

<p>So the next time you get a notice of a tuition increase... along with your envy of those of us whose financial aid grants will be going up to compensate, also give a happy thought to those pre-paid rich kids whose parents are getting a good chuckle out of the notice, congratulating themselves on their foresight in opting for the prepaid plan. </p>

<p>Keep in mind that at most, its only an indirect subsidy. The college is going to budget the same amount toward financial aid every year, and it is unlikely that the financial aid costs are a significant driving force for tuition increases. It is far more likely that when your tuition bill goes up, you are "subsidizing" the cost of increases to faculty and staff compensation packages than student financial aid. You might want to check to see if you can find a financial report for your college that shows a pie chart - you'll see that the financial aid budget is a very small piece. </p>

<p>For example, at my daughter's college, 56% of the college income comes from tuition and fees. 17% of the expenses are for financial aid; whereas 28% are for instruction. So if you do the math, then that would mean that a full payers tuition dollar accounts for only 10 cents of each financial aid dollar. </p>

<p>However, my daughter's college is the most poorly endowed of its peer institutions, and pays a higher proportion of its revenues on aid dollars than is typical. Amherst is much richer -- only 10% of their overall expenditures go to financial aid, whereas 55% of their revenues come from tuition. So at Amherst, each tuition dollar translates into only 5 cents of financial aid money. </p>

<p>For Amherst numbers, you can pull their annual report here:
<a href="http://www.amherst.edu/%7Etreasurer/Treasurer%20Rpt%202006.pdf%5B/url%5D"&gt;http://www.amherst.edu/~treasurer/Treasurer%20Rpt%202006.pdf&lt;/a&gt;&lt;/p>

<p>In a sense, those of us on financial aid are doing more of the "subsidizing", since it's all coming out of the same pot. That is, if my financial aid package requires me to pay $20K, then I'm subsidizing the poorer financial aid students who have full rid packages or only have to pay a few thousand -- because I'm taking a smaller slice of overall financial aid budget, leaving more for all the others. I have a sense that I will become more keenly aware of this over the years, as my share of the financial aid pie diminishes.</p>

192

<p>"I'd like to point out that the very rich also pay less. I stumbled across something on my daughter's college web site -- they offer a "tuition stabilization" plan - if you prepay all 4 years at the beginning, that's it: no increases. If I was a multi-millionaire, that would be an easy check to write."</p>

<p>If you prepay, you lose what you would have made on the money over the next 3 years.</p>

<p>So can you make more, after tax, than the future tuition increases? Are there financial circumstances that may make it necessary to keep the money around? Are you sure your kid is going to make it through the school?</p>

193

<p>Here's a thought: The "rich" have been paying hundreds of thousand of dollars in state and federal taxes to "subsidize" the "needy" in just about every facet of their lives. So if the rich get a break due to "subsidized" tuition at some elite school that accepts a measly 400-1,000 kids per year, I don't see that as a big deal.</p>

<p>I doubt you can convince me that it is not possible for those needy kids to get a comparable education at a cheaper state U that is heavily subsidized by the rich taxpayer.</p>

194

<p>calmom--
Thanks so much for all the info you've given on this long thread--</p>

<p>If it wasn't for you, I would have never heard of the consensus methodology, and would have assumed that the Profile EFC was written in stone. You've inspired me to research a greater variety of schools for my son.</p>

<p>I suppose that since there are millions of kids, and millions of different financial circumstances, the subject of financial aid can certainly be an acrimonious one. We are all rich or poor, savers or spenders, and when the price of an education is variable based on circumstances sometimes under our control and sometimes not, it leads to conflict.</p>

<p>Mini may have it right. The greatest subsidy may be to the uber-wealthy. Family A may have an EFC of $45K, and Family B an EFC of 450K. But those two families will pay the same rate at Williams!</p>

195

<p>Jaybee -
"The funny thing is that I could choose to be on either side of the coin"</p>

<p>Actually, if you stick around long enough you find yourself doing just that - giving your best advice whether or not the student is or is not eligible for finaid, is or isn't an athlete, and so on. Best of luck on your research and your son's college search!</p>

196

<p>It's important to realize that, if we are concerned about affordability of a college education for the college-aged population as a whole, the top liberal arts colleges like Amherst, Williams and Swarthmore have no discernible impact. If you take all the students at CC's 30 "top LACs" it might represent about 50,000 students. This is about 0.5% of the 9.8 million students at 4-year colleges. The students at the top LACs get wonderful educations. But whether or not they are subsidized and by how much, or whether the endowments of their colleges are too large or too small has almost no impact in the overall cost of college education for the society as a whole.</p>

197

<p>dadx3, I'm not sure what you say is true. If the top 30 lacs cut their prices 30%, other schools might have to follow suit. We could actually see a price war. (I won't hold my breath). How could Michigan charge $30,000+ for out of state tuition if 30 top schools are charging $23,000?</p>

198

<p>
[quote]
If you prepay, you lose what you would have made on the money over the next 3 years.</p>

<p>So can you make more, after tax, than the future tuition increases? Are there financial circumstances that may make it necessary to keep the money around? Are you sure your kid is going to make it through the school?

[/quote]
If college tuitions go up faster than other costs, its a good bet. And I'll bet that there is some sort of prorated refund or adjustment policy in place for students who are unable to complete all 4 years. </p>

<p>Again, you'd have to be rich before it would be a good deal -- but if I had a couple of million lying around, given historical tuition increases, I'd see the pre-pay route as a pretty good bet.</p>

199

<p>
[quote]
Mini may have it right. The greatest subsidy may be to the uber-wealthy. Family A may have an EFC of $45K, and Family B an EFC of 450K. But those two families will pay the same rate at Williams!

[/quote]
And why shouldn't they? Should Family A be charged $4 and Family B be charged $40 for the same gallon of milk? Of course not.</p>

200

<p>"If college tuitions go up faster than other costs, its a good bet. And I'll bet that there is some sort of prorated refund or adjustment policy in place for students who are unable to complete all 4 years."</p>

<p>I'm sure the colleges don't keep the money. :)</p>

<p>It's a tough call.</p>