Colleges Face Challenge of the Class Divide

Parents Forum
141

<p>It is true that even for the very needy student who also gets a full Regents Scholarship & qualifies for maximum need, UC assesses a value to the home you live in & "punishes" for that, meaning only that the EFC will by definition be higher than if one did not own on paper. (And based on property assessment values, not actual owner equity.) That contrasts with many of the wealthy Elite U's who definitely do not assign assessed property value to the EFC. (The Cal Grant gets broken out that way, and you can see what/how/why they have determined family contribution, regardless of documentable income, level of debt, minimum equity, etc.)</p>

<p>Thus, the story about the UChicago/Cal acceptees is believable.</p>

<p>And slightly off/topic, though relevant, is that non-aided tuition at UBC is cheaper than non-aided tuition at UC, for a Californian.</p>

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<p>
[quote]
Yes the famous free lunch. No doubt an institution can operate indefinitely selling a $65,000 product for $40,000 and at the same time keep growing its endowment :-) That assertion is so ridiculous on its face that only a complete naif could possible believe it.

[/quote]
</p>

<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>

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<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>

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<p>Not entirely. Their sticker prices are among the highest, but their average price (after aid discounts) is only midpack (lower than Smith, for example). Thus, Swarthmore has one of the more aggressively progressive pricing policies -- high sticker price, moderate average price, aka charging non-aid students more to subsidize financial aid.</p>

<p>They could reduce operating expenses and redeploy the endowment dollars in one of two ways:</p>

<p>a) Reduce the sticker price. However, that is simply a discount for the wealthy.</p>

<p>b) Enroll a higher percentage of need-based students (they are currently at 50%/50%). That would probably require a change to the SAT and "stat" profile....see Berea for an extreme example of large endowment spending focused on low income, low stat students.</p>

<p>I would agree that these colleges have decided to invest their large endowment dollars in the things that high stat wealthier students value: top notch facilities, a small student/faculty ratio, contented motivated teachers, very extensive student support functions, significant diversity recruiting, guaranteed housing, etc.</p>

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<p>danas, my guess would be that Chicago has some sort of policy where they provide full rides if income is below a certain amount, or drops loans if the EFC is particularly low. The UC system would probably meet full need for those students, but would probably still include loans in the package. So it may be that at the very low end, Chicago's package is better. Also, Chicago might calculate their cost of attendance in such a way that they actually come out ahead (for example, if COA includes a travel allowance).</p>

<p>It also occurred to me that it is possible that students may have filled out a FAFSA wrong, thus inflating their EFC. I noticed in the "Financial Aid" thread of this board that a lot of students of divorced parents and are confused by the FAFSA and think they need to include income of both parents -- they don't quite get the idea that the noncustodial parent income is to be left off. I'll bet a lot of students make that mistake or others that messes up their EFC -- and no one is going to fix it for them at a UC, given the volume of paperwork coming through. My experience with private colleges is that they go over every part of the FAFSA very carefully and tend to catch and fix any errors.</p>

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<p>epiphany -- the UC system is FAFSA only. They don't ask for or have any information as to home equity. I don't see how the UC's would even know whether or not a family owned a home, as the Cal Grant determination is taken from the FAFSA. (Maybe you encountered a situation where a family owned a 2nd piece of property, and that is what needed to be reported?)</p>

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<p>Again, it's not home "equity" that is offsetting the CalGrant, but the public records assessed home value.</p>

<p>Same FAFSA, used for privates + the public. Not filled out wrong.</p>

148

<p>I seem to come from this magic 7%, and I lived in Poland for many years. My ACT scores aren't the best though and I only live 45 minutes away from campus. I really do love Amherst. Amherst and ND are tied for first place on my list. They are both good school that I love, and if the decision came between Amherst and ND, I would probably choose Amherst. My ACT score of a 26 seems way too low for this school, the only thing going for me is my polish background, my essays, my EC's, and and recs. I am not #1 or #2 in class, and I do not have fabulous scores. Hopefully Amherst does give me a chance though. I love the school to death. Best of luck to everyone who applied under RD. I probably have the lowest ACT score out of anyone applying to Amherst from this whole forum.</p>

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<p>Re: UofC, and FA and our experience. D was accepted and the FA package was 10K worse than any other school. I went with D to Accepted Students' Weekend and attended the FA talk for parents. The room was jammed, and complete strangers walked in and later, out, talking to one another about how bad the FA was compared to other schools. The Dean told us that they would certainly review any appeals, but that "We would find that their figures were accurate." They were locked into FAFSA figures, and would show no deviation. Therefore, no need to bother, right? Well, I met with the FA counselor anyway, and after I told (and showed evidence) her what other schools offered, she told me that my D should go there, because they were good schools, too. During the parent's bus tour of Chicago, some of the parents asked the Ass. Dean what the story with FA was. He said that UofC realized it was losing lots of great candidates to other schools with better FA, but that its endowment wasn't as big as their eastern cousins'. The Pres was starting a fund drive to boost the endowment so that they wouldn't lose anymore great candidates. But this wouldn't all be completed for another 5 years (3 years now). D didn't want an additional 40+K in loans, and neither did I. She sent in her rejection letter. But I am not boo-hooing that UofCh didn't treat me as a middle class person better. D found other options, and Amherst worked for us. But at least she applied to these schools, as well as her safety, thus giving her many more options than kids who don't even apply.</p>

150

<p>"Not entirely. Their sticker prices are among the highest, but their average price (after aid discounts) is only midpack (lower than Smith, for example). Thus, Swarthmore has one of the more aggressively progressive pricing policies -- high sticker price, moderate average price, aka charging non-aid students more to subsidize financial aid."</p>

<p>Doesn't matter. The extra amount spent over costs (and hence the subsidy to the full-pay students) overwhelms the modest differences in list price and the slightly larger number of students who receive aid (which isn't particularly large at any of these three schools to begin with.) The average price after discount is virtually irrelevant, given the $30k subsidy of the full payers. They could choose to charge closer to what the product costs, and then subsidize those who need it, and, as you well know, they choose not to.</p>

151

<p>higherlead,</p>

<p>I don't disagree in the least that paying for college at most private and some public schools smacks of socialism. It comes all to close to 'from each according to his ability, to each according to his need.' If cars were sold this way, the rich would pay $50,000 for a Honda Accord, the poor $2000 (including insurance), and the middle $30,000 with a 4-year loan. </p>

<p>I think where I differ from you is that I am trying understand the system, and, despite its obvious flaws, work within the system to get my kids through college, rather than devoting my efforts to trying to change the system. I suppose one way to help effect that change is to tell colleges that excessive cost is the reason why an offer of acceptance is being turned down. Unfortunately, the HS grad demographics for the next few years mean that demand will be strong and colleges will have little motivation to modify their financial aid structure.</p>

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<p>"It comes all to close to 'from each according to his ability, to each according to his need.'</p>

<p>Not even close. When so-called "full pay" students at Swarthmore, Amherst, or elsewhere, etc. are each receiving a $30k/year subsidy (or $120k per year), the wealthy aren't paying anywhere close to their "ability". Relative to that, financial aid to everyone else in toto is a pittance. Meanwhile, for the wealthy, assets/income over the past 25 years have risen faster than tuition list prices at prestige colleges, making them cheaper than ever, while for everyone else they've become increasingly out of reach. If it is "socialism", it is socialism for the rich (so what else is new?) And they are allowed - after all, it is THEIR money. I love the opportunity to subsidize the millionaire's kid every year with my measley alumni contribution.</p>

<p>Which doesn't mean you can't get aid IF you get in. (But, relatively, precious few are.)</p>

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<p>'When so-called "full pay" students at Swarthmore, Amherst, or elsewhere, etc. are each receiving a $30k/year subsidy (or $120k per year), the wealthy aren't paying anywhere close to their "ability".'</p>

<p>The 30K subsidy comes from the endowment which comes from where, if not the wealthy?</p>

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<p>Glad to see that you think students are deserving on the basis of their economic "class position". That's what socialism is all about! ;)</p>

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<p>Mini, I really hate this $30,000 subsidy stuff. How are the fixed costs allocated? How are pensions allocated? </p>

<p>If the full payers are getting a $30,000 subsidy, then the people who aren't paying the full amount are getting an even larger subsidy.</p>

<p>I like to look at this issue using rate of return. I pay $220,000 for an education. What will the financial payoff be?</p>

<p>If I pay $50,000 and the rest is paid for by outside sources, what will the payoff be?</p>

<p>What are the opportunity costs?</p>

<p>I see that Georgetown just raised their tuition another 6%.</p>

156

<p>DStark -</p>

<p>Point #1 - I have no idea how fixed costs are allocated, etc. For that, ask ID. What I do know is that you can find out how much is spent from the endowment each year and add to that what is actually paid by students and divide by the total number of students and you have a reasonable estimate of "cost per student". After that, I'm sure there are lots of ins and outs.</p>

<p>Point #2 - It is isn't a matter of what the subsidy is per student, but the total spent by the college on the subsidy. Let's make believe for a second that the cost per student is $80k and the list price is $40k, and there are 1,000 students. Half receive "no aid" (ahem). So the subsidy for the top 3% income folks is $40k X 500 or $20 million. Then let's assume for the other 50%, the average discount is 25%, so they each pay $30k. Well, they receive the same $20 million subsidy like everyone else, but the extra subsidy is only $10k per student or $10k x 500 = $5 million. This is the so-called "financial aid' budget. In other words, (as I said to ID), the average discount rate difference among these colleges wouldn't amount to a hill of beans, relative to the socialism of the rich. It would not be difficult to change those numbers radically by charging significantly more for the product, and then offering much more in the way of "financial aid" for the increasing numbers who need it. But it is easier to hide the fact that the whole thing is built on the socialism of the rich by keeping the tuition relatively low, lower than the rate of growth in income/assets of the top 3%. For them, the cost of these colleges is at a 25-year low.</p>

<p>Point #3 - What will the financial payoff be? Highly debatable. I think for students from the bottom 80% of the population, relative to what they could have earned had they gone and been successful at other institutions, probably very, very little, in tangible terms, especially had they been able to invest the differences in cost. But I can enumerate lots of other payoffs, and am personally grateful for them.</p>

<p>Point #4 - what are the opportunity costs? Depends if you will actually spend the same bucks. (We've gone over this before.) There is no question in my mind that if you had $180k to spend on college (and not one penny more for other things), you could get a much, much better education with a free ride at a good state university PLUS $180k in other educational spending than you would at Harvard, Swarthmore, Smith, Williams, or any prestige college you might name. But you'd actually have to come up with the plan to spend the $180k, and it would really have to be true that you wouldn't have had one dime of that available had you chosen the prestige college option. (This is a scenario that is hypothetical - I've never seen it in practice.)</p>

<p>Point #5 - the increase in tuition at Georgetown is MUCH lower than the increase in assets/income of the top 3%ers last year who, after all, are their prime consumers.</p>

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<p>Point 1. You are assuming that everything that a college spends benefits students.</p>

<p>"If the full payers are getting a $30,000 subsidy, then the people who aren't paying the full amount are getting an even larger subsidy."</p>

<p>That statement is true, isn't it? </p>

<p>Point 2. Is it socialism if you take from the rich and give to the rich?</p>

<p>You think that the full payers are getting a good deal.
There is this large subsidy which is the proof. Yet, nobody knows what makes up the actual numbers to get the subsidy. Nobody knows how much the expenses actually benefit the students. If everybody paid the full tuition rate, the subsidy would drop. Right? If the school lowered salaries by 20%, the subsidy would drop, right? If the school built buildings that weren't as fancy, the subsidy would drop, right? If the school was run more efficiently, the subsidy would drop, right?</p>

<p>You get a good deal by your rate of return, not by a subsidy. If I pay $40,000 and the costs are really $70,000, but my rate of return on the $40,000 is 2%, that isn't a good deal, subsidy or not.</p>

<p>Using the subsidy as a measure is imperfect at best and misleading. Period.</p>

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<p>
[quote]
Point 1. You are assuming that everything that a college spends benefits students.

[/quote]
Excellent point, dstark.</p>

159

<p>"Point 1. You are assuming that everything that a college spends benefits students."</p>

<p>No. I wouldn't. In fact, I would venture a guess that the value-added for students at Berea, where the cost per student is much, much lower, is far greater than at the usual suspect prestige schools. And the value-added for the first-generation college student who attends a third tier state school is on average much greater than that for the 5th generation student at Princeton.</p>

<p>""If the full payers are getting a $30,000 subsidy, then the people who aren't paying the full amount are getting an even larger subsidy."</p>

<p>That statement is true, isn't it?"</p>

<p>Yes, but from the college's perspective, that's a drop in the bucket. The title of the forum is "Colleges Face Challenge of the Class Divide", and it is my position that, a) for the most part, they don't; and b) what for?</p>

<p>"Point 2. Is it socialism if you take from the rich and give to the rich?"</p>

<p>Absolutely. Folks are being given subsidies based solely on their class position. The millionaire who puts money into the endowment supports the kid of the next millionaire whom he has never met, reinforcing the class position of both. They are united in maintaining and extending their class position.</p>

<p>"You think that the full payers are getting a good deal."</p>

<p>Relative to everyone else, a GREAT deal. And getting better all the time, and better than at any time in the past 25 years. </p>

<p>"If everybody paid the full tuition rate, the subsidy would drop. Right?"</p>

<p>As noted, not by very much.</p>

<p>"You get a good deal by your rate of return, not by a subsidy. If I pay $40,000 and the costs are really $70,000, but my rate of return on the $40,000 is 2%, that isn't a good deal, subsidy or not."</p>

<p>The very little data I have seen on this question suggests that prestige colleges are a very "good deal" for low-income first-generation college students. For everyone else, the data are equivocal. But for the full-payers, it doesn't matter. They aren't seeking a good deal. They are (among other things, tangible and intangible) seeking prestige. And that's pretty much true with the half of the financial aid receivers whose incomes are above $100k. (good ol' Veblen again.)</p>

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<p>"You think that the full payers are getting a good deal."</p>

<p>"Relative to everyone else, a GREAT deal. And getting better all the time, and better than at any time in the past 25 years."</p>

<p>It's all the way you look at things, isn't it? :)</p>

<p>If you look at it like the top 3% made much larger returns in investments than the increase of college costs over the last 25 years, I can see why you come to that conclusion.</p>

<p>If you look at it using rate of return, and opportunity costs, you may come to a very different conclusion, but then that won't fit what you believe. :)</p>

<p>"The very little data I have seen on this question suggests that prestige colleges are a very "good deal" for low-income first-generation college students."</p>

<p>The rate of return is potentially much higher for those that don't pay the full tuition.</p>

<p>"But for the full-payers, it doesn't matter. They aren't seeking a good deal. They are seeking prestige. And that's pretty much true with the half of the financial aid receivers whose incomes are above $100k. (good ol' Veblen again.)"</p>

<p>I get into trouble everytime I mention that people want to go to school for prestige. :)</p>

<p>Some full payers have so much money the costs are not relevant.</p>

<p>Some full payers do have to think twice.</p>

<p>Not all full payers are the same.</p>

<p>There is a huge difference between those at the top 3% of income and those at the top 1% of income.</p>

<p>There is a huge difference between those in the top 1% of the wealth in this country and those in the top 3%.</p>