Is this true? Is this the reason behind high cost?
“At private colleges, you should ask, “What is the school’s tuition discount rate?” These discounts are actually tuition dollars that families or students pay that are redistributed – for very good reasons – to support students with high financial need or to attract students with special talents. “
It’s not true at some private schools, where even full-pay students are subsidized by income from the endowment.
@vonlost Those would be to colleges with mega endowments like $10 billion or higher. There are only a handful of those.
It depends on the school. I know at Bowdoin, the money spent per student is even higher than full sticker price. And I believe they use their endowment for need based aid. I read a report from Kenyon that said a pretty big percent of tuition revenue was funneled back into need based financial aid so it was clear that a family paying full price at Kenyon was indeed funding need based financial aid for other families.
My guess is that, in general, schools with really large endowments don’t redistribute tuition dollars to families will get need based aid. I guess it’s good to know. If it bothers a family paying full price then they would consider where their money is going but a good point is made that diversity is a good thing and it benefits the full pay kids too.
No different than tax dollars subsidizing rich and poor students at public colleges.
While spending per student is certainly linked to endowment, there are schools with less than $10B endowments where spending per student is greater than all in costs.
Bowdoin, for example, spends more per student than COA.
Here is a link that shows 6 of the 10 LAC NESCACs where per student spend > COA, and some of them have <$1B endowments. https://bowdoinorient.com/2019/04/12/how-does-bowdoin-spend-its-money/
Wrt the article that OP posted, it is important to look at the financial health of any school on your kid’s list. At some schools, the full pays do subsidize those receiving aid.
There’s a great blog called higher ed data stories. There is an illuminating analysis of average discount rate by school (one measure of financial health), posted on Mar 27, 2019. It uses 2016 data from IPEDs which is still the most recent data available.
@Mwfan1921 The per student endowment at Bowdoin is very large.
Is this for real?
Several recent studies have found evidence that other federal student aid programs drive of tuition increases. A 2015 study found that a dollar of subsidized (non-PLUS) student loans increases published tuition by 58 cents at a typical college, with larger effects once reductions in institutional financial aid are taken into account. An NBER paper issued last year concluded that changes to federal student loans are more than sufficient to explain tuition increases at private nonprofit colleges. And a 2014 analysis found that for-profit colleges eligible for federal student aid charged tuition 78% higher than that of similar but aid-ineligible institutions.
I guess as long as parents take out Parent PLUS loans to send their kids to pricey private schools, the schools can keep charging what they want. When schools hit a ceiling where parents no longer want to take the loans because they are too big, they won’t get those students. For elite privates, though, I’m not sure this will matter. They will always get students they want. Some elite schools don’t offer parent loans since all need based financial aid are grants and no loans are offered.
@homerdog If paying families would go elsewhere and cost would need downward readjustment to keep getting paying students then how are those colleges going to fund financial aid?
@CupCakeMuffins. It’s eye opening… I have read similar articles
lol @CupCakeMuffins I certainly don’t have all of the answers. It’s a pretty complicated issue. I do know more and more families around here who have gone the no loan route, either sending kids to a public school they can afford or to a school that gave them merit. I bet that trend will continue.
Like I said, elite schools either use endowment for financial aid and/or they will always have plenty of full pay families because families deem it “worth it” to go to those schools.
Nobody has all the answers but with your logic, either most schools would’ve to stop giving aid or close shop.
Why is this an issue? There have been and always will be folks who are willing to be full pay for colleges (we were…and not for top 20 schools only). There will always be families who don’t mind taking huge parent plus or private college loans for their kids to attend college…any college. There will always be families who can send their kids to colleges that are outside a certain price point. There will always be international and OOS students, for example, at public universities who pay higher costs.
Choices choices.
We were able to be full pay…you know what? I don’t give two hoots if my kids’ colleges used part of what I paid to help fund financial aid for needy students, or for merit aid for students. I think that’s not a bad thing at all. It helps colleges get at least a little more well rounded classes of students.
If you don’t want your money to go to paying for others, then there are lots of things you need to stop paying…lots. But let’s nit go there unless you want this thread closed.
Like I said…I feel fortunate to be in the financial position our family is in. Oh…and we also make annual donations to where we got our degrees and to the schools our kids attended.
@CupCakeMuffins I guess I’m not clear on what your question is. You’re curious why the cost of college keeps rising and wondering if parents taking loans are pushing up tuition rates?
Or you’re concerned that some of the money paid by full pay families helps pay for financial aid for families who need it?
“Nobody has all the answers but with your logic, either most schools would’ve to stop giving aid or close shop.”
“If paying families would go elsewhere and cost would need downward readjustment to keep getting paying students then how are those colleges going to fund financial aid?”
And indeed, virtually all colleges besides the richest few do not guarantee to meet full need for everyone.
Meanwhile, the most elite privates could fill their student body several times over will full-payers if they wanted to because the demand is that high.
So here’s what seems curious to me, @CupCakeMuffins:
You’ve been on the CC boards for a few years now. Are you saying you just figured out the economics of higher ed in the US? I find that mystifying.
So even if $3,500 of subsidized federal direct loans increases tuition by $2,030, that is very little of the $55,000 or so list price tuition at the private universities and LACs that people on these forums focus on.
My concern is rising cost. It makes it unaffordable for everyone, no matter what is their EFC.
I don’t see why this is a revalation. Boston University proudly announced that they awarded $300 million in institutional aid last year. They have an endowment of $2 billion. In a good year the endowment will produce $100 million of spendable income. Even if all that went to student aid, which it does not, where do you think the other $200 million comes from? Full pay students!
“My concern is rising cost. It makes it unaffordable for everyone, no matter what is their EFC.”
Costs are rising on the top end because the demand for the elites are insanely strong and come from all over the world. And demand is insanely strong because of rising inequality in the US and rise of the upper-middle-class/rich all over the world where they didn’t exist before. Getting rid of subsidized federal loans will barely make a dent in the COA of the Ivies/equivalents.
If you really cared about affordability for everyone, then I’m sure you’d support free college for everyone. Of course, the funding would still have to come from somewhere: Taxpayers