“high tuition, high aid” model: Social justice, socialism, or admin jobs program?

Parent Cafe
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<p>It depends on how you define endowment.</p>

<p>If you define it as the amount that comes from donation then you are right.</p>

<p>If you define it as the total value of the institution’s investments than you are not right.</p>

<p>The fact of the matter is that schools manage these moneys to fund their multiple expenses. If they are long in a pool of money, they use more of those resources. If they are short, they draw from other pools. In the end, all that matters is the value of the investment and the cash flows.</p>

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<p>If you resent the model in question, move to PA or IL, where the state flagships do have a typical in-state discount, but give poor financial aid even to in-state students, so they are only really affordable to students from upper and upper-middle income families.</p>

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<p>There are actually pretty strict accounting rules about what colleges and universities get to count as “endowment.” And they generally don’t want to count all their assets as endowment, because they usually have strict rules as to how much of the endowment they can tap each year. So a lot of the money that comes in every year in donations from alumni and such is counted as “annual giving,” which goes to support the annual operating budget–not into endowment, of which they usually can take only about 5% each year.</p>

<p>The point is, between payout on endowment, annual giving, intellectual property royalties and licensing fees, “indirect cost recovery” (a kind of intra-institutional tax on externally generated research funding), and other miscellaneous revenue streams, the wealthiest colleges and universities have far more money to spend–and they actually do spend much more–than they take in from tuition revenue. So the idea that “full-pays” are subsidizing students on financial aid is pretty much hogwash, at least at the financially stronger institutions.</p>

<p>It makes for a nice reverse class resentment rhetorical point: the affluent should resent the poor who have it so good. But as an analysis if the real economics of higher education, it’s pure bunk. </p>

<p>I’d also point out in response to a previous poster that most colleges and universities are not businesses. They are non-profits, and heavily subsidized by taxpayers to boot. Every dollar that Harvard receives in annual giving or contributions to its endowment is tax-deductible to the donor (unlike my hard-earned income). Every dollar that Harvard makes on its investments is tax-free (unlike my after-tax investments). Every dollar that Harvard takes out of its endowment is tax-free (unlike distributions I will eventually take from my IRA and 401(k)). Harvard owns billions of dollars worth of real estate, on which it pays not one penny in property taxes. Many colleges–I don’t know about Harvard–don’t pay sales taxes on their purchases. Much of the wealth of these wealthy educational institutions is attributable to uncommonly generous tax treatment. </p>

<p>If they were profit-maximizing enterprises like my local car dealer, they’d be taxed 6 ways to Sunday, and they’d have a very different view of what prices to charge, and who to admit. I’d imagine Harvard could easily charge $250K/year in tuition and offer nothing at all in financial aid if it were looking to maximize profits like my local car dealer. But that’s not how it defines its mission. It is, at bottom, a charitable institution; if it weren’t, then its tax status couldn’t be legally or morally justified. And as a charitable institution, it is free to give charity to those it deems deserving. Attacking it for giving such charity is a bit like attacking a church for soliciting donations from the rich and using that money to provide aid and comfort to the poor. Of course, that’s not how a capitalist would do it, but then, churches aren’t for-profit capitalist institutions. And neither are colleges and universities.</p>

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<p>“So the idea that “full-pays” are subsidizing students on financial aid is pretty much hogwash, at least at the financially stronger institutions.”</p>

<p>Bclintonk, the key to your statement is “at least at the financially stronger institutions.” The point being that very few U.S. institutions can survive without relying on tuition money to support operations. In particular these days in which endowments are producing limited returns on capital. Those schools are the traditional HYPSM and a few others. </p>

<p>However, many desirable universities, such as Penn, Brown, Northwestern, Duke, MIT, U.Chicago, Cornell, Wesleyan, Swarthmore, and Carleton need the tuition money to keep operating without drawing from the principal of their endowments.</p>

<p>As you go further below, you find many other T20-T50 schools that absolutely need tuition revenue to survive. Below T50 almost all schools qualify as what one calls “tuition dependent” schools, for which most of the operations is funded by tuition/COA dollars.</p>

<p>Public institutions are a little different because they receive government support, but even those are dependent on tuition/COA revenues. </p>

<p>So, it is not hogwash to say that full payers at, say, Brown, Northwestern, Wesleyan, Vanderbilt, NYU, Boston College, Carleton, Carnegie Mellon, etc. are subsidizing finaid recipients. And so are the full payers at other good schools such as Case Western, Smith, Reed, Wake Forest, Tulane, Oberlin, Bowdoin, etc., which some times meet, some times do not meet full need.</p>

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<p>A lot of kids who get full aid don’t get anything from the school. It’s a combination of standard federal aid and private scholarships. And, don’t forget that a lot of the school aid money comes from endowments and scholarship funds set up specifically for low income students by wealthy contributors. They made their money and wanted it to be used that way. So, the assumption that one student’s tuition is paying for the other student’s schooling is not necessarily accurate. When you get your finaid offer, it shows where the money comes from. The people who donate all that money to scholarship funds might be annoyed to think that new students’ parents think it’s all coming from their kids’ tuition. Perhaps some or a lot of it is in some schools. Also, it varies from student to student. One has a special scholarship, and another gets it from a school fund. Same tuition, same need, different sources. Probably better to look school by school, student by student.</p>

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<p>sosomenza, that’s an interesting point. If only rich kids get into top schools, the quality of the admits goes down because you eliminate the brilliant kids whose single parents had cancer and lost everything. It’s not in the best interests of society to make a kid miss out on the best education due to his dad’s cancer when he could be contributing in a few years to the space program, an HIV cure, or a stunning development that reduced auto emissions dramatically. You see, it’s not just money that has value. It’s intelligence and purpose and optimism. While kids of all financial circumstances can contribute, we’ve all seen the families where mom and dad worked extremely hard to become well placed financially, only to have the kids turn out soft and unmotivated, never having had to struggle or contribute or fight for survival. If they can go because their parents can pay but the spectacularly bright poor kid can’t, what good is that? An unmotivated kid gets well educated but doesn’t have to work while a brilliant kid struggles to get a challenging education while working to to support himself. So, it’s better for all of us if the admissions are need blind and the needs are fully met. But, let’s be honest about needs. We often think we need our luxuries and of course we don’t. That is of course a different issue, but it’s one that sometimes motivates such discussions. I can agree that this topic is worth exploring, but we do need to be aware of the consequences of going the other way.</p>

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<p>“aid money comes from endowments and scholarship funds set up specifically for low income students by wealthy contributors. They made their money and wanted it to be used that way.”</p>

<p>The way it works is not exactly like that for two reasons: (a) money is fungible; (b) college development people go to donors and “pitch” their preferred projects. Sometimes they pitch aid, sometime they pitch library, some other times they pitch athletic facilities. Many times donors do approach schools with ideas set in mind, but development admins are very pro-active on this.</p>

<p>“The people who donate all that money to scholarship funds might be annoyed to think that new students’ parents think it’s all coming from their kids’ tuition.”</p>

<p>This does not change the facts. Sure donors contribute, but unless they are covering the finaid in their entirety, then what can I say? If you donate $1,000 to a tuition-dependent school, would you be annoyed to hear that there are other subsidies going on?</p>

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<p>Last year I sent money to my son’s department because he received a departmental scholarship (I paid back the scholarship). He also received several other merit scholarships and those are next on the list to pay back. The donation forms allow you to specify where your money goes though the categories are fairly broad. I do not know whether they move budgets depending on where donations come in but I rather think that they don’t given that their budgets are set before the semester starts and donations come in throughout the year, though there are some natural times when they are larger.</p>

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<p>I donate to a tuition-dependent school because I’m impressed with how efficient they are with donations. There are other subsidies going on - that’s the approach that the school is taking and they have been very public about it. No, I am not annoyed. Yes, we were full-pay.</p>

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<p>Tuition is more than an investment in classes and books. It is an investment in the future value of the graduate. </p>

<p>Are you suggesting all tuition be lowered and aid removed? Essentially pricing the poor out of an education?</p>

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<p>Iowa has lowered tuition to make it more affordable for the middle class, then focuses on giving aid to the poor.</p>

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<p>Personally, once the financial aid and merit offers were on the table, deciding which college to attend was similar to buying a car. At least it was for our family.</p>

<p>We drive cars that are highly rated by Consumer Reports. Very reliable, hold their value, relatively inexpensive, cheap to maintain. We pick our upgrades based on what we want and need, not on the hottest or latest advances in tech toys. Nobody’s heads turn to look when we drive down the street. We don’t have any special needs to address when choosing a new car. Our egos are not attached to our cars.</p>

<p>Other families choose cars based on other values or needs. </p>

<p>In terms of colleges, with our kids choosing majors that practically any college in the country could offer, we couldn’t see the value of spending an additional $30,000 (or more) per year per kid on a luxury model college. If our kids had special needs, if they chose majors that really could only be met by one or two colleges, if prestige were important, if we were wealthy, if,if if… We might have a different point of view.</p>

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<p>Shopping for value would be a more transparent process if the colleges would simply level the tuition in the first place.</p>

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<p>Well, I’d like the local cable company and my mobile provider to do the same but it’s in their interests not to. Marketing works.</p>

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<p>I think there are at least 4 kinds of colleges/universities relevant to this discussion:

  1. The Harvards of this world. For these institutions they could probably fill their class charging $150K/yr. On the other hand, they could probably charge 0K and live off endowment income, at least for a while.
  2. The next tier of private colleges who have significant endowments, and which give a “subsidy” to all who attend - even the full payers. Whether or not they say they are need blind in admissions, they do carefully look at what proportion of their enrollment is full pay versus recieving financial aid.
  3. A group of private colleges where tuition revenue is really the whole show. They manage their tuition, financial aid, gapping of aid awards, merit aid, etc. to meet multiple objectives, but tuition revenue essentially funds the whole show.
  4. The public colleges and universities. Their tuition and budgets are usually set by, or strongly influenced by, public policy.</p>

<p>I think it would be fair to call the practice cited by the OP as “socialism” only to the extent it is practiced by public colleges and universities. They are the direct arms of the government. Private institutions charge what they want to charge. They have multiple objectives, and excluding University of Phoenix and its for-profit cousins, profit maximization is not the objective. Keeping the doors open is clearly one prime objective, but also increasing the status of the institution.</p>

<p>In the academic world there are many things which contribute to status, for example how many Nobel Prize winners you have on your faculty, your research production, but also your ranking in USNews. For some, a successful athletic program yields status. Diversity is probably also an objective, at least in part to keep applications up. Just to cite an example, colleges work very hard to keep the gender balance at a target level. They realize that if they become 60 or 70% one gender they may well find that a large group of high school students become less interested in applying.</p>

<p>As to why the tuitions are almost all about the same, this is clearly price signalling. I think there was an anti-trust case against universities many years back (though that might have been on financial aid). So they can’t collude directly, but the list prices are suspiciously close across a broad range of colleges and universities.</p>

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<p>My public library is “socialist” too. It’s amusing how the OP thinks that socialism is a dirty word. Like communist.</p>

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<p>We have too many stereotypes of socialism to either understand what it really is or to sustain a meaningful conversation.</p>

<p>Sent from my DROID RAZR using CC</p>

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<p>@Pizzagirl,</p>

<p>Don’t put words in my keyboard. I NEVER said the the practice was socialist. I posed the question to the CC community whether the practice was social justice, socialism, or admin jobs program?</p>

<p>If you read the link to the Atlantic article I posted, it was pointed out that at a lot of schools, the tuition-hike money was also used to pay for merit scholarships which were disproportionately awarded to affluent kids.</p>

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<p>What is interesting is that the various states have rather different policies on this subject, with respect to their state flagship universities. For example, WA, FL, NC, CA, MI, and VA have pretty good in-state need-based financial aid, while IL and PA are notoriously poor in that respect.</p>

<p>It would be interesting to see if that has an effect on intergenerational class mobility in the various states.</p>

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<p>CA has the highest poverty rate in the country (23+%) and has the least-educated labor force in the country. Not sure what that says about our expansive and generous public university/college system, but it isn’t good, regardless.</p>

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<p>GMTplus-The elite schools do not offer merit scholarships. There are more poor smart kids than rich smart kids because there is many, many more poor kids in the application pool. If one were where to stratify the stats of the poor kids, the admittance stats of the rich kid’s schools would be below that of the State University. Since without financial aid that is where all the smart poor kids would go.</p>