How Colleges Are Selling Out the Poor to Court the Rich (Atlantic)

Parents Forum
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<p>Oh, that’s easy. They take out those “subsidized loans”. Those loans, in turn, fund the gap between the $60k that the millionaires pay, and the $96k that it actually costs - in other words, the $144k subsidy. </p>

<p>Kayf - for the prime audience for these few prestige privates, those who can afford full-pay, college hasn’t been this inexpensive in 30 years. Since 1980, the assets of the top 3% of the population have risen well faster than the increases in COA for these schools. It’s a huge bargain. As the endowment of places like my alma mater mushrooms, the gap between what is charged and what is spent on each student grows wider. The millionaires are huge beneficiaries. (Williams does publish how they come up with the numbers, but I don’t have time to retrieve the link.) The only thing that has changed is that a bunch of middle class parents, most of whom went to state universities themselves, now think their kids are entitled to these elite educations, and are surprised when they might have trouble paying fro it</p>

<p>I think there is plenty of room for prestige privates to raise price - the fact is in the reality that they are. And the more they raise the price, the larger the number of applicants they reject. Doesn’t seem they are having much difficulty finding the folks who can pay, especially since at current prices, it is such a bargain.</p>

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<p>Mini, the top 1% may keep sending their kid to Williams, but the lower parts of the top 5 are beginning to say it is too much. Unless their kid gets merit aid from a good school, they may go public.</p>

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<p>When did merit award tuition discounting begin? In the eighties or nineties? I know in the mid-seventies there were scholarships at my college but they were for kids that had financial need.</p>

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<p>“Mini, the top 1% may keep sending their kid to Williams, but the lower parts of the top 5 are beginning to say it is too much. Unless their kid gets merit aid from a good school, they may go public.”</p>

<p>They aren’t shivering in their boots. Their yield has never been higher - which means the kids they admit aren’t going public. The number of students they reject has never been higher. For every one who goes public, there are 10 waiting to take his or her place, and many of them, if they could figure out how, would buy a place well above the COA.</p>

<p>The lowest part of the top 5%, in many if not most instances, went to public universities themselves.</p>

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<p>This is fairly complex, but has its roots primarily in the ratings game with a few tendrils caught up in the rapid price escalation.</p>

<p>Everyone wants to move up in the ranks. There are several tried and true ways to do that. One is to send a bazillion mailers so you get more applicants that you can reject and thus increase your selectivity. Another is to overbuild the non-education related aspects of your campus to make it more desirable. A third, the one germane to tis discussion, is to buy higher test scores and GPAs.</p>

<p>Couple that with the fact that many families who could afford a quarter of a million dollar undergraduate for their child are deciding that an expenditure of that magnitude isn’t prudent based on what it buys. They are seeking value. </p>

<p>That’s why Williams, Amherst et. al. Are filling up at $250k, but MANY, MANY institutions trying to charge the same tuition are not. They aren’t perceived as a good value at that price.</p>

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<p>They ARE seeking value. Value of product: $96k plus prestige. COA - $60k. That’s an awfully good buy. No wonder there are 10 applicants for every place, and half of those accepted happily pay the full boat (that is, the discount to value) unless (in most cases) they are accepted to an even more prestigious place.</p>

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<p>@mini, the 36k gap at rich schools is paid from earnings on their fat endowment and from annual fund contributions. This is pretty much how all rich schools do it. </p>

<p>Poor people generally only contribute token amounts to the annual fund. The wealthy do give generously to both the annual fund and to capital campaigns.</p>

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<p>Nope. All the subsidized loan money goes into the same pot. All the Pell Grant money goes into the same pot. If these colleges wanted economically poorer students without that federal subsidy, they’d have to pay for it themselves, or “cheapen” the product. (And they could afford to do so.) But the amount that is paid to them through those subsidized loans and Pell Grants is far greater than what they receive in alumni contributions. </p>

<p>All of this money COULD be going into enhancing community colleges, subsidizing state university tuitions, etc., etc. Instead it is subsidizing millionaires.</p>

<p>I have absolutely no problem with colleges like my alma mater doing whatever they want with their money. After all, it is their money to do with as they please. I have a problem with the use of public funds that could be going to enhance public education, and make it affordable for those who really need it.</p>

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<p>mini, I’m sorry I wasn’t clearer. Schools that continue to fill in spite of the fact that they offer no merit aid (such as Williams, the Ivies, etc.) are the ones that are, at least for now, perceived as a good value, even at $250k.</p>

<p>The schools that are offering merit aid, are seen to be worth less, hence he discount.</p>

<p>I’m not making the argument that any of them are actually worth what they charge or that the ones who fill without merit aid are in fact more valuable than those who don’t. It is indeed all based on perception, something easily influenced by many things.</p>

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<p>They are worth what people will pay, of course. But all I’m saying is that allowing them to make a killing, subsidizing millionaires, or simply propping them up with taxpayer and poorer people’s money isn’t a good public investment. If it means that fewer low-income folks go to private colleges, so be it. It might even that some would go under. So be it. But there are so many folks struggling to get an education at all, at public institutions, and we all lose it when they don’t get it.</p>

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<p>People don’t get to millionaire status by being stupid. If a school started charging only SOME students 95K, and other top schools were still charging 55K, they would lose most of those applicants. They still might have some wealthier students apply that are willing to pay a huge premium over other colleges, but they will not be the same quality of student. They will cater to the rich but lesser qualified student, and the ratings would go down. The name brand of going to whatever is the #1 rated LAC of the day certainly isn’t enough to make people apply without feeling scammed.</p>

<p>I would question the competence of people running a college who claim that it costs 95K/yr to educate a student.</p>

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<p>That’s why they bleed upwards slowly (faster than inflation, but slowly), slower than the rate of appreciation of the assets of the people they want to attract, so it becomes a greater bargain all the time. The market will clearly bear more, at least for some institutions, and they will get it. We’ll know exactly when they’ve reached the inflection point when applications consistently go down, and yield declines. And as the COA bleeds upwards, they can offer little $5k “scholarships”, and claim that a higher percentage of their students “receive financial aid”. Meanwhile the lesser colleges, which aren’t price leaders, get to follow, and wait for their rejects to arrive.</p>

<p>The millionaires aren’t stupid - they are paying $60k for a $96k product plus prestige - and getting a subsidy - from taxpayers and poorer folks - to do it. What can be bad? That’s why they are clamoring to get in.</p>

<p>“I would question the competence of people running a college who claim that it costs 95K/yr to educate a student.”</p>

<p>Think 18-hole PGA golf course, climbing walls, and heated parking garage. Some of their competitors own their own ski slopes.</p>

<p>I really don’t mind them playing this game. I just don’t see why we should subsidize it.</p>

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<p>

Mini, it is downright laughable to claim that a kid who pays $10k a year is subsidising the one who pays $60k a year. There’s this thing called an “endowment,” the bulk of which is paid for by super-rich people, and pays for the majority of everyone’s education.</p>

<p>When a mega-millionaire donates $20 million for a dorm to be built, that is part of the COA for a student. But to claim that it’s a poor kid paying that money is downright laughable. We “get” that you hate rich people and hate the fact that money isn’t distributed according to your own sense of enlightenment. But to say that poor kids who go for (virtually) free are being subsidised by kids who pay a quarter million? .</p>

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<p>They are, for the most part, not paying $10k a year. They are taking massive subsidized loans from the federal government, moving money from the government to the pockets of the institution, to later be paid by the student. Their Pell Grants are going into the pockets of the same institutions. The endowment earnings that go to subsidize the millionaires each year are a fraction of what the institution gets from the subsidized loans and Pell Grants. </p>

<p>Now the reality is that the institutions could take those funds out of their endowment earnings. As noted, if prestige private institution didn’t receive Pell Grant funds tomorrow, it would barely make a ripple in their overall financial picture - they could make it up in increased COA, with not a penny coming out of endowment earnings. But those Pell Grants COULD make the difference between a student going to the community college, or going to no college at all. Subsiziding the prestige private does not seem to me to be a wise use of scarce public resources.</p>

<p>Poorer students do get “subsidized”. If the cost of education is $96k and the price is $60k, the millionaire gets a $36k subsidy, and the poorer student may be get double that or more. It is a difference in amount, not in kind. Meanwhile, the loan funds go to the college’s bottom line. It’s a great deal for them. </p>

<p>I don’t hate the rich, and I certainly don’t hate wealthy students - they are no more responsible for being born into their position than poor students are into theirs. I think it’s great that wealthy folks give money to their alma maters. But I don’t see any reason at all why taxpayers should, or, as a matter of policy, poorer folks should do so through federally subsidized loans. Not when the public needs are so very critical. </p>

<p>And note, I think that as a matter of policy - I don’t begrudge rich folks from getting such a good deal (they’d have to be pretty dumb not to take it), or poorer folks taking advantage of what they can either. I certainly did.</p>

<p>The first poster’s squib on the excellent report is spot-on:</p>

<p>“Colleges talk a good game about giving a leg up to able students whose means from the previous generation don’t match the high list price of college, but most college financial aid appears to be designed to boost college revenues.”</p>

<p>And from the article itself:</p>

<p>"Neat fact: If the federal government were to take all of the money it pours into various forms of financial aid each year, it could go ahead and make tuition free, or close to it, for every student at every public college in the country. '</p>

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<p>@mini, </p>

<p>36k is 38% of 96k. Only rich schools can cough up 36k per student from endowment earnings. </p>

<p>Show me evidence that the 36k/student from endowment earnings (i.e. 38%) is but a small fraction of what a rich school gets in federally subsidized loans & Pell grants.</p>

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<p>So it sounds like you think the majority of aid that poor students get is in subsidized loans? And after they graduate from these fine institutions, they have to slave away for years, massively in debt? Nope, that’s not the poor. That’s the middle class, and upper middle class and kids from wealthy families, whose parents are unwilling or unable to pay for college.</p>

<p>Let’s take Williams own example from their website. It says student loan “0”. Are “scholarships and grants”, loans? Is the federal government even involved in this particular example? It looks like the student has to take an on campus job, but that’s pretty meager payback for a free ride. Or is this all a lie?</p>

<p>Sample Family of 3, $25,000 income</p>

<p>This New York City student is one of two children of a single parent whose income is $25,000. The family does not own a home or have much savings.
Total Budget $52,030
(including $150 for travel and $2,000 for books and personal expenses)
Resources
Parental Contribution $0
Student Savings 0
Minimum Student Earnings Contribution 1,000
Total Family Contribution 1,000
Financial Need $51,030</p>

<p>Financial Aid Award
Scholarship and Grants $49,230
Student Loan 0
Campus Job 1,800
Total Financial Aid Award $51,030</p>

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<p>mini said:

</p>

<p>Whether or not you agree as a matter of policy, the reason is pretty clear. It is so campuses aren’t populated with only rich, white clones.</p>

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<p>@mimi & eyemgh, </p>

<p>What income level do you define as “rich”, i.e. the folk you believe should not be eligible for any type of discount no matter how brilliant they are.</p>

<p>Keep in mind that $60k COA equates to $92k in gross income at the 35% marginal tax rate, and $96k net equates to $148k gross income.</p>

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<p>Mini – if this were to happen - " “Neat fact: If the federal government were to take all of the money it pours into various forms of financial aid each year, it could go ahead and make tuition free, or close to it, for every student at every public college in the country. '”</p>

<p>Do you think there would be room for all these kids at every public college? Do you want a world where poorer kids ONLY go to public colleges?</p>

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<p>Mini- "We’ll know exactly when they’ve reached the inflection point when applications consistently go down, and yield declines. And as the COA bleeds upwards, they can offer little $5k “scholarships”, and claim that a higher percentage of their students “receive financial aid”. That is already happening at many colleges. You seem to advocate not allowing Pell Grants at private colleges. Newsflash == most colleges are not Ivies. THEY have met the inflection point.</p>