Schools "buying" quality students

Parents Forum
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<p>"Where does the financial aid - need or merit aid come from? Do the person or persons supplying the aid even realize they are supplying it? On what basis are they assessed the levy for this aid? Is there consent involved either explicit or implicit? Do those supplying the funds have a say in their expenditure?"</p>

<p>I can't speak in general, only about my alma mater. Financial aid comes from the endowment. Dispensing of the aid is a matter for the Board of Trustees, which then chooses the President to lead it in carrying out its mandate. Yearly alumni contributions at my alma mater are basically equivalent to the financial aid budget. I am asked right on the form where I would like my funds spent, though of course I assume it all goes into one pot, unless I have enough money to restrict its uses. (ID - I assume they hit you up too?) I elect two members to the board of trustees, and one as the administrative trustee for the Tyng bequest. My alma mater provides a $23k scholarship to all students - this is the difference between annual costs per student and the list price for tuition/room and board, etc. That $23k comes out of earnings on the endowment, which, in turn, represents past alumni giving managed for return in the capitalist marketplace. No one forces me to make contributions, but I enjoy doing so, even though (or because?) it subsidizes "scholarships" for folks with far, far greater incomes than I have. I also make a slightly larger contribution each year to Earlham because I am more "at-one" with their educational mission.</p>

<p>If there was no financial aid above the 23k per year given to every student, tuition could go up or down, depending on how the trustees decided to spend their endowment funds. Supply-and-demand economics suggest that the price is currently artificially set far too low - there are far too many "qualified" applicants willing to pay the list price than services available to them. And for over a decade, as list price has gone up, so has to demand, suggesting that the trustees really don't need to maintain the $23k subsidy. Because of this, I would expect list prices will continue to rise rapidly until the subsidy is radically reduced or eliminated, and isn't affected by the scholarship policy one way or the other.. (At that point, roughly $68k-$70/year in current dollars, I still think there will be way more buyers than services available.) By the way, it is possible to operate a fine college at full subsidy with no scholarships whatsoever - Berea has been doing it for a hundred years. It is, however, much more selective to get into than it would be for top 5%ers at Williams.</p>

<p>As to why such a rich institution would choose to subsidize so many rich kids, I guess one could say they take care of their own. At Amherst, their articles of incorporation, state charter, and initial bylaws call for the education of "indigent youth of good moral character" - everyone else is there as an exception. ;)</p>

42

<p>cheers:</p>

<p>I think your example exactly makes the point for merit aid, IMO.</p>

<p>One student chose Yale and one chose UofC....obviously, they had the record to be accepted at many other schools as well. Thus, for a school like WashU or Emory or even Tulane to attract that type of student, they HAVE to throw money at them. Since the family was a top 5%'er (or top 1%'er?), perhaps a free education in Atlanta might not be too enticing over New Haven. However, for a top 20%'er, a free education in Atlanta might sound a LOT better than $100-180k in debt (assuming some need-based aid at Y).</p>

<p>I-dad: as long as Duke has to compete with its neighbor in Atlanta, it's not likely they can wean themselves from merit aid.....</p>

43

<p>At most private schools, financial aid, grants, and scholarships theoretically come from endowments typically. Usually former alumni are the main contributers to these funds. Most private colleges claim the cost of educating students is actually more than full tuition. Personally, I think attracting top students isn't necessarily the best way of raising an instutition's profile. Attracting top faculty, graduate students, and also improving the laboratory and library facilities are equally if not more effective ways of increasing the education available at an insitution.</p>

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<p>There are many colleges out there that feel it is important to "buy" certain types of students regardless of the students financial needs. That is why there are merit scholarships. And there are some colleges that need to give these awards if they are to stay open as they are having trouble keeping a full house. Better to get 10 kids with $5K sweeteners that can pay the rest of the cost, than to give one very needy kid a full ride. I know the pressures and concerns these colleges have. I know a young man who really has no financial need who has gotten a number of awards. One school wanted him badly enough to send a nice scholarship his way when he talked to someone there and said that the school was out of consideration because it did not offer money and turned out to be his most expensive option. Being male, with a rigorous curriculum from a rigorous school and applying to colleges who want that male/female ratio to go more to the male side, and being able to easily afford most of the college cost makes him a pretty hot commodity even with mediocre grades and not the highest SAT scores. And he would be a nice "catch" for any of these schools who are bidding on him. Can't blame the schools a bit. </p>

<p>The very top schools do not have to play this game as they get enough applicants to fill most of their needs without offering bribes. Admittance alone is considered a prize. But it has become very difficult for the kid with rather average stats and no money to get into college these days. There is a post on the Financial Forum of such a student, and really the options are the state and local colleges. Many such students would benefit greatly being taken out of their environments for college, but the type of colleges that would accept them do not give financial aid much beyond the state and federal programs. They gap terribly, focusing their funds towards the more desireable student who end up with all of the great options. I am concerned that we are moving more towards a "winner take all" society. I can tell you that I see many kids and families who are breaking their budgets, banks and really endangering their futures to pay for college programs that are not going to repay themselves. In the real world, the amount of gapping that occurs in financial packages is quite large, and these are often the kids that would benefit the most from a good college environment.</p>

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<p><a href="http://www.educause.edu/ir/library/pdf/ffp9901s.pdf%5B/url%5D"&gt;http://www.educause.edu/ir/library/pdf/ffp9901s.pdf&lt;/a&gt;&lt;/p>

<p><a href="http://www.inequality.com/publications/working_papers/RobertFrank1.pdf%5B/url%5D"&gt;http://www.inequality.com/publications/working_papers/RobertFrank1.pdf&lt;/a&gt;&lt;/p>

46

<p>Byerly - Being a believer in informed debate, I was motivated to read the articles and being an economist I was comfortable with that type of writing and argument. Thanks, but I didn't see how they addressed the type of questions I and others have posed here:
[ul][<em>]evidence that growth in merit aid is outpacing growth in need-based aid[</em>]evidence that publics are adopting merit aid "buying" strategies as much as or more than privates[*]evidence of how the total merit aid budget of any school/set of schools compares to the total need-based aid budget[/ul]</p>

47

<p>Wow, that second article was an interesting read and certainly goes against the grain of common wisdom. Jamimom, uncanny how you chose the "winner take all" descriptor! As a corporate lawyer, there is no doubt in my mind that what the author says is true. This time every year I see the resumes pouring in and simply can't believe the increased quality and numbers.</p>

48

<p>Don't schools give out merit aid to students with credentials well above those of class averages? You don't have to be a valedictorian with a perfect SAT score to be coveted by Ball State University.</p>

49

<p>
[quote]
If there was no financial aid above the 23k per year given to every student, tuition could go up or down, depending on how the trustees decided to spend their endowment funds.

[/quote]
</p>

<p>Mini, </p>

<p>If Congress passed a law outlawing financial aid, I believe that most elite colleges would leave tuition alone and divert expenditures from from finanicial aid to luxury items attractive to wealthy customers -- free maid service, free laundry service, turn-down service with mints on the pillows, etc. </p>

<p>I think that would be a more viable strategy than competing with the "riff-raff" schools on price. It's basically what they have always done, anyway.</p>

<p>Colleges would quickly re-stratify into "rich kids" schools an "middle class" schools with lower sticker prices. Those who could afford it would go to the designer label schools. Forget, poor kids. They would, once again, be shut out of higher education.</p>

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<p>mini I would suggest that your alma mater is an extremely poorly run institution if the "cost" of an education there - assuming that such a figure could actually be determined - were $68,000 a year and that society and the economy would be well rid of it if the capita;isy market place were to force it into bankruptcy.</p>

<p>In 2003-2004 the Commonwealth of Virginia appropriated $36 million for the College of William and Mary. <a href="http://chronicle.com/free/v50/i19/19a02501.htm%5B/url%5D"&gt;http://chronicle.com/free/v50/i19/19a02501.htm&lt;/a>
In state tuition is $3760. Room and Board is an additional $5800. Out of state tuition is $18,500. There is an additional $2670 in fees. There are 7749 students undergraduate and graduate. Take those numbers together and the state subsidy per student amounts to $4650 per year per student. Add the subsidy, tuition, room and board, and manadatory fees and the College of William and Mary is educating an in state student for $16900 or so and an out of state student for about $32000 assuming the out of state students tuition doesn't already represent full cost.</p>

<p>William and Mary is a pretty good school. Don't know who your alma mater is but if their cost structure is that much different from William and Mary's it must be woefully managed or more gold plated that a Saddam Hussein water closet.</p>

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<p>I understand Byerly's point about re-directing monies from other areas. Unfortunately I do not buy it. The ednowments of the large non-profit educational institutions has sky-rocketed, i.e. Harvard is at $22B. There are over 40 schools with endowments over $1B.</p>

<p>Many of these schools do provide extensive need based aid. This is quite noble of the schools if they provide for 100% of need. However, where Byerly and I part company in this discussion is what the schools should do with money after they provide for need (the definition of need is another discussion entirely).</p>

<p>I am a believer in merit aid and I do not see how it harms institutions or the students who receive it. The most often cited example is of a student athlete who receives athletic merit aid, i.e. football scholarship. If that student gets injured they often lose their scholarship. They would then qualify for financial aid based upon need just like any other student. In other words, while they play their sport (or play their piccolo or maintain a certain GPA) they benefit themselves and enrich their schools.</p>

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<p>My gripe with TCNJ is the wholesale nature of the "buying". Giving merit money to everyone over a certain number is a bit much. Are these kids getting the level of quality in a college that they should be given their credentials--or are they being bought? Since determining the quality of the faculty and facilities is difficult for an LAC, I don't know the answer.</p>

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<p>"mini I would suggest that your alma mater is an extremely poorly run institution if the "cost" of an education there - assuming that such a figure could actually be determined - were $68,000 a year and that society and the economy would be well rid of it if the capita;isy market place were to force it into bankruptcy."</p>

<p>Whether they are poorly run, I'll leave to you. The trustees, many of whom sit on the boards of major corporations, apparently don't think so, and approve of the way the $1.1 billion endowment is being used.</p>

<p>Gold-plated? You bet! The physical plant is a large as W&M, but amortized over only 1,900 students. No teaching TAs or graduate student grading papers. Williams is heavily into tutorials - one professor (often a full professor) to one, or at most 2, students. Lots of high-cost athletics - the college used to have its own ski slope, though I don't know if that is true anymore. An art museum stocked with Braque, Picasso, De Chirico. And it isn't the main museum in town - the other one, privately funded, is the famous one, but students get to use it as well,</p>

<p>Different food offered at multiple locations. Dorms like palaces - you won't see anything like it at state schools. If you take your professor to the snack bar, the college pays for it - for both of you. The alumni didn't like the library built in the 70s, so the College is nuking it, at a cost of $86 million - pocket change - the funds were raised in less than 8 months. </p>

<p>It's actually a cost of $65k per; $3k is student expenses (travel, etc.) Most top 15 LACs have similar cost structures. It is slightly lower at my d.'s college because fixed costs are amortized across more students (2650), though they operate 24 separate dining rooms. They are building their own engineering school, and have four mini-campuses for JYA, in Paris, Florence, Geneva, and Hamburg - hardly low-cost places.</p>

<p>Is the current price - forget the $65k - the current price, worth it, relative to the better public schools? Not to me - but I couldn't pay for them in any case, and I am certainly thankful that they've decided to rent my d for four years. But obviously worth well more than $44k to lots of folks - as they raise the price, demand goes UP, not down. I think they could raise the price very substantially and still have demand rise. Georgetown (which has lots of low-cost Jesuits on staff) and NYU did it - and, predictably, demand went up. I wouldn't be surprised if they charged $65k today, and offered no financial aid (merit or need-based - and I don't think they are different), that they could still fill the class with qualified applicants twice over.</p>

<p>"If Congress passed a law outlawing financial aid, I believe that most elite colleges would leave tuition alone and divert expenditures from from finanicial aid to luxury items attractive to wealthy customers -- free maid service, free laundry service, turn-down service with mints on the pillows, etc."</p>

<p>ID - I think you are exactly right about the new services, but I believe the colleges would continue to raise tuition to match the income advances of the top 5% of the population, which is, after all, their market. What many economists have failed to see is that, at private "prestige" institutions, while price increases have well exceeded inflation, they have NOT exceeded the annual income increases among top 5%ers, and are well lower than the rise in incomes among top 3%ers (Michelle's market.) For these folks, current tuition rates at private colleges are a relative bargain.</p>

<p>As I've noted before, this is a testable hypothesis. Open up a small number of places to the highest bidders among qualified applicants. Don't worry about developmental admits - collect the funds today. I believe a seat at HYP and W would sell for well above $68k.</p>

<p>At $44k, there are hundreds of students panting on the waiting list to be given the august opportunity to sit on Saddam's golden toilet, and would happily pay more for the opportunity.</p>

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<p>Pax:</p>

<p>You can find W&M's operating budget here:</p>

<p><a href="http://www.wm.edu/financeoffice/budget_info_docs/bov_0404/budsummary_bov0404.pdf%5B/url%5D"&gt;http://www.wm.edu/financeoffice/budget_info_docs/bov_0404/budsummary_bov0404.pdf&lt;/a&gt;&lt;/p>

<p>If I'm reading it correctly, the operating budget (counting financial aid as an expense rather than reduced revenue) is $188 million. So, the per student expenditures are $24,261. Even that is probably overstated for undergrads since some $22 million of the budget is devoted to research contracts, most of which have nothing to do with undergrad education.</p>

<p>In contrast, my daughter's school (or Mini's alma mater which has similar numbers) has an operating budget of $107,493 (again counting financial aid as an expense item rather than a reduction in revenue). This is for a total student body of 1474 students or a per student expenditure of $72,926.</p>

<p>As much as I liked W&M, that's one reason I ultimately concluded it was a poor relative value for out-of-state tuition payers despite the lower cost in absolute dollars. At the "gilded like Saddam's toilets" school, the tuition and fees are $12k a year more (at full price), but the per student expenditures are $48k per year higher. </p>

<p>Note that nearly $30,000 per student of annual revenues at my daughter's school come from endowment income. They have an endowment of more than $730,000 per student.</p>

<p>Why do you think that some schools use graduate student TAs and others don't? Why do some schools have lecture classes with hundreds of students? What does it cost to have a third of the classes with under 10 students and more than another third with under 20? Why do some schools guarantee on-campus housing and others don't? Why do I talk about "boutique" education as being different than department store education?</p>

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<p>
[quote]
I believe a seat at HYP and W would sell for well above $68k.

[/quote]
</p>

<p>I believe that Harvard could easily open the bidding at $250k per year or a cool $1 million for four years. Wouldn't surprise me if they had some takers at $1 million a year, especially in a world-wide bidding process. That would be chump change to many alum like the Bin Ladens or the Saudi Royal Family.</p>

<p>They might have to guarantee a diploma, but that wouldn't be an insurmountable impediment.</p>

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<p>"They might have to guarantee a diploma, but that wouldn't be an insurmountable impediment."</p>

<p>When I was there, Oxford used to do just that - they were called "pass" degrees, and simply required that you take a certain number of meals in hall. The Inns of Court have worked that way for barristers and solicitors for hundreds of year.</p>

<p>As for passing the courses,HYP (or any other place) could set a qualifying floor (I don't believe they have one now, but for the bidders....) I think even less wealthy people would be willing to pay $68k today if they could assure their kids a place, and take all the angst out of it. Hey, who would need Michelle's services if you could go right to the source? (I'm being totally serious - I think it would be good policy, and make things much more transparent. The billionaire's kids are going to get in anyway, so might as well make it open and above board.)</p>

<p>But I apologize for the hijacking - these posts should go under "Students Buying Quality Schools", not "Schools Buying Quality Students". Match 'em up in the marketplace!</p>

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<p>mini what you can sell a seat for and what you can sell successive classes for are two different things. Try to bear in mind that there is always some fool willing to pay for a half-eaten grilled cheese sandwich with a burn mark vaguely reminiscent of the Madonna.</p>

<p>The very wealthy like to hang out with each other. They also like to have their children experience the world at a safe distance so they send their kids, especially their daughters to nice finishing schools like Williams and Amherst and Wesleyan where they can be around a few safely vetted brown people, not be too challenged by the well paid teaching staff, go on their grand tour of Europe, and possibly pick up their Mrs. Those places have a lot more to do with the hospitality industry than higher education and represent a negligible share of the market. The fact that Williams wants to compete with Conrad Hilton and Virgin Atlantic in the hostelry and tours business doesn't make the cost of palatial dorms and European vacations an educational expense. It merely makes Williams a diversified conglomerate operating in multiple industries. And that is why it is so difficult to isolate the "cost" of education as opposed to the price.</p>

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<p>grasping. at. straws. pax.</p>

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<p>"mini what you can sell a seat for and what you can sell successive classes for are two different things. Try to bear in mind that there is always some fool willing to pay for a half-eaten grilled cheese sandwich with a burn mark vaguely reminiscent of the Madonna.</p>

<p>The very wealthy like to hang out with each other. They also like to have their children experience the world at a safe distance so they send their kids, especially their daughters to nice finishing schools like Williams and Amherst and Wesleyan where they can be around a few safely vetted brown people, not be too challenged by the well paid teaching staff, go on their grand tour of Europe, and possibly pick up their Mrs. Those places have a lot more to do with the hospitality industry than higher education and represent a negligible share of the market."</p>

<p>Fair point (as I wrote above, the rich take care of their own), but remember that the trendsetters in this regard, the places from which the middle class learn of the habits and values of the leisure class to be emulated are not AWS or the other LACs (which are tiny, and most folks have never heard of 'em, and which are just followers), but the HYPS' of the world. And I am sure they can sell plenty of seats, as they have for many generations. </p>

<p>But I think if we want to discuss what is "education" (and hence, what is an educational "expense"), we should move that to another forum.</p>

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<p>Williams is to higher education what a fantasy baseball camp is to professional sports. Its value only remains high so long as it is at least vaguely associated with the real thing. If I can't use Derek Jeter's Spring training locker and have some washed up ex big league manager flash me the bunt signal on an actual field that real professional players play on I am not going to fork over big bucks to waddle my fat fiftyish butt around the bases.</p>

<p>Similarly without some real honest to gosh certifiable geniuses around there won't be 400 families year after year willing to fork over $65 grand no matter how good the cafeteria is at Williams. So here is the rub. They make very few Derek Jeters and not many more certifiably brilliant students, and even fewer brilliant students who could afford to pay $65,000 a year and would actually want to spend four years being an extra on the set of some wealthy girls finishing school. So the more seats you sell the less associative appeal the school will have and the less the seats will be worth.</p>