Footing the Bill
February 8, 2008
Princeton started it.
In 2001 Princeton University was the first American college to announce that it would start replacing student loans with outright grants, relieving a significant portion of its financial aid recipients of debt. Not to be outdone, Harvard, Brown, Dartmouth, and Stanford universities quickly re-tooled their own financial aid packages to reduce their reliance on student loans. The race to offer the best financial packages to low-income students has compelled a number of colleges to publicly shift away from loan schemes.
On December 19, 2007, Tufts followed in kind by announcing a new program that replaces student loans with grants for students whose families make less than $40,000 a year. This change affects seven percent of Tufts’ undergraduate population and is seen as an integral part of the administration’s campaign to attract a more socio-economically diverse pool of applicants.
While increased financial aid is no new phenomenon, colleges have begun to move away from the system of student loans that characterized many aid packages during the past decade. Though many students are happy to avoid debt, the trend has raised questions in some quarters. Are universities like Tufts really interested in being more accessible or merely trying to head off federal regulation? How helpful are grants for some students if tuition is still sky-high? How much is a college education worth, anyway?
Tufts’ decision to follow the national trend reflects more than just a commitment to accessibility. The new loan-replacement program is suggestive of a nationwide sea change in the way that universities approach the many needs of America’s less affluent young men and women.
Not-So-Enlightened Self Interest
By setting the cap at $40,000, Tufts is deliberately targeting lower-income students. “Students in this socio-economic group are the most vulnerable in terms of their access to college—only three percent of students in that low income group are in the 146 best schools. It seemed that it was a group that needed an additional commitment from Tufts,” said Dean of Undergraduate Admissions Lee Coffin in an interview.
The new program comes at a time of heightened unease about ballooning university fees. “There is a concern on the part of the public, students, and the Congress on the affordability of American universities,” said Matt Reed, a policy analyst at the Project on Student Debt, an organization that focuses on financial aid. Over the past five years the average cost of four years at a private college has increased by almost 30 percent — appreciable growth even when adjusted for inflation.
Universities with both high tuitions and large endowments have been especially criticized for failing to control costs. Currently at $1.45 billion, Tufts’ endowment is now the 49th largest of American private institutions, according to a new report by the National Association of College and University Business Officers (NACUBO). Thanks to a national uptick in donations and the university’s aggressive fundraising efforts, the endowment grew by 26.4 percent between 2006 and 2007, one of most brisk rates among Tufts’ competitors.
Yet, despite the university’s deepening pockets, tuition will almost certainly rise for the next academic year. Although the hike will not be official until the Board of Trustees votes sometime in February, sources close to the admissions office suggest that the increase will be on the order of several thousand dollars. “I haven’t seen the final figure but I would guess we’re going to be around 50,000 dollars a year,” said Dean Coffin. Tufts is consistently one of the top 15 most expensive private universities in the country.
With tuition on the rise, parents are feeling the pinch — and politicians are beginning to react as well. In a letter sent to the richest 146 Americans, the leadership of the U.S. Senate’s Finance Committee berated universities for unfair practices. “Tuition has gone up, college presidents’ salaries have gone up, and endowments continue to go up and up. We need to start seeing tuition relief for families go up just as fast. It’s fair to ask whether a college kid should have to wash dishes in the dining hall to pay his tuition when his college has a billion dollars in the bank,” said Senator Chuck Grassley, the Ranking Member on the Senate’s Finance Committee.
At Tufts, many financial aid students wash dishes for Tufts University Dining Services as part of a work-study program. In defense, Dean Coffin contests that the size of the endowment is a poor indicator of the university’s commitment to financial aid. “When you look at the endowment you see a lot of zeros but there are a lot of zeros in the budget too,” he said, suggesting that fiscal realities dictate the burden that is ultimately passed on to students. The loan replacement program itself cost Tufts $250,000 last year — a large amount but still only a small chunk of the $42 million earmarked for financial aid each year, explained Director of Financial Aid Patricia Reilly in an email.
Universities are free to spend however much of their endowment they like, whenever they wish. In contrast, other nonprofit and tax-exempt groups have strict legal limits on the minimum amount of money they must spend each year. What some critics advocate (and universities fear) is that the government may begin to oversee how much of a private institution’s endowment is spent in a given year.
In light of a potential regulatory backlash from Congress, Tufts would seem less generous and more self-interested. Is the university’s focus on diversity enlightened self-interest or simply an effort to head off steeper regulation? “There’s some of both in there — many colleges have long had programs that distribute aid with the goal of making the university more affordable to attend. Many have a genuine interest in that,” said Mr. Reed. “The recent pace of announcements we’ve been seeing is definitely a result of response to public pressure,” he said. The university rejects the notion that the timing of the announcement can be seen as a direct response to the Congress’ action. The new program had been under consideration for a year before it was announced.
Caught between the threat of Congressional pressure and budgets strained by an influx of students, even some elite schools are struggling to accommodate changing expectations about the importance of socio-economic diversity on campus. Georgetown University is often criticized as the “sick man” of the near-Ivy League; its $1 billion endowment pales in comparison to its chief rivals. Universities like Georgetown that don’t have the flexibility to subsidize the tuitions of large portions of its applicants may soon face a distinct disadvantage. “We are not considering any changes to our policies at this time,” said Julie Green Bataille, a spokesperson for Georgetown University.
Other schools are eager to spend freely to improve affordability. Dipping into its $34 billion-deep reserves, Harvard cast aside federal regulations and flung the grant doors open to upper middle-class students whose parents make between $120,000 and $180,000 each year. As the first university to drop the early application process and an early adopter of loan-replacement, Harvard is often seen as a trendsetter in admissions policies. The move suggests that universities may, before long, feel obligated to provide more aid for a greater portion of their applicants. “More recently, the concern has spread to middle-income families,” Mr. Reed affirmed.
How Now?
At issue is not only who receives financial aid, but how it is dispersed. When they were first instituted, student loans were thought to be a way of making higher education more accessible while at the same time engendering a sense of responsibility and self-determination among recipients. As tuitions have risen, however, many now think that the amount of debt students accrue is simply too great.
According to the most recent data, Tufts students with loans are graduating with an average of $14,200 in debt — a figure just under the national average of $19,200. Nationally, the average amount of money students owe lenders has more than doubled over the past ten years. Because of this, student loans have been criticized for forcing students away from low-paying jobs in favor of high-paying private sector career paths — fueling an already saturated job market for graduates. In 2001, a student at Princeton told the Daily Princetonian that the then-new loan-replacement program meant that they “won’t have as much pressure to make millions.” In October 2007, Tufts responded to the growing problem by announcing a precursor to its current scheme that would help repay loans for students who pursue careers in the nonprofit sector.
Recent turbulence and allegations of widespread corruption in the student loan industry have also diminished the appeal of loans. Over the summer Andrew A. Cuomo, the attorney general for New York, began an investigation into a number of student lenders, alleging that universities and firms were working in collusion to the disadvantage of students. Though his investigation is ongoing, the first victim, Student Financial Services Inc., has recently settled out of court. A number of universities, including Columbia, Johns Hopkins, and NYU have reimbursed students. Mr. Reed of the Project on Student Debt sees ill will towards the loan industry as only one reason for the shift from loans to grants. “There’s more of a general concern. The scandals have definitely helped focus public attention. There isn’t necessarily a line between the two but it has contributed to the publicity around student loans and the amount of debt that students graduate with,” he said.
Despite its recent popularity, the grant-based approach pioneered by Harvard and adopted by many colleges since is not without its critics. In an opinion piece appearing in the New York Times on January 22, Roger Lehecka and Andrew Delbanco, two academics from Columbia University, wrote, “The problem is that most colleges will feel compelled to follow Harvard and Yale’s lead in price-discounting. Yet few have enough money to give more aid to relatively wealthy students without taking it away from relatively poor ones.” The authors worry that a few well-endowed schools will monopolize the market for talented low and middle-income students. Though students reap the benefits in the short run, they claim that the trend is a worrying one and threatens the health of American higher education.
Critics also contend that such a scheme perpetuates an economic stratification at universities, in which low-income students attend for free and middle-income students are neglected or saddled with student loans. Concern is centered on students who fall just outside of established thresholds for grants. “Families just above that level should expect with dead certainty to qualify for need-based aid,” said Srikanth Sivashankaran, a research associate at the Project on Student Debt.
“Someone who makes $41,000 a year is as poor as someone making $40,000,” Dean Coffin concedes. “The line between that isn’t one big bright line. The financial aid staff has some professional judgment; the policy can be elastic on the margins.” The university says it pays attention to the middle of the income ladder and although no such review is in place, they are receptive to upping the income threshold in the future. “It’s one part of the policy that’s open to revisiting,” said Dean Coffin.
The Bottom Quartile
Looking at the quickly evolving face of university tuition, the Economist, a British newsweekly, recently observed that “high prices for rich students help offset modest prices for poorer ones and families are less reliant on federal grants and government-backed loans.” In recent years, Congress has lost interest in subsidizing higher education. Federal grants for students — Pell grants — have steadily devalued over the past decade: such grants used to cover 60 percent of tuition and now cover less than 30 percent on average. This trend, combined with the accompanying surge in tuition bills, has molded higher education into something vastly different than it was 10 or 20 years ago.
“The piece I’m worried about is the three percent figure. How can we provide access to this bottom quartile?” asked Dean Coffin, referring to the percentage of low-income students at top universities. “We run the risk of having big chunks of the country be uneducated and financial aid will always be a finite resource.” Students studying abroad often grapple with the oddities of America’s system of higher education as compared to those of other rich nations, which are usually much less expensive and more accessible. On balance, many are obliged to contend that the exceptionally high cost and consequent elite nature of American universities are balanced out by their academic strength. The recent experience of Tufts and other universities suggests that this calculus is changing quickly. The complicated hodgepodge of financial aid packages available to applicants often complicates the already stressful process of applying to university. As schools struggle to find a balance between financially sustainable aid strategies and the need for diversity, finding the right formula for the American breed of higher education remains a formidable obstacle on the path to a strong, inclusive system of universities. Tufts has begun to rise to the challenge; it remains to be seen how much farther it will have to go.