In response to a question on financial aid, Morty told a story about an alum who is a college professor. Her son had been accepted by Williams and by an Ivy. [Morty did not so say directly, but the school was almost certainly Harvard, Yale or Princeton.] The alum told Morty that the Ivy was charging her family $20,000 per year less than Williams proposed. She just thought he ought to know. [EphBlog readers already know this and also know that Morty does not like bargaining.]

Morty used this anecdote to highlight some of the, in his view, absurdities in current financial aid packages at elite colleges. Morty had no problem with many of the recent changes. He thought that it was fine to allow the families of “poor” students (meaning families from the bottom half of the income distribution) to pay nothing for their child’s education. He seemed comfortable with eliminating student loans. But he felt strongly that HYPS were going to far, that offering financial aid to a family making $180,000 (and who had been making similar amounts for years) was ridiculous and that it was absurd to describe such aid as “need-based.” Morty also worried that, if Williams were to match the generosity of HYPS, it would set off a chain-reaction among other schools. Amherst, Swarthmore, Brown, Dartmouth would have no choice but to match us. Morty felt strongly that this would be a bad outcome, that these rich families ought to pay for the college education of their children. He implied that the current equilibrium, with HYPS being much more generous than other schools, was somewhat stable.

Morty also pointed out that much of the news coverages of these aid policies missed some of the juicy details. [I am embarrassed to admit that I missed these details as well.] For example, the family contribution for income levels from $120,000 to $180,000 is around 10% at Harvard. If your family makes $180,000, Harvard will only charge you $18,000. Morty pointed out that this was true but highly misleading. What happens if your family makes $181,000? Does Harvard charge you the full $48,000? Wouldn’t that make for a pretty horrendous marginal tax rate? Make an extra $1,000 and, not only does Harvard take all of that money, but it takes an additional $29,000 (post-tax!). Imagine the fellow offered a bonus at the end of the year and telling his boss, “No! Don’t give me the extra money!”

Morty explained that, of course, this is not the way things work. [I have never seen anyone point this out before.] Instead, the family who makes $181,000 still gets a huge break from Harvard, as does the family making $182,000, the family making $183,000 and so on. They may have to pay more than 10% of their family income to Harvard, but not much more. Morty said [not sure if he was estimating or claiming this as fact] that financial aid at places like Harvard actually goes to families making up to $280,000 because there is a smooth slope as you move above $180,000. In other words, the only families that pay the sticker price at Harvard are those with family incomes above $300,000 or so.

Below are highlights from an article which outlines Harvard’s new policy and my comments.
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In the ever increasing category of Things-That-I-Was-Wrong-About, today’s entry is international financial aid. In discussing the Korean prep school story, I had speculated that the increasing wealth in countries like Korea, coupled with the high (relative) income of the sorts of families who would send their children to English-speaking high schools, meant that many of the international students would not be as expensive, in terms of financial aid, as their peers in the past. HWC suggested that I was wrong about this. And, as so often happens, he is right. Consider the College’s 2007-2008 Common Data Set document:

If institutional financial aid is available for undergraduate degree-seeking nonresident aliens, provide the number of undergraduate degree-seeking nonresident aliens who were awarded need-based or non-need-based aid: 127

Average dollar amount of institutional financial aid awarded to undergraduate degree-seeking nonresident aliens: $43,484

Total dollar amount of institutional financial aid awarded to undergraduate degree-seeking nonresident aliens: $5,522,437

Those are big number. Since there were a total of 132 international students at Williams, only 5 are paying the full price, as opposed to around 50% of US students. Moreover, I think that the maximum possible award is not far above (?) the $43,484 given to the average aid-receiving international students. So, HWC is correct. International students are, still, very expensive.

And, at the end of the day, this is one reason why I constantly rail against all the money that the College wastes of local pork. Instead of spending millions on these boondoggles, the College should admit another 25 international students. Having the best students in the world at Williams is much more important than the marginal increase we get in faculty recruitment/retention by spending money on local services.

Another amazingly detailed set of College Council minutes from Emily Deans ‘09. Morty was at the CC meeting and answered all sorts of interesting questions. Here are some of the highlights (and my comments) but read the whole thing.

Thomas Rubinsky (Class of 2010 Rep) asked whether the college was doing anything about the loss of the rectory as a co-op?

President Schapiro responded that he did not know whether the college was going anything but made several comments about how much he likes co-ops. He said that there may be some opportunities to turn buildings into co-ops once the North and South buildings are completed.

Good news! Co-ops are indeed one of the very best parts of student housing at Williams, and it is good to know that Morty agrees. One of my concerns about Neighborhood Housing was that the inevitable failure to create meaningful neighborhood community would lead the Administration to try to salvage the project by pulling seniors back into the neighborhoods, mainly by attaching co-ops to neighborhoods or by decreasing the number of seniors allowed to live off-campus. Perhaps there is no need to worry about that now.

Yet it is still a shame that the Administration take the obvious next step. If co-op housing is wonderful and popular (more than 1/2 of all juniors applied), why not create more co-ops? Genius, eh? Someone from Gargoyle or College Council ought to look into this, ought to come up with a plan that increases the number of co-ops even if it means taking nice senior housing away from the clusters. Such a plan could, if anything, make senior housing in the neighborhoods more equal than it is today.

Narae Park (Dodd Board Rep) then asked about the 2020 Committee.

President Schapiro said that the idea for the 2020 Committee is that we are supposed to look ahead about a dozen years to see what kind of challenges are going to confront Williams. Some examples he gave were improving the public schools and being competitive with our peer institutions in terms of financial aid packages. Williams keeps changing the financial aid packages but it is hard to compete with Harvard, Stanford, Princeton, etc. and we are competitive but part of discussion is financial aid and part of financial aid is trying to create a more inclusive society. He also mentioned the 1.5 million dollars the college has for next year for environmental initiatives. Then President Schapiro talked about globalization and bringing the world to Williams and Williams to the world. He said that part of the 2020 effort is to position the college to be a more attractive place that does a better job of educating students.

It would be nice if the College were to be more transparent about the 2020 planning process. We can’t all be invited to the special retreat in Oxford, but why not share 90% of the material that was passed out at those meetings? (Redact anything particularly sensitive.) A College Council member ought to ask to see this stuff.

Spending more money on the public schools is about the most inefficient means possible of making Williams a better college. But it does make the faculty happy!

Is it just me or is the number one most obvious priority matching the financial aid packages of Harvard/Yale/Princeton/Stanford? I am not arguing that the College needs to be more generous than these schools, just that we shouldn’t force an applicant to pay $10,000 more to choose Williams.

Rachel Ko (Wood At-Large) asked about bringing the world to Williams and Williams to the world. Some students have been trying to push for experiential learning on campus and a lot of classes aren’t using local resources to really allow students to learn in the field.

President Schapiro said that faculty are very skeptical about giving credit for experiential things because it is very difficult to do it right. Most professors like what they teach and how they teach it and are skeptical about giving up control. Bringing the world to Williams means having a more globalized student body, faculty, and staff (increase international students) and that has made a difference. He thought that the curriculum and student body were in a pretty good place and want students to have a lot of experience outside of classroom but thought that it would be a tall order to ask faculty to give up control.

Exactly right. Although it is tough to know the exact meaning of “experiential learning” in this context (and I am a fan of Rachel Ko), no course credit should be given for anything outside of faculty control. Students should, of course, be encouraged to do all sorts of activities outside of classes and if someone wants to call this “experiential learning” all the better. But each semester you take 4 classes which Williams faculty judge important and rigorous. Many of those classes will involve work outside of the classroom, whether it is field observations in Hopkins Forest or studying paintings at the Clark. But a member of the Williams faculty is always in charge of the syllabus and evaluation.

President Schapiro was then asked about changes in scholarships. He said that the good news is that colleges are competing to be more affordable but he thought that some recent changes are things that aren’t necessarily fair. There are a lot of schools that have rich kids paying sticker price who aren’t as smart as the rest of the class and that is what need-aware admissions means. Williams does a good job and has a decent distribution of students with families all the way up the income ladder and the way to improve that distribution is to improve aid packages. He said that the new changes in aid are creating a bizarre incentive to put wealth in to home equity.

Good advice to all the Williams applicants among our readers. Indeed, there are probably dozens of current Williams students who could improve their financial aid package if their parents emptied the family (non-retirement?) savings accounts and put that money into home equity. If the money is in the bank, the College demands a piece of it. If the money is in your house, maybe not.

But Morty is being either naive or disingenuous to imply that this is some “problem” with the financial aid system that could be fixed via better policy, and/or collusion via the 568 group. The central issue is that very rich schools (H/Y/P/S) want to get the students they want and they have, for years, competed on price to do so. Williams is forced to either follow suit or have no non-rich student who could have attended HYPS choose us instead. The home equity “incentive” derives from this competition because HYPS found it convenient to cut price via the mechanism of ignoring home equity. Williams is forced to go along, not because it finds home equity a more sensible way to save but simply because of peer competition.

And the next steps in this competition are fairly obvious (and perhaps HYPS have already started in this direction). Soon, elite colleges will not even ask you for your savings. Your family’s wealth (whether stored in bank accounts or home equity) will play no part in your bill. Instead, they will just ask to see you 1040 and base the family contribution on your income.

Full minutes below and more commentary tomorrow.
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This article (pdf) on “The Threads to Liberal Arts Colleges” by Trustee Paul Neely ‘68 is an interesting read. It is part of a 1999 symposium in Daedalus. Although dated in some respects, the article summarizes the problems faced by liberal arts colleges, some of which have come to pass. Selections and comments below.
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Is Williams financial aid stingy or generous? Consider some recent claims on College Confidential:

I am disappointed with the financial aid offer I received from Williams. How have others found their financial aid offers? I thought that Williams might practice similar policies as Amherst, but comparing the two offers, my family would have to pay $8,500~$9,000 more next year for me to go to Williams over Amherst. I was a bit surprised at the difference…is this common?

…

Yeah, mine sucked too =(
$15k more per year than MIT…ah well.

…

I’m disappointed with the Williams package. I have yet to receive my Amherst package but I hope it’s better because I don’t think I can afford Williams

…

i got into comparable schools (swarthmore, amherst, etc) and williams definitely has the lowest finaid offer.

Comments:

1) Those are just the complaints from this thread. Others are happy with their offers, noting that the deal from Williams is the best that they received. And College Confidential is hardly an unbiased sample.

2) Still, there is no doubt that Williams financial aid is substantially less generous compared to places like Harvard, Stanford and Princeton. We lose many students to these schools, not just because they really prefer those places to Williams but because they think it is stupid to pay $5,000 or $10,000 per year more to be an Eph. And who could blame them? Even though I think that most of the students who choose Harvard over Williams would have been better off choosing Williams all else equal, I have a had time insisting that someone should pay extra to go to Williams. Consider Daniel Olson’s plight:

Yale’s financial-aid offer made a difference for Daniel Olson, a high school senior at Cranston High School West in Rhode Island, who was accepted regular decision.

Olson, who said he is leaning toward Yale, said the financial-aid packages at Dartmouth College and Williams College “do not come close” to what Yale has offered him.

Besides, Olson said, he fell in love with the residential-college system when he came to visit.

“I was taken by the beauty of the campus, I was taken by the students, I was taken by the number of ways to get involved,” Olson said.

Instead of spending money on things like Mount Greylock Regional High School, Williams ought to ensure that its financial aid packages are comparable to those offered by its competitors. We want the Daniel Olson’s of the world to choose Williams over Yale just as Julia Sendor ‘08 chose Williams over Harvard 4 years ago.

3) I think that this leads to a situation in which virtually no “middle class” students (family incomes between $60,000 and $200,000) choose Williams over those schools, precisely because our financial aid is less generous. And, given that many/most poor families would be more likely (?) to favor a “name” school over Williams even in a case where the cost is the same (zero), this would suggest that the vast majority of students who choose Williams over one of these schools are very wealthy. True?

4) There is an amazing three-part Record series to be written about financial aid at Williams, the history, the debates and the exact workings of the current policy. Who will write it? Consider:

Every school calculates aid differently, in same cases, you will do better at Williams than its peers, in some cases (including yours, alas) worse. Considering both schools now require no loans at all, I am pretty surprised at the difference. But if you really want to attend Williams, don’t let the aid offer stop you — if you have a better offer at Amherst or MIT or anyplace else, definitely show that to the financial aid office and see if they will match — they may well do so, and it’s worth a shot. Don’t view this as a final, unmaleable offer, again, especially if you have better offers from peer institutions.

What happens when an admitted student does this? Does Williams just say, “Sorry. Our offer is fixed.” Or does it consider how much it wants the student and make decisions accordingly? Reasonable people can differ about what the policy should be, but thousands of us are curious about what the policy actually is. The Record should tell us. Start by contacting Daniel Olson.

Provost Bill Lenhart’s recent letter on changes in financial aid (hat tip to EphNotes) is a model of clarity. Read the whole thing but note this part:

Until two years ago there was no limit to the amount of home equity taken into account, though financial aid officers could use discretion to reduce it when doing so seemed to treat a family more fairly. This might be when a family long ago acquired a home in a market that has since boomed or when a family’s home equity is the only form of retirement savings.

Two years ago we set a limit on how much home equity would be considered at 2.4 times parent income, though aid officers still could make adjustments in circumstances that called for them. Last year we reduced this to 2 times parent income.

We’ve decided this spring to reduce it further to 1.2 times, with discretion to make adjustments when called for. This is the level suggested by financial aid directors at private colleges and universities that practice need-blind admissions, who meet to work toward a common understanding of how to measure financial need.

This change goes into effect in the coming academic year for students in all four classes. For returning students it will be reflected in the aid awards mailed this summer. This latest move will cost the College an estimated $800,000 and affect about 320 Williams families.

As Lenhart hints, almost all of this is driven, not by Morty and the Trustees suddenly realizing that rich families need a break, but by competition from other schools. Williams wants the students who it accepts to choose it and not some other school. Since those schools are lowering prices for the best students, Williams has no choice but to follow. Isn’t competition cool?

I suspect that the phrase “financial aid directors at private colleges and universities that practice need-blind admissions” is an oblique reference to our friends in the 568 group. Classic post here.

The Record really ought to do a story on financial aid at Williams, specifically how many “adjustments” are made and for whom? If you call up the Financial Aid Office in April and claim that your “circumstances” are special, what happens? Does Paul Boyer just say, “No problem! Your expected family contribution is cut in half.” Does he want to know if you have been accepted to other schools? Does he ask you to send him the details of their offers? I have heard that some bargaining and/or offer-matching goes on, but the Record ought to tell us some stories.

EphBlog’s Advice: If you want to go to Williams and you are either very poor or very rich, then apply early decision. Your financial aid package is highly unlikely to be affected by whether or not you are accepted at other schools. If you are in the great “middle class” — roughly family income of $60,000 to $250,000 — and you want to minimize your college costs, then apply regular decision to many schools. Your odds of getting in to Williams are probably a little lower (unless you have a hook) and your leverage in negotiating some “adjustments” is much higher.

Do any readers have experience with negotiating with the Financial Aid Office at Williams? Tell us your stories.

Director of Financial Aid Paul Boyer is an excellent guy but a lousy spinmeister.

“There have been a number of colleges and universities recently, with enough endowment, to be able to afford to eliminate loans from their financial aid packages and that’s what Williams has done,” said Williams College public affairs assistant director Jim Kolesar.

It’s a decision that, they say, was based on a lot of factors.

“It probably had most to do with what we have discovered student loans do in terms of impacting decisions after Williams, students not wanting to go to graduate school for fear of repaying more students loans,” said Williams College financial aid director Paul Boyer.

As if dozens of my classmates back in the 1980’s did not have to think long and hard about the cost of graduate school because Williams had saddled them with tens of thousands of dollars in loans! Williams just discovered, in 2007, that graduate school is expensive and debts are burdensome! Hah! If the College really cared about impacting certain student choices, it could just forgive the loans to those students and let the Goldman Sachs Ephs keep repaying their loans.

Of course, even if not one single Williams graduate went to graduate school, Williams would still have eliminated loans because of compeition from other elite schools. Would you really choose Williams over Amherst if Williams required that you borrow $15,000 and Amherst did not?

Is it too much to ask that College officials, when speaking with the media, give mostly truthful answers?

Check today’s tremendous media coverage of Fay Vincent’s $7 million donation to Williams.  Williams is still waiting for that $50 million donation to top off the Climb Far campaign …

In related news, Pete Rose today announced that he was donating all of his gambling proceeds to Amherst.  (If only Vincent had been commissioner during the steroid scandal instead of Bud “Milquetoast” Selig, but that is a rant for another day …). 

It’s Monday night and the Record comes out on Wednesday, but this needs to be the lead story.

Williams College has responded to the U.S. Senate Finance Committee with information it asked for on the college’s endowment, fees, and financial aid.

The committee requested the information from the 136 colleges and universities in the country with endowments of $500 million or more. Williams’ endowment as of last June 30 was $1.89 billion.

The response from President Morton Owen Schapiro (pdf) stressed the college’s focus on providing “the finest possible liberal arts education that is accessible to students of all economic backgrounds” and pointed out that Williams admits students without regard to their ability to pay and promises all admitted students the financial aid needed for them to attend for four years.

This is one of the most important stories of the year. The report provides a rare look at the underlying data and — Surprise! — validates several of the points that I have been making for the last 5 years. See below for more details. And, if you are a Record reporter, drop me a line. I give good quote. (And don’t forget these questions.)
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Bloomberg reports:

Jan. 24 (Bloomberg) — Two U.S. senators asked the 136 wealthiest colleges, led by Harvard and Yale universities, for details on their endowments and spending on financial aid.

A letter released today by Democrat Max Baucus of Montana and Republican Charles Grassley of Iowa asks the schools to provide information on student aid, the cost of attendance, tuition increases and endowment spending over the last 10 years.

Since September, members of Congress have called on schools to increase spending from their funds, suggesting a minimum of 5 percent of assets annually. Endowments in the U.S. and Canada grew 21 percent, to a record $411.2 billion on June 30, while the level of spending stayed steady at 4.6 percent of assets, according to a study released today.

“We need to start seeing tuition relief for families,” said Grassley, the ranking member on the Senate Finance Committee. “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.”

Let’s leave aside, for a moment, the question of what business, if any, Congress has in deciding private college spending rates, or the fact that elite private colleges are already falling over each other to offer generous financial aid to middle-class students. Let’s not even mention that Harvard and Yale have recently taken the lead in redefining “middle class” to mean anyone poor and downtrodden enough to not have their own hedge fund portfolio.

Ignore the question of whether menial work-study jobs might play any role in building positive work habits or have some other helpful attributes. Clearly, it should be a national priority for our legislators to help kids avoid any resemblance of physical work.

What offends me is not the sheer authoritarian chutzpah involved in a government-mandated spending program, but rather that the statements made by the Senators reveal an astonishing combination of arrogance and ignorance regarding financial markets and what we may expect of them in the future.

To be fair, college endowments have had, in aggregate, a good year or two recently - 21% is nothing to sneeze at. However, given that the top performers - Yale and Harvard - also already had the largest endowments, it would appear that most of the 136 wealthiest colleges are earning well under the supposed 21% rate. Surely there must be many colleges who have mediocre portfolio managers, or, even worse, perhaps their endowments (like Williams College’s until recently) are managed part-time by well-meaning trustees. There is a limited supply of investment talent out there, and not everyone in the US can hire David Swensen.

More importantly, the Senators’ statement ignores the fundamental fact that endowments have a technically infinite lifespan. One good year doth not a permanent increase in expenditures allow. Unlike almost any other kind of investor, college endowments really do have to think for the very, very long term. There will be many years, perhaps even this one, where 2007’s outsize returns will be balanced out by mediocre or negative returns.

An endowment needs to earn enough, over the long term, to meet its expected annual withdrawals and inflation. Given a 4.6% spending rate, and an average of 3-4% inflation, this means that endowments have to reliably earn a total return of at least 7.5% over the long run simply in order to stay afloat - never mind asset growth. And, in fact, the largest US pension fund targets an annual total return of 7.5%. So this seems to be a decent benchmark.

Over the last 10 years, the S&P 500 has returned 5.46%, annualized. Now, any acquaintance with the market, which I realize Congressmen are not expected to have, will tell you that consistently beating the index by 300 basis points over the long run is extremely hard to do. Adding on another 50 basis points to expected withdrawals is a non-trivial increase, and there is no evidence that college endowment managers, as a group, are able to generate that much alpha. A smart endowment manager would hang on to the abnormal return of the last few years and store it in a safe place away from the reaches of myopic and populist legislators.

An increase in spending ratios driven by temporary outsize return is a recipe for disaster, or at least disappointment, as the spending programs created by the boom years will have to be scaled back when a fallow season hits, as it inevitably will. At this point, anyone who expects the returns of the last 3-4 years to continue indefinitely into the future is either a liar or a fool.

Recommended reading: Hedgehogging, by Barton Biggs, in addition to being an entertaining look at the world of the portfolio manager, features an excellent chapter on David Swensen and the many pitfalls faced by the Yale endowment over the last 150 years.

Harvard follows Princeton, Williams, Amherst et. al. by cutting “middle” (by those school’s standards) income families a break. But Harvard adds a new twist: families earning above $120,000 will pay a maximum of ten percent of their income in tuition. Williams get a mention in Bloomberg’s article on the new Harvard policy.

Personally, I think Harvard should base tuition on income for ALL income levels … make $10 million a year, and you want to send your kid to Harvard, better pony up $1 million dollars. Harvard is probably the only school that could get away with it — and what a fundraising mechanism!

Instead of criticizing next week’s Record article on the elimination of loans after it appears, let’s be proactive and tell the Record editors what sorts of questions they should answer in that article. EphBlog: Always here to help!

1) What is the breakdown by source of the $1.8 million in loans that Williams is forcing students to take out this year? (I assume that the $1.8 million in Morty’s letter is an annual cost estimate and that it approximates the amount being borrowed this year.) I have a vague sense that most (all?) of this comes from Stafford loans since the annual maximum for any student is so low. But don’t Stafford loans have income limits? Are there also special Williams-only loan programs?

2) Just for the historical record, what are the details behind this. “But other financial aid students had been expected, depending on income, to borrow cumulatively over their four years $3,800, $7,800, or 13,800.” Loans had already been eliminated (when was that exactly?) for “low-income” families. So, the income levels for the cut-offs above were probably fairly high. What were they? The more details of the history of student borrowing at Williams that the Record can provide, the better the article will be. Some relevant EphBlog links are here.

3) What is the breakdown by family income? This is the most interesting question. Again, I am not looking for the Record to judge the policy, I just want the facts. How much of that $1.8 million comes from students whose families with incomes higher than $150,000? Higher than $100,000? The College has been bragging for several years that the income of families receiving aid has risen, as if giving breaks to families making $200,000 or more was a sign of moral seriousness. Also, loans were eliminated for families below some threshold (was it 60k?). So, much of the $1.8 million windfall goes to families well above middle-income. Details, please.

4) Please pin Morty down on this claim.

This move also comes at a time when the College has succeeded in increasing the socio-economic diversity of entering classes. In fact, the Class of 2011 is the first in history to have more than half its members qualify for Williams-based aid. Even more have won scholarships outside the College.

Really? I have my doubts. But, first, let’s have the facts. As Lindsay Taylor’s ‘05 thesis documents, the admissions office has two “tags” for socio-economic diversity: Socio-Ec 1 and Socio-Ec 2. (Those names could be off and the Record should tell us the exact details.) Has the number of such tags among enrolled, not just accepted, students increased in the last few years? If so, has this had a meaningful impact on the actual diversity of the class? To be concrete, what is the 10th, 25th and 50th percentile of family income among the class of 2011 relative to the class of 2001? I bet that family wealth has gone up much more than GDP growth in the past decade across these percentiles rather than down, as Morty’s comment implies. It is an empirical question.

Moreover, one way for the College to increase the number of students on financial aid is give more money to rich families, rather than to actually let in more poor families. Note my previous comments about this amazing table from Taylor’s thesis with data from the classes of 2005 and 2007.

Note the dramatic increase in the number of applicants (and awards) in the highest income grouping. Among families with greater than $125,000 in income, the number applying/awarded went from 103/51 to 212/90 in just 2 years! What better indication could there be that the College is giving out merit aid in all but name?

This isn’t to say that a family making, say, $150,000, couldn’t use some help, even if they have been making this much for years and years, even if they fully expect to make this much for years to come, even if they have (wisely!) followed EphBlog’s advice and used their savings to pay off the mortgage rather than putting it in the child’s name. Money is always tight, no matter how much you have.

The point is that, as recently as two (much less twenty) years prior, Williams had claimed to be need blind, to take care of the demonstrated financial need of every student. The College was either lying about this policy before or it has expanded the definition of need since. I’ll bet on the latter. Moreover, I predict that we will be seeing much more of this in the future. Excellent students are an input to the production of an elite education. If Williams wants to keep attracting them, it will need to pay for them.

Why not hand every student a $100 check on the first day of classes in September? Presto! Every Eph is on financial aid! We have maximum socio-economic diversity! (Although perhaps the trend from 2005 to 2007 has not continued. See the latest data from the bottom of this page.)

Again, I am not sure how much fudging the College is doing here, but it would be fun for the Record to find out. Related screeds here and here. If you are the Record reporter assigned to this story, drop me a line. I know where the bodies are buried on this one (read: Overlap) and I give good quote.

From Morty:

I am very pleased to announce that, in consultation with the Board of Trustees, the College has decided to eliminate loans from all financial aid packages and replace them with grants.

This applies to all future aid awards, including those of current
students. First-years, sophomores, and juniors will see the change
reflected in their award letters for 2008-09.

See the whole letter via the link below.

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It’s Spring Break! Why are you reading EphBlog? [Why are you writing it? -- ed. Good question!] Anyway, activity will be lighter and more pre-packaged for the next two weeks, but we will have something for you each day. Enjoy, especially the pictures.

Here is the latest in financial aid changes:

Davidson College is today announcing that it will change future financial aid packages so that students will no longer need to borrow anything.

While several elite private universities and flagship public universities have effectively eliminated loans for students from low-income backgrounds, these programs (except for the one at Princeton University, which applies to all) typically have income limits. Davidson would be out front of other liberal arts colleges, including some with much larger endowments.

Will Williams follow suit? Yes. Should it? I don’t know but the competitive pressures to admit and enroll the most desirable students are so great that Williams and other elite schools have little choice. Right now, most students admitted to both Williams and Davidson will choose Williams. Will that still be true if Williams requires $8,000 in loans while Davidson does not? Perhaps. But this is just another small step on the path to the inevitable: free college tuition for elite students.

Demographic projections also influenced Davidson. “We are concerned by the faces not applying to Davidson because they don’t believe that the college is affordable,” said Christopher J. Gruber, vice president and dean of admissions and financial aid.

Gruber said that the college has noticed a shift in recent years among would-be applicants from the lowest income families. It used to be possible to get such students to apply, tell them about the availability of financial aid, and then at the time of admission explain how an aid package would make the college affordable, Gruber said. Then the admitted applicant would be comparing aid packages, and Davidson’s was favorable, he said.

Now, he said, more would-be applicants — when they hear about the costs (total for next year will be close to $41,000) — are not applying at all, fearing that the only way they could end up with an aid package would be with one that had lots of loans.

“These students weren’t even applying to us,” Gruber said.

Spin? I think so. If this were really all about poor applicants than Davidson could, you know, restrict the award to poor or even middle class students. Instead, it doesn’t require loans for a family making $150,000 or higher. Instead, this is hidden merit aid for the wealthy. Leaving aside admission preferences for tips, URMs and legacies, all the rich applicants that Davidson admits are highly qualified, students that Davidson would like to give merit aid to were “merit” not such a dirty word. So, instead of awarding merit aid directly and to specific students, Davidson just gave all those students an award. Its competitors will have no choice but to do the same, or lose some students.

Notably, Davidson had already taken steps to limit loans. Last year, the college adopted a policy of limiting the loan component of aid packages to $3,000 a year. (The new policy cut student debt over four years by $7,000. Previously, loan limits started at $4,000 for freshmen, going up $500 a year, so that after four years students graduated with $19,000 in debt.) While the decision to eliminate loans completely will cost the college an additional $3.5 million, Gruber said it was worth it to take loans out of the equation entirely.

Gruber said that he thought there was a chance other liberal arts colleges might match the policy, and that it would be “beautiful” if that happened.

Yeah, right. No loans for the children of hedge fund managers! Is this a policy that could bring all the readers of EphBlog together? My prediction is that Williams will retain loans for rich families for quite sometime. Because it is at the top of the liberal arts food chain, it does not need to compete on price for students for whom price is not an issue. But, we will see more generous aid packages for “middle class” applicants, those with family income between $50,000 and $200,000.

Of course, there is a sense in which the distinction between loans and family contribution is arbitrary. If current Davidson policy expects your family to contribute $10,000 plus you to take out a $3,000 loan, then Davidson could just require $13,000 from your family next year. Look! No loans!

For the most part, the dollar amounts here are small enough that this is all about the marketing.

But an economist of higher education said he saw the logic to the move. Michael McPherson, president of the Spencer Foundation and former president of Macalester College, said that many private colleges these days focus on “how to get more paying applicants,” so it is commendable for a college to be thinking about ways to get more low-income students.

McPherson said there is evidence that a very simple message can have a big impact. In 2004, Harvard University announced that it was eliminating all expected contributions from the families of students with family incomes of up to $40,000 (a level since increased to $60,000 ). When the university adopted its policy, it saw an immediate increase in the proportion of new students from low-income families.

Before Harvard had its new policy, it was also giving very generous aid packages to students in this group, probably identically good, McPherson said, but applicants responded to the simplicity of the revised policy. “Anyone could have seen that if you got into Harvard, you would be able to afford it, but it seems true that when they publicly stated in a new way what they were already doing, they got a lot more of these applicants,” McPherson said.

A straightforward message “can be effective,” he said.

Maybe. Mike McPherson knows infinitely more about the economics of higher education than I ever will, but that Harvard study always seemed suspect. The publicity led to more applicants who reported low incomes. Is that because more low income students applied or because more students realized that reporting a lower income increased their odds of getting into Harvard? As always, I don’t want to be too cynical (and the effect was so small that it didn’t materially change the income distribution of Harvard students), but the PR spin was way overblown.

How did the price fixing by elite universities end? Not with a bang, but with a whimper, as the New York Times reported in 1991.

Facing Justice Department charges that they violated Federal antitrust laws, the eight colleges and universities in the Ivy League have agreed to stop sharing information on student financial aid and to avoid collaborating on tuition increases.

Under a consent agreement signed yesterday and announced in Washington by Attorney General Dick Thornburgh, the eight institutions — Brown, Columbia, Cornell, Dartmouth, Harvard, Princeton, the University of Pennsylvania and Yale — agreed to end their policy of jointly agreeing to base all financial aid awards solely on need, without considering a student’s merit or trying to compete with the others to get the choicest students by offering them more aid. Though the joint policy is ended, individual institutions can still offer aid strictly on need.

The universities also agreed to stop holding an annual meeting at which they and 15 other prestigious Northeastern institutions jointly discussed the financial aid applications of 10,000 students who had been accepted to more than one institution in the group. The purpose of this “overlap meeting” was to agree to uniform financial aid offers.

…

“Students and their families are entitled to the full benefits of price competition when they choose a college,” Mr. Thornburgh said at a news conference in Washington. “This collegiate cartel has denied them the right to compare prices and discounts among schools, just as they would in shopping for any other service or commodity.

“The most unfortunate aspect of this conduct is that it had a disproportionate impact on the students who needed the financial aid the most.”

…

Benno C. Schmidt Jr., the president of Yale, called Mr. Thornburgh’s statement “grossly unfair.” Daniel Steiner, vice president and general counsel at Harvard, said, “Our practices served the good social purposes of making sure that a limited amount of financial funds went to the neediest students.”

…

The Ivy League institutions, M.I.T. and 14 other colleges and universities in the Northeast met openly each spring to review financial aid applications from students admitted to two or more of the member institutions.

…

Officials at Columbia University said they would try to get Congress to enact laws that would make cooperation permissable.

…

By wresting an agreement from the eight Ivy League institutions, the Justice Department has in effect put an end to the annual meeting to review overlapping applications, even though 15 of the group’s 23 members are not covered by the decree. The group had already canceled the meeting it would have held this spring, citing uncertainties brought on by the investigation.

Ivy League officials continue to support the concept behind cooperatively determining financial aid.

“Awards in excess of need either divert resources from needy students or require an increase in revenues or reductions in other programs to support aid above the level of need,” said Harold T. Shapiro, the president of Princeton University.

…

By keeping financial aid awards standard, university officials said, students can then decide where to go based solely on academic and personal considerations.

But some students and their parents don’t buy that argument. “I think they’re just making sure they’re not outbidding each other,” said Maria G. Desmond of Baltimore, whose 17-year-old son, William, was accepted by Harvard, Princeton and Yale this spring. Harvard offered a package of grants, loans and work study of $12,000 a year toward the roughly $21,000 annual cost of tuition, room and board and fees. Yale offered $12,300; Princeton $11,575.

…

“If a matter of price fixing like that had happened in the commercial field, there would be all sorts of charges,” Mrs. Desmond said. Her son has turned down all three offers to attend Loyola of Baltimore, where his tuition is free because both his parents teach there.

Williams was a part of the Overlap Meeting, but was not charged in the suit. If I were a better person, I would add a section to the campus controversy section at Willipedia to cover this topic. Strangely, I could not find a good overview of the scandal anywhere on the web.

Note how hollow the protests from places like Harvard sound 15 years later. Harvard always had plenty of money to spend on financial aid. The dollars available were never, in any meaningful way, “limited.” Harvard would just prefer to spend that money elsewhere. Highly desirable applicants are better off since colleges can no longer collude.

Want more slap-dash mockery from me on financial aid policy/politics? This is the post for you! US News reports (hat tip: Steve Sailer) that

The [568] group, named after a law that waives antitrust provisions to allow the members to meet, wants to lessen the confusing variation in offers by requiring aid officers to use the same method for determining need. Applying for aid “should not be like bargaining in a bazaar,” says Morton Owen Schapiro, president of Williams College in Massachusetts and a member of the group, who worries that the existing hodgepodge of policies tends to keep aid dollars from going to the neediest students. Critics fear the new approach will reduce competition.

D’uh! How many times do we have to go through this?

1) Maybe I am just drinking too deeply at the PC-infected waters of the College’s Diversity Report, but isn’t this usage of the word “bazaar” a little offensive? Is a bazaar a naturally an unpleasant place to shop? Are shop owners in a bazaar less fair or friendly to deal with? Is the universal and ideal shopping experience to be found the North Adams Walmart rather than those dirty, sleazy bazars in Istanbul or Tehran? Just asking!

2) Yes, I realize that Morty is using “bazaar” to mean a place without set prices, a place where bargaining occurs. Fine. But is there a single free market transaction with a price tag greater than $5,000 (much less $160,000) which does not involve bargaining? I can’t think of one.

3) Big thanks to Morty for wanting to save me and all the other idiot parents from all those “confusing variations!” Why, if Williams offers my daughter a different financial aid package than Amherst, I’ll be so flummoxed that even blogging may have to stop.

4) If collusion — whoops, I mean reducing the “existing hodgepodge of policies” — works for financial aid, think of all the other applications. Car shopping, for example, features all sorts of variations and much nasty bargaining. Perhaps the 568 Group could establish precisely what each family should have to pay for any given car. Come to think of it, buying a house was a big bother. We need a 568 Group for this as well.

Call me old fashioned, but I’ll take the “confusing variations” of a free market every time.

More fisking of the misdirection in contemporary financial aid policy and reporting. Didn’t get enough here? See below.

(more…)

More financial aid fun from the Boston Globe.

Morton Schapiro was caught in the middle, between his parents and his children.

”When my parents gave money to their grandchildren [for college], they put it in their names, not the kids,” he said. ”I cringed.”

Morty has some smart parents! Naifs in the world of college financial aid should understand that when the Schapiro grandparents give $500 to Morty’s children in the children’s names, then the colleges to which the children apply will count that money against any potential grants or awards, almost dollar or dollar. But, if the money is in the grandparents’ names, the colleges may not even be aware of it. (I believe that financial aid forms do not ask for any grandparent information.) So, instead of giving X - $500, the college will give the younger Schapiros X, leaving them with an extra $500 to spend how they wish.

Of course, the whole idea that Morty’s children would be eligible for any financial aid in college, given their father’s income, is pretty unlikely. Yet, these sorts of issues can come up in graduate school funding, when parental income is sometimes irrelevant.

In any event, EphBlog readers are encouraged to follow the lead of the senior Schapiros: Keep gifts to your children/grandchildren in your name.

His discomfort comes from his position as president of Williams College in Williamstown, and as a member of the 568 Presidents Group — 28 colleges and universities that are trying to simplify the process of applying for student financial aid. As part of that effort, the group wants to eliminate the need for families to decide whether to keep money for college in the children’s name, the parents’, or the grandparents’.

What a marvelous technocratic delusion! I want to plant roses on Route 2, but my wishes and reality are probably in conflict. Unless and until the nice busy-bodies at 568 start demanding financial forms — tax returns? savings? property listings? — from grandparents, there is no way for them to know how grandparents could contribute. Moreover, even if we achieved Total Information Awareness with regard to grandparental assets, there will always be a way for (smart, privleged) people to beat the system.

And, even if the central planners at 568 could find out every dollar of savings available to the family, there would still be no way to reliably estimate the other side of the balance sheet, the liabilities that we all have. Grandparents with equal wealth often have very different sets of future obligations. Some are healthier, some have more grandchildren. All face a variety of human obligations, invisible to the form-perusers at 568.

And — how long do I need to go on? — even if one could ascertain the assets and liabilities for every set of parents and grandparents in the world, there would still be no way to measure the single most important variable: love. It’s sad but true that some grandparents love their grandchildren more than others and that, even for the same set of grandparents, some grandchildren are favored over others. How will Morty and his friend ever figure that out, determine how much money grandma is really willing to donate to her grand-daughter’s education?

Obviously, they can’t. The central premise — that “need” can be determined from a distance — of a collusive system like the 568 Presidents Group is false.

More ranting on this article another day. Previous similar rants here, here and here.

This Washington Post article mentions former Professor of Economics Mike McPherson.

But such good feelings do not justify the financial damage from the merit-aid arms race, some educators have said. Michael McPherson, president of the Spencer Foundation in Minneapolis, has a slide-show scenario, based on research, in which four colleges battle for the same students. At the end, the schools have lost a total of $1.6 million that might have been used to improve teaching and learning and instead have improved their average verbal freshman SAT scores by one point — from 597 to 598.

We covered similar topics during our wildly successful experiment in creating a cross generational community of learning during Winter Study. Special thanks to Richard Dunn ‘02 for leading our discussion on the day that we read a paper by McPherson and Morty Schapiro on a related topic.

But to really see the thickness of many writers (not McPherson!) on the issue of merit aid, you need only read the beginning and end of the article.

A father recently wrote to Dickinson College complaining that although the school admitted his daughter, it did not offer her any scholarship money, which two of its competitors had. The family’s income was $250,000 a year, but the father figured that the Carlisle, Pa., college would kick in some financial aid rather than risk losing a student with excellent grades and test scores.

Robert J. Massa, Dickinson’s vice president for enrollment and college relations, said the father’s request did not surprise him. It was typical of the rising tide of “merit” or “non-need-based” scholarships — a zero-sum game, Massa said, that is hurting the quality of undergraduate education.

…

Still, the competition continues. Massa admitted that he gave a $6,000 merit scholarship to the student whose affluent father suggested Dickinson might lose her if she didn’t get some money. That leveled the playing field in the still-not-settled contest for that student, he said, but “who really wins here?”

The father, you idiot! Every time a student wins an award for merit aid, that student and her family are better off. This may mean that Dickison is worse off, that it can’t pay Mussa as much as he might want to get paid, that it can’t build fancy new offices for its faculty. So it goes.

As Economics Professors at Williams like David Zimmerman and Mort Schapiro and Cappy Hill and Gordon Winston never tire of pointing out, students are both consumers of the higher education product and inputs to it. If Dickison or Williams want better students (read: better inputs), then they need to pay up. Otherwise, those students/inputs will go elsewhere. Such is life in a free society with tough anti-trust laws.

For Day 1 of our experiment in creating a Cross Generational Community of Learning, our assigned reading is “The Blurring Line” by Michael S. McPherson and Morton Owen Schapiro.

Today’s discussant is Richard Dunn ‘02. He comments:

What is the role (are the roles?) of universities in the United States?

I would argue that higher education is institutional, in the same sense that the military or the Supreme Court is institutional. It is straight-forward to describe what universities do, but the institutional aspect relates to what “the university” means. The military is the institutional form of bravery and honor; the Supreme Court is the institutional form of fairness and wisdom (quite a separate trait than intelligence); the university may be the institutional form of progress, discovery, honesty, truth, opportunity, etc.

What does the university mean to American society? What does Williams or Harvard mean to American society and to us? If universities establish society’s desire for the honest pursuit of knowledge, what does it mean when universities twist financial aid decisions? Surely universities are entitled to tailor policies, but shouldn’t these policies be explicit? And is the pursuit of knowledge antithetical to the mission of universities as the great equalizers in our very unequal society? How can a leading college like Williams be both a place that educates the “most talented” (I leave that to you to decide how talent is measured) and enables those from otherwise disadvantaged backgrounds to attain for themselves and for their children the advantages associated with a degree from Williams? Can it? Should it?

Should universities be meritocracies? How is financial aid a tool to accomplish the goals of the university and if you had to decide between funding merit or funding need what would you choose?

Good questions all. Many thanks to Richard for taking the time to read the article and for providing this start to our discussion. Others are encouraged to answer Richard’s questions in the comments and/or to provide their own thoughts on the article.