School Choice & Charters

Pressure to Lighten Tuition Burden Factors Into College-Aid Equation

By Scott J. Cech — February 25, 2008 6 min read
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Given George Washington University’s reputation as being particularly pricey, the decision to host a national forum there last week on containing the cost of college could be seen either as highly ironic or as a perfect illustration of why the issue is more complex than parents and federal legislators would like to believe.

At more than $39,000 in annual tuition and fees, not to mention room and board, the school was named by The Chronicle of Higher Education as among the most expensive colleges in the country for 2007-08.

The forum here in the nation’s capital came amid what’s become a war of words over elite colleges’ brimming endowments, how much more colleges and universities should help students pay for their education, and whether the federal government should take steps to force them to do so.

Less mentioned, however, has been one of the subjects of the event: whether recent announcements by Harvard, Yale, Stanford, and other top universities that they plan to tap endowment funds to ramp up financial aid will substantially alter the financial equation for students applying to college.

Patrick M. Callan, the founding president of the National Center for Public Policy and Higher Education, or NCPPHE, which co-sponsored the George Washington meeting, called the plans “precious little experiments that are noble but hardly relevant” because they will help only a tiny slice of the college-going population.

Because news reports have focused so much on very wealthy colleges, “I think people may have somewhat a distorted point of view,” said Mr. Callan, a panelist at the forum. “It’s great that [some colleges have pledged to help students more]. But it doesn’t reflect the reality for most of those who are going to college next fall.”

‘It’s Scary’

Fellow panelist Bobby Allyn, a first-generation college student at American University here, said he’s having to borrow about $20,000 a year to cover college costs, and expects to graduate with about $80,000 in debt.

“Sometimes it’s scary when I stop and think about it,” he said.

“Ivy League schools are swimming in endowments, whereas a majority of the nation’s private universities have meager endowments,” the 20-year-old sophomore added in an e-mail. “I don’t think there’s any plausible way for Harvard and Stanford’s cuts to ever tickle down to other schools. It’s just not financially doable.”

The Feb. 20 panel discussion, which the New York City-based opinion-research organization Public Agenda co-sponsored with the NCPPHE, a research and policy group located in San Jose, Calif., was only the latest conversation on college endowments and affordability.

Adding fuel to the debate was the release in late January of the annual endowment report by the National Association of College and University Business Officers, or NACUBO, based here. The report on the change in the market values of college and university endowments from fiscal 2006 to fiscal 2007 disclosed that Harvard University’s endowment—the richest—had grown about 20 percent in that year, to about $35 billion.

Fellow Ivy League and other highly selective colleges rounded out much of the top of the list. Overall, 136 colleges and universities had endowments of more than $500 million.

Elite Colleges React

Harvard had announced in December that it was substantially boosting financial aid to students from families with incomes of $120,000 to $180,000, and Yale University followed in early January with promises to increase endowment spending on financial aid and other projects next year by about 40 percent.

But against the backdrop of a sliding economy and steadily rising student expenses—average overall college costs at both public and private four-year colleges have roughly doubled over the past decade after adjusting for inflation, according to the New York City-based College Board—news stories and editorials flooded the media.

Congress has also taken a sharp interest. The same day the report came out, U.S. Sens. Max Baucus, D-Mont., and Charles E. Grassley, R-Iowa, the chairman and ranking minority member, respectively, of the Senate Finance Committee, sent a letter to the 136 colleges asking for detailed information about their endowment spending within 30 days.

Their committee has jurisdiction over tax policy, including the policy exempting colleges and universities from federal laws requiring most private foundations to pay out 5 percent of their assets each year.

Endowments Eyed

That exemption was a sore spot at another panel discussion held earlier this month at the Washington-based American Enterprise Institute, where panelist Dean A. Zerbe, then a senior tax lawyer and investigator for the Senate Finance Committee, suggested that colleges shouldn’t get special treatment.

“We have tons of foundations” that annually pay out at least 5 percent of their assets, said Mr. Zerbe, who has since joined the private sector. “The world has not fallen apart for them to do this.”

As to whether the announcements by Harvard and other prominent universities will bring down prices for students applying to lower-profile institutions, he said there would absolutely be a ripple effect.

“When you’ve got Harvard and Yale and Dartmouth pegging the price lower, … you’re going to see a downward pressure” on pricing, he said. Parents and college students, Mr. Zerbe added, “are calling our office day and night saying, ‘Thank God.’ ”

Not that universities aren’t responding. Every day seems to bring a fresh announcement from another institution that it’s lowering its tuition or raising financial aid.

Tony Pals, a spokesman for the National Association of Independent Colleges and Universities, or NAICU, a Washington-based organization of more than 900 private institutions, including Harvard, said at least five member colleges have announced new policies substituting grants for some student loans since the NACUBO report came out last month.

“If [the Senate Finance Committee’s] goal is tuition assistance, look at what we’re already doing,” said Karin L. Johns, NAICU’s director of tax policy.

Hard Act to Follow

But some college officials worry that Harvard and other deep-pocketed institutions are setting a financial-aid precedent that they won’t be able to follow.

Methodist College in Fayetteville, N.C., is a small campus located far from the Ivy League—seemingly out of reach of any financial ripple effect of those schools’ recent announcements.

But Elton M. Hendricks, its president of 24 years, said in an interview that even his campus is not immune.

The 2,200-student institution has a $16 million endowment, he said, but about 85 percent of its enrollment—including many first-generation college students—can’t afford to attend the college without some assistance.

“We do [tuition] discounting, but it reduces the resources we have available,” Mr. Hendricks said of the college, which already spends an average of 4.5 percent of its endowment as student aid.

Regardless of his students’ geographic and socioeconomic distance from Harvard, he said, the financial-aid precedent set by the nation’s wealthiest university “will have some impact in the future, I expect.”

“These [tuition-reduction plans] are out of reach of most of our institutions,” said Steven Knapp, the president of George Washington University, at the panel discussion it hosted.

His own university spent $118 million on student aid last year, he said, and although tuition has increased about 6 percent over the past decade, student aid increased by more than 7 percent over the same period.

Even with its endowment of more than $1 billion, Mr. Knapp added, his university can’t keep up with Harvard, Yale, and others.

“It’s just that we don’t have the endowment to support it,” he said. “We have had to raise student tuition to increase student aid.”

A version of this article appeared in the February 27, 2008 edition of Education Week as Pressure to Lighten Tuition Burden Factors Into College-Aid Equation


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