Well-endowed colleges have discovered they love the middle class.
Following recent announcements by Ivy League heavyweights Harvard and Yale that they were cutting costs for families earning in the low six figures, a growing number of competitors have fallen in line to offer comparable packages to middle-class families. On Jan. 31, Cornell became the fifth Ivy League school to announce a new financial aid initiative for students, closely following on the heels of Dartmouth and the University of Pennsylvania. Even schools outside the Ivy League, such as Northwestern University, are following suit. On the same day that Cornell weighed in, Northwestern announced plans to eliminate student loans and replace them with grants for undergraduate students with the greatest financial need.
These institutions say the moves are designed to make it easier for middle-class and upper-middle-class families to pay for college. For example, Harvard University describes the news as a "sweeping middle-income initiative" on its Web site, while other schools made similar pronouncements. But despite this big talk, real help for the middle class, at least for the majority of families with students at colleges with fewer financial resources than the Ivies and other elites, will not be coming any time soon.
"It's basically a very few privileged people who will be helped by this initiative," says Sandy Baum, senior policy analyst for the College Board and a professor of economics at Skidmore College. "There aren't many colleges that can remotely afford to do this."
Affordable for the Richest Colleges
The move to increase endowment spending by top schools comes amid political pressure to do something to cushion the high cost of college education. On Jan. 24, Senators Charles Grassley (R-Iowa) and Max Baucus (D-Mont.) asked the nation's 136 wealthiest colleges and universities for detailed information on their endowments, tuition hikes, and financial aid. Their requests came shortly after the National Association of College & Business Officers released a report that a record 76 schools had endowments topping $1 billion or more in the last fiscal year. As tuition continues to outpace inflation at the nation's colleges (BusinessWeek.com, 10/22/07), the pressure is on for schools to distribute more of their wealth among students.
"I think the discussion in Washington reflects what Congress hears from students and parents. Yale hears from students and parents as well," Tom Conroy, a spokesperson for Yale University, wrote in an e-mail. "Both Congress and the school are reacting to the same voices."
But while the tuition aid by the big schools is welcomed by students and their families, comparable largesse is not a feasible option for most of the nation's schools, which have endowments significantly below Harvard's $34.6 billion. For the foreseeable future, it appears just a small percentage of the nation's 18 million college students attending elite universities—less than 1%—will be affected by the financial aid decisions at some of the nation's top schools. The reason? Most higher-education institutions, including small private colleges and state universities, simply can't compete with the vast financial resources of the Ivies and their peers. The majority don't have endowments anywhere near the size they would need to offset the cost of tuition for middle- and upper-middle-class students, experts say.
In fact, pressure at less-wealthy state schools to compete for top students could have the perverse effect of hurting those students most in need. In the worst-case scenario, schools could choose to divert money from low-income students in favor of more financial aid for middle-class and affluent students, says Richard Vedder, director of the Washington (D.C.)-based Center for College Affordability & Productivity. "In that sense, low-income students are a little bit at risk," Vedder says.
Pressure on All Schools
Under Harvard's plan, families earning between $60,000 and $120,000 will pay a small percentage of their annual income for tuition, room, and board, jumping to 10% for those earning between $120,000 and $180,000. At Yale, families with incomes below $120,000 will see their financial contribution slashed by more than 50%, while most families with incomes between $120,000 and $200,000 will see their costs drop by 33% or more.
But very few of the nation's private colleges and universities can follow this example, says Tony Pals, a spokesperson for the National Association of Independent Colleges & Universities (NAICU). Of his organization's 1,600 member schools, only 40 have an endowment of $1 billion or more. The remaining 1,560 schools have a median endowment of $14 million, he says, and only three of those schools have announced plans to replace loans with grants. "That tells you right there and then what the disparity looks like between the haves and the so-called have-nots," Pals says.
That doesn't mean that presidents of private colleges and universities haven't been following the financial-aid news with keen interest, wondering what it will mean for them down the road. Jackie Jenkins-Scott, president of Wheelock College in Boston, says it's nearly impossible for a small liberal arts college like hers—with an endowment of $50 million—to offer students financial-aid packages comparable to those announced in recent weeks. However, she plans to raise the issue of how to best allocate the school's limited financial-aid resources among low- and middle-income students at the school's next trustee board meeting in March.
"[W]hen parents pick up the newspaper and see these things happening, it raises the expectation of what all institutions will make available," Jenkins-Scott says. "And many of us don't have the resources to make that available, which is one way we get a lot of pressure."
Feds May Have to Intervene
Even presidents at private schools with endowments above $200 million, such as Ithaca College, which shares its hometown with Cornell, say they can't match the heavyweights. Ithaca President Peggy Williams says she could replace student loans with subsidized grants if she was able to get an additional $24 million in earnings from the school's $237 million endowment. But to do that, she would have to raise an additional $500 million in endowment funds from alumni and donors, a nearly impossible feat, she says.
"The impact on us will be people saying, 'Why do I have to take out a loan at your school when other schools are giving grants?'" says Williams. "We'll have to explain why to them. I think they'll look around and realize that it is less than 1% of the institutions in the country that are able to do any of these big headline strategies."
Ultimately, the federal government will need to step in and help address the inequities between the schools with large endowments and smaller ones, says Richard Kahlenberg, a senior fellow at the Century Foundation, a nonpartisan public policy group based in Washington and New York. The number of schools capable of following Harvard's lead will likely trail off in the coming months, but that does not mean demand for lower tuition at colleges across the country will fade, he says.
"Part of the reason that the Senate held hearings about the endowments is that they hope that even if legislation doesn't pass, it spurs some voluntary action," Kahlenberg says. "I think we've seen some evidence that this worked in this case."