Aug. 9 (Bloomberg) -- Cornell University and Massachusetts Institute of Technology are scaling back financial assistance to students, adding to the burden of families already coping with climbing college costs.
Cornell, the Ivy League school based in Ithaca, New York, will force students whose families make more than $60,000 a year to seek other financing to pay for part of their studies starting in 2013. This fall, MIT is raising the amount low-income students contribute by 36 percent to $6,000 a year.
Students are being asked to pay more even as college endowments show double-digit growth as they recover from the 2008 financial crisis. With more students qualifying for aid, Cornell said its spending on financial support has jumped almost 20 percent a year on average since 2008, a pace it won’t sustain by drawing directly from the endowment. Cornell, which costs $60,000 a year, is good value for students’ money, even with the changes to financial-aid, said Barbara Knuth, vice provost and dean of the graduate school.
“I don’t see that as problematic in the context of providing access to an Ivy League education,” Knuth said.
More than 80 percent of need-based financial aid awarded to Cornell undergraduates is provided through university funds, according to the school. The cost to attend has climbed 4.6 percent a year on average since 2008.
Cornell’s endowment grew 20 percent to $5.35 billion in the year ended June 30, 2011, according to the school. Still, it’s down from a $6.1 billion peak in 2008.
In January 2008, Cornell said it would offer more financial support to meet “the needs of our diverse student body,” by dropping the requirement that students take out loans if their families earn less than $75,000 a year. The decision would let low-income students graduate debt free, the school said.
Under the plan that begins in 2013, students with family incomes between $60,000 and $75,000 will get financial aid packages with loans capped at $2,500 annually. The cap is $5,000 a year for those with incomes between $75,000 to $120,000.
Cornell, one of eight schools in the Northeast U.S. that make up the Ivy League, drew $35 million from its endowment in the 2009-2010 year to augment undergraduate financial aid. The agreement will end after the 2013-2014 year, Knuth said.
“It would not be a sustainable practice to draw directly from the endowment,” Knuth said. “That’s part of what informed our decision to think about modifications to the financial-aid programs to slow the rate of increase.”
Cornell has three undergraduate land-grant colleges, which are lower priced for New York State residents.
In 2007 and early 2008, more than 30 top private colleges adopted no-loan policies, partly to stay competitive. They replaced loans with grants that students didn’t have to repay, with variations on eligibility. Most of the schools still have those policies in place, including Harvard University and Yale University.
Well-funded schools should tap endowments more to make college more affordable and to focus resources on direct student benefits, including aid, according to U.S. Senator Charles Grassley, who has criticized the soaring cost of higher education.
“Students and families are continually squeezed, no matter how much endowments have grown, and no matter how generous the tax breaks colleges receive,” Grassley, an Iowa Republican, said in an e-mail.
MIT also cited its financial-aid program’s sustainability for the changes, according to Elizabeth Hicks, executive director of student financial services. The school’s endowment totaled $9.9 billion as of June 2011, an 18 percent increase from a year earlier, though down from $10.1 billion in 2008, according to the school.
While MIT doesn’t have a budget shortfall to address, it didn’t want to penalize families who made just above the income cutoff. The new system offers a “smoother curve,” admissions dean Stuart Schmill said. Like at Cornell, financial-aid expenditures have been rising at MIT at a faster rate than tuition increases, he said.
Back in 2008-2009, students whose families earned less than $75,000 were expected to come up with $2,850 for the academic year, with some covering the cost through work-study programs, Hicks said. In March 2008, MIT said those students would no longer be expected to take out loans.
Now, with the student contribution rising to $6,000 for those receiving aid, many “will find it necessary to borrow to meet that amount,” Hicks said.
Federal Pell grants, which are given to low-income students and amounted to as much as $5,500 in the 2011-2012, can be used toward the student contribution. About 20 percent of MIT undergraduates qualify for the grants, Schmill said.
The average debt of MIT undergraduates in the class of 2012 was $20,794 and 41 percent of students borrowed, Hicks said.
“Relative to their potential earnings, we think it’s reasonable,” Hicks said. The price tag for the coming year at MIT, based in Cambridge, Massachusetts, is $57,010.
Williams College and Dartmouth College, both facing endowment losses and budget pressures, said in 2010 they would scale back their so-called no-loan programs, making them available only to families with incomes of $75,000 or less.
In March of this year, Dartmouth said it would increase the income cap to $100,000.
Hanover, New Hampshire-based Dartmouth’s endowment was valued at $3.4 billion as of June 2011, down from a high of $3.7 billion three years earlier, according to the Ivy League school.
Williams, in Williamstown, Massachusetts, is the wealthiest liberal arts college with an endowment of $1.78 billion, according to data from the National Association of College and University Business Officers and Commonfund Institute. Its peak value was $1.9 billion in June 2007, according to the school.
While Harvard and Yale, the world’s richest schools, respectively, and Stanford University, ranked fifth based on the NACUBO data, haven’t changed their no-loan programs, they have asked the wealthiest families that qualify for aid to pay more. The aid has been shifted to poorer families, the schools said.
Harvard’s endowment was valued at $31.7 billion as of June 2011. Yale’s was $19.4 billion, and Stanford’s fund was $16.5 billion as of August 2011.
Carleton College, a liberal arts school in Northfield, Minnesota, dropped its loan-free aid program for families that earn less than $40,000 a year.
Carleton began the program in 2008 because it wanted to woo more top-performing applicants, said Paul Thiboutot, dean of admissions and financial aid. In the end, the percentage of students choosing to come to Carleton didn’t increase because of the no-loan program, so the school scrapped it, he said.
Carleton’s endowment was $646 million as of June 30, 2012, according to preliminary data provided by the school, down from $678 million at its peak in December 2007.
Average tuition and fees at U.S. private colleges have almost doubled over the past 13 years to $28,500, even amid two recessions, according to data compiled by the College Board, a nonprofit group whose members include universities. That doesn’t include room and board, books and some other expenses.
Undergraduates from the class of 2010 had average debt of $25,250, according to The Institute for College Access & Success in Oakland, California. Outstanding student debt is about $1 trillion, exceeding what Americans owe on credit cards, according to the federal Consumer Financial Protection Bureau.
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