Why Aid the Unneedy?

In wandering through the web the other day, GG was struck by the following statistic in an Inside Higher Ed story: 78% of institutional aid at private colleges and universities went to students with financial need.  So 22% went to students who didn’t demonstrate financial need.  Many folks would ask: Why would you do this?

First off, colleges and universities are increasingly looking like new car dealers. “Hey,” the guy in the showroom says, “it says $33,500 on the sticker, but that’s just the suggested price.”  So you suggest what you’d like to pay, and the salesman heads off to the manager and returns with a counteroffer and so on.  And a week later you talk to a friend who managed a better negotiation and paid several thousand dollars less.  And you would just prefer that there be a “real” price without all this hustling.

Now, keep in mind that college tuition at many schools amounts to a new car.  Every semester. Suddenly the new car salesmen’s tricks seem penny ante.

Now 88.2% of first-time freshmen get institutional support. And not a little: the average grant was 55% of tuition and fees.  (Imagine how the parents of the other 11.8% feel). Given that schools lacking much of an endowment are essentially paying for this from the tuition they receive, why not just drop the tuition and quit playing a game where for every 2 dollars a student pays, you turn around and hand back a dollar? The answer? “It could be difficult for colleges and universities to slash sticker prices without hurting their perceived value among students.” [Public universities play this game to a smaller degree: CU Boulder, for instance, gave an average of $6788 to 45% of its full time students from institutional funds–this averages to about 30% of tuition plus fees, though tuition varies by more than a factor of 3 between in- and out-of-state students. The average net price of attendance for in-state students receiving some aid was about 2/3 of the sticker price]

This idea that a colleges “perceived value” might drop is a hint why 22% of students receiving aid from their college or university might get it despite not exhibiting financial need (and GG is willing to bet the percentage might even be higher for freshmen). Colleges and universities want to preserve their perceived value.  One measure?  How strong a student body they have (see the criteria US News and World Reports uses).  So if you have applicants with high SAT or ACT scores, you want to try to get them in the door so you have a stronger student body.  You are competing for those students (and with enrollments declining at many schools, it is very much a competition). As GG noted some time before, the attraction of places like Harvard or Stanford is the strength of your fellow classmates and those connections.  It would be interesting to know if Stanford or Harvard bother with merit-based aid (Stanford, for instance, says that they adjust tuition so that it is affordable, which would basically be need based).

There are those out there saying that offering any aid other than for financial need is amoral (and they might point out that the discussion above doesn’t necessarily mean that those with financial need are receiving aid in direct proportion to need).  Such a sentiment is understandable; as a society, we’d like to make sure that those capable of college work get that chance.  But from the viewpoint of an individual institution, you want to maximize the quality of the students you get for your long-term health. And so it is likely that, for better or worse, many institutions will continue to offer tuition breaks to some well-off students who excel.

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  1. Demonizing State Universities | The Grumpy Geophysicist - July 8, 2016

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