Faster Track on Financial Aid

Graph by Steven Anderson

Early this year, in a competitive cascade, Princeton, Yale, Stanford, and MIT announced policies boosting undergraduate financial aid. Harvard has made no changes, although President Neil L. Rudenstine vowed that the College's offers would remain "within shouting distance" of those from competing institutions. Trends in student recruitment at selective colleges raise the question of how loud that shout may need to be.

In January, Princeton announced that, beginning with this fall's incoming class, it would replace loans with scholarship grants for students whose family income was below $40,000, and reduce loan requirements for those in the $40,000 to $57,500 income range. Furthermore, in determining need, Princeton will exclude the first $90,000 of a family's home equity. Yale answered by excluding the first $150,000 of all assets from consideration. Stanford announced a home-equity exclusion, and added that outside scholarships would not reduce the school's own financial aid. Next, MIT declared that all students on financial aid would have $1,000 of their self-help requirement (loans and work-study employment) replaced by scholarship grants.

The new programs are both a boon for students and an expression of how fiercely more than 3,000 colleges compete for desirable applicants. "In the last five or six years, the national competition for top students has increased dramatically," says Jim Miller, director of financial aid in Harvard and Radcliffe Colleges. Financial-aid packages are one way colleges induce top students to enroll, and most schools award scholarships on merit as well as need. Only a handful of select private colleges--including Harvard--undertake to meet the full financial needs of those admitted (generally through a mix of loans, grants, and jobs). And that group is dwindling. Within the Ivies, for the last few years, Brown has acknowledged that ability to pay does affect some admissions decisions.

"Princeton is clearly interested in attracting a more diverse student body," says Kahn associate professor of economics Caroline M. Hoxby '88, a specialist

in the economics of higher education. "They've had more trouble attracting this group than Harvard or Yale." Princeton has seen the percentage of its freshmen on financial aid drop from 43 percent in the early 1990s to 39 percent last fall. The comparable figures for Yale and Harvard are 42 and 46 percent, respectively. "It's not a financial-aid decision Princeton is making, but a recruiting decision," says Thomas Kane, M.P.P. '88, Ph.D. '91, associate professor of public policy at the Kennedy School of Government.

In fact, Stanford, Yale, and Princeton have all seen declining middle-class enrollments in recent years. Although the current round of annual tuition hikes reflects some of the lowest rates of

increase in recent decades--2.9 percent at Yale, 3.5 percent at Harvard and Stanford--a U.S. General Accounting Office report noted that tuition at four-year colleges and universities rose 234 percent from 1980 to 1994, while median household income increased only 82 percent.

The middle-class family in the $60,000 to $100,000 income range may qualify for little or no financial aid, and probably has felt the greatest squeeze. (At Harvard, however, where the average aid recipient's family earns $64,000, financial aid is offered to a wider range of income levels.) Furthermore, many of today's college parents face retirement planning, and caring for their own aging parents, at the same time college bills are coming due. "We have pressed the limits as to how much aid we can provide on need-blind terms," says Kane. "If you give a full scholarship to someone with parental income under $25,000, but charge full tuition with a family income of $100,000, then that's a pretty high 'tax' rate--say, a $26,000 tuition bill in after-tax dollars charged against a $75,000 difference in pretax income."

The Harvard administration has indicated that it will undertake a broad review of financial-aid policies this summer. Meanwhile, Harvard plans to continue a flexible policy of making aid offers on a case-by-case basis. For several years, for example, the College has pulled home equity out of the equation for many middle-class applicants. "All financial aid is local," says Miller. "What matters to families is that you looked carefully at the 25 to 50 relevant variables and made an offer that will allow their son or daughter to attend." Discussions of aid packages are common; 30 to 40 percent of incoming students phone the financial-aid office to discuss their options, describing the offers other schools have made. "That's been part of the game for 10 years," says Miller. "Everybody who advises applicants says, 'Call up and push.'" The office stays open evenings during April to handle such discussions.

Harvard enjoys a reputation for financial generosity, as well as the highest yield--the percentage of those accepted who enroll--of any leading college. (Last fall, its yield was 76 percent; Princeton, Stanford, and Yale had yields of 66, 64, and 61 percent, respectively.) Miller also notes that Harvard's yields for students with and without financial aid are the same, suggesting that affordability has not been an obstacle. "Yet people have no idea how precarious that yield really is," he adds. "If we didn't go out and travel extensively, you'd instantly see a change. You'd still have applicants, but not as many of the very top applicants." Dean of admissions and financial aid Bill Fitzsimmons '67, Ed. D. '71, asserts, "The difference between the winners and losers in this game is razor-thin."

Regardless of what others do, certain aspects of Harvard's policies are unlikely to change. At Harvard, for example, unlike Princeton, "We still believe that everyone should borrow something," says Fitzsimmons. "We don't want to divide our students into two different groups and have one group with no loan, and another group that has to borrow $20,000 over four years. And we'd like to see ourselves within $1,000 of the annual loan amount someone would have elsewhere. Let's say the average financial-aid recipient at Princeton has to pay back $15,000 to $16,000 after four years; perhaps at Harvard it would be $18,000. But we'd end up with a loan expectation that would enable us to compete for that student."

The new policies raise the question of how much impact affordability has on that competition. Some view Princeton's initiative as the final nail in the coffin of the Overlap Group, a consortium of 23 select colleges formed in 1958 to insure roughly comparable financial-aid offers to students accepted at more than one school, in order to minimize financial factors in the choice of college. The Overlap Group disbanded in 1991 after a Justice Department investigation accused the schools of price-fixing. The recent developments in financial aid may be symptomatic of the behavior of deregulated industries, where market forces have freer play.

The marketplace, however, includes not merely the onetime Overlap colleges, but the major state universities, which look more attractive to top students and their families as tuitions at private colleges spiral upward. "The traditional wisdom has been that a difference of $4,000 to $7,000 in financial aid could sway a student's choice between College A and College B," Fitzsimmons says. Princeton's announcement asserted that for most lower- and middle-income families, the new policies would bring "the amount they actually pay at Princeton in line with--or below--what it costs to attend most of the major state universities."

Caroline Hoxby observes that "People are reacting unusually strongly to these developments. Over the last couple of years there has been a lot of negative media coverage about the growth of college tuition, and colleges want to let people know that they feel the pain of the middle class. Actually these changes are not any big departure from recent history; they are very much in keeping with the general way academic policies have been moving since 1980. But now colleges want to do a kind of advertising, to really talk about it a lot."

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