Harvard, Yale financial aid expansions trigger debate

Beginning next year, a Harvard student whose family earns $180,000 will only have to pay $18,000 of the school’s $45,600 sticker price. A recent announcement from Yale indicates that their students may soon be receiving similarly generous aid packages. Yet while noteworthy, these boosts in aid benefits at the nation’s top universities may only be the tip of the iceberg in the trend towards greater collegiate spending, as more colleges are expected to follow Harvard and Yale’s lead.

But will Williams be one of them? Just months after the College announced it will pump an additional $1.8 million a year into its financial aid spending by eliminating loans, many are wondering if Williams will soon go even further.

Although the College has made no official statement, President Schapiro expects aid spending to continue to increase.

“It has already been the case that over the past few years we have taken dramatic steps toward increasing affordability for all our financial aid students, domestic and international,” he said. “Regardless of what other institutions do, I expect we will continue down that road.”

Whether or not Williams can afford to match the robust packages of Harvard and Yale is another matter. Starting next year Harvard will spend an additional $22 million to ensure students in the $120,000 to $180,000 range are charged only 10 percent of their annual household income. Yale plans to spend an additional $307 million next year, a sum that will be split between new financial aid awards as well as new scientific and medical research.

According to Gordon Winston, emeritus professor of economics and political economy, Williams has the means to offer comparable financial aid packages to its students.

“Sure, Williams could safely do what Harvard is doing. Williams is incredibly rich – remember what counts is wealth per student,” said Winston, who specializes in the economics of higher education. “In fact, I think Williams is going to, although that’s just a guess. We’re clearly moving in the direction where schools that can afford it are going to cut prices in the same way [that Harvard did].”

With a per student endowment of well over $900,000, Williams ranks among the wealthiest academic institutions in the country. A 24 percent return on investments last year put the College’s total endowment at just under $1.9 billion.

Over $37 million of that will go toward aid packages next year, representing a 36 percent increase in the financial aid budget over a two-year period. Already, 47 percent of students receive need-based aid. Paul Boyer, director of financial aid, anticipates that more students will apply for aid, partly because of the College’s recent decision to eliminate loans.

More money, more pressure

Harvard and Yale’s decisions were at least partially fuelled by growing pressure from Congress and donors to spend more of their multibillion-dollar investment returns. Harvard and Yale, with $35 billion and $22.5 billion respectively, have the two largest endowments among American academic institutions. Yet Yale is spending only 3.8 percent of its endowment this year, while Harvard is spending 4.3 percent.

These relatively low spending rates have moved some lawmakers to advocate that colleges expend at least 5 percent of their endowments a year, the minimum level that other foundations are required to spend

Iowa Senator Charles E. Grassley, the senior Republican on the Senate Finance Committee, has been especially vocal in pushing for increased spending by colleges and universities, particularly since donations to endowments, returns on universities’ investments and the endowments themselves are all tax-exempt. Grassley argues that American taxpayers are essentially subsidizing these huge, untaxed endowments, which in total, amount to $340 billion.

If such a minimum spending rate was implemented, Williams would not have to alter its budget to meet it. The College spends roughly 5 percent of its endowment per year. “The consensus view in academe is that spending much less than 5 percent cheats the current generation of students, faculty and staff while spending much more cheats future generations,” Schapiro said.

With next year’s changes to their financial aid policies, Harvard and Yale will also meet the proposed 5 percent benchmark. Although both universities will likely spend upwards of $20 million more next year on financial aid, Ronald D. Liebowitz, president of Middlebury College, believes the additional spending won’t be a financial sacrifice for either university.

“Schools like Harvard and Yale are hardly dipping into their endowment,” he said “They’re spending more now but they weren’t at that 5 percent rate before.” Liebowitz added that Middlebury is already at the 5 percent spending rate without increasing its current aid packages.

Winston is careful not to give too much weight to the 5 percent spending rate. “[It’s a] crude idea to mandate a spending rate,” he said. “I think it’s important that the really wealthy colleges, which is probably a group of 20 or 30 schools, think of the social obligations they have with their wealth. What do we do with this wealth? What purpose does it serve? I think that’s a more important focus than some rule of spending 5 percent of the endowment.”

The haves and have-nots

While certainly a boon to students, not everyone will benefit from the increased aid packages of universities like Harvard and Yale. Schools with smaller endowments won’t be able to offer the same aid benefits and could potentially lose students to institutions that offer more generous packages.

“In general, lowering prices is a good thing, as long as the resulting price scheme is a fair one,” Schapiro said. “But it does raise the question of whether it will pressure less affluent schools to try to match. If that happens, those schools would likely be forced to reduce their number of low income students, reduce the aid packages low income students receive or lower the quality of the educational experience they offer.” He added that poorer colleges and universities may compensate by raising class size or by spending less on technology.

At its current level of financial aid spending, even Williams may suffer from the competitive aid offerings of certain colleges and universities, “As generous as our financial aid packages are, are they competitive with our cohort of highly selective colleges that have need-based aid? In most cases the answer is ‘yes,’ we tend to be in the same ballpark,” said Dick Nesbitt, director of admission. “However, when it comes to Harvard and Princeton, the answer is definitively ‘no,’ especially if a family owns a home.”

Williams offers aid upon a needs analysis that factors in assets such as household income and home equity. Princeton and now Harvard do not consider home equity when awarding financial aid.

Middlebury’s endowment of over $1 billion makes it one of the wealthiest liberal arts colleges. Still, it cannot compete with the aid packages of some institutions, according to Liebowitz. “We don’t have the endowment that Williams does, or Harvard or Yale for that matter,” he said. “We’ve spent money and we continue to spend money. But I think there are other issues we have to think of in terms of financial aid [rather than using our endowment to finance it].”

Herbert Allen ’62, president and chief executive officer of Allen & Co. and also the primary contributor for the construction of the ’62 Center, has been concerned by what he perceives as a growing gap between rich and poor academic institutions. In a Dec. 21 op-ed in the New York Times Allen outlined a proposal that would tax the investment returns – not the endowments – of the wealthiest universities and distribute that tax revenue to the poorer institutions.

Over time, he predicts that “the rich will only grow richer. To a certain extent they earn it and deserve it, but to a certain extent maybe they should contribute a little bit of that back to society,” said Allen. “The contribution would be very well received, and it wouldn’t really hurt the rich and sure wouldn’t hurt the poor.”

But Allen admits that his proposal will likely not be adopted. “As is the case with wealthy individuals, I’d be surprised if wealthy colleges would be willing to have their investment incomes taxed,” he said.

Even if some colleges are unable to enact the same robust aid policies as Harvard and Yale, Liebowitz sees the trend toward more financial aid in strictly positive terms. “No, I don’t think [this gap] is a reason to oppose increasing aid. Who would oppose it?” he said. “But it’s a reality that not everyone can do it. Even at a place like Middlebury every student is receiving a $20,000 to $30,000 subsidy, when the cost of education isn’t $45,000; it’s more like $75,000. Sure [competitive financial aid packages of the top schools] make it harder to compete for the very best students, but that’s no reason to deny the opportunity of great aid opportunities.”

Winston is also optimistic about the growth of financial aid opportunities, even if, as he admits, it causes a greater divide between wealthy and poorer universities. “I would passionately, and have passionately asserted that the very best students should go to the very best schools, regardless of income. The idea of equal opportunity is terribly important; it’s fundamentally American.”

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