Campus economists, administrators analyze theory of collegiate “middle class squeeze”

In recent years, there have been widespread reports that the middle class is shrinking nationwide. As the income disparity has grown over the years, it has reportedly become increasingly difficult for many students to afford a college education. While the College has professed a commitment to financial aid for those who qualify, it may seem that increased need would limit the amount of aid available to middle class students. The College does actively recruit lower-income students in the admissions process; however, the number of middle- or upper middle-class students at the College has not shrunk in parallel to that of the national population.

 

Presence of the middle class at the College

According to David Zimmerman, professor of economics and director of the Williams Project on the Economics of Higher Education (WPEHE), which examines socioeconomic trends at the College and other comparable institutions, the middle and upper-middle class is well-represented at the College, but some students – and their families – in this group may experience a different sort of financial strain. Zimmerman said that they may have seen their 529 savings plans “hollowed out” by the recession, and they may have seen the value of their home or other assets decline.

“All of that adds up, and even though [they] are wealthy compared to most Americans, they’re still experiencing economic anxiety,” Zimmerman said.

“Now is a particularly challenging time for many families to finance the education of their children,” Tara Watson, professor of economics, said. “This is true at Williams like it is at schools throughout the country. It is true both for families receiving financial aid and for many middle class families who do not qualify for financial aid but are struggling to make ends meet.”

Zimmerman added that some students may not be considered as “needy” in the eyes of the Office of Financial Aid, and “what [some] perceive as a fair family contribution is actually a bit below what is being asked of them.” This may lead to many more students applying for aid than those who end up qualifying for it, according to Zimmerman.

 

Socioeconomic diversity in admissions

 

Although the College is need-blind in admitting domestic students, the Office of Admission is active in encouraging students from lower socioeconomic classes – a group underrepresented at the College throughout history – to apply.

“You can pretty much [gather information on this] from the [applications]: perhaps that neither parent went to college, or it’s a single parent family,” Dick Nesbitt, director of Admission, said. “You can tell that a student is less advantaged because they might be working during the summer and even during the school year sometimes. We are certainly proactive with that group, first generation students and students who look like they appear to be coming from a socioeconomically disadvantaged background.”

However, Nesbitt explained, “it’s harder with that group in the middle.” Middle class families may not make the financial aid cut, or the package that they receive may not alleviate the stress that the cost of the College creates. “How many families are discouraged by this, we never know. But clearly there are going to be some,” Nesbitt said.

Nesbitt noted that although it is often difficult to define what constitutes the middle class, there is a distinction between middle class and lower-middle class. “If ‘middle’ means growing up in an affluent neighborhood and having the advantages of a good school district or private school, I think it’s very different from a [lower]-middle-class family that doesn’t have these kinds of resources,” Nesbitt said. “I think it’s more likely, though not always the case, that they have other resources out there, and may be able to borrow money,” while a lower-middle-class student’s family may not have this option.

Nesbitt said the high cost of an education at the College makes financial aid desirable for all families. He added that even families who are making $180,00 to $200,000 a year are sometimes still able to receive some sort of financial aid if they are dealing with certain situations at home, especially financing a college education for another sibling.

 

Aid allocation based on income and assets

 

“Aid is not allocated by income bracket,” Paul Boyer, director of Financial Aid, said. “Rather, a parent contribution is determined based on an evaluation of income and assets. Financial aid is based on need, where the level of need is simply the difference between the cost of attendance and family contribution.”

Boyer explained that Financial Aid uses a scale similar to that used by the government to determine the federal income tax liability to calculate a family’s ability to pay for an education at the College. According to Boyer, Financial Aid begins by determining a family’s income and makes allowances for costs such as federal and state taxes, any private school tuition of another child, savings designated for future college expenses and standard costs of food, clothing and shelter.

“In many families, after subtracting these allowances, there is some available or discretionary income left over – some we assume will be used to pay for college,” Boyer said. The percentage of the discretionary income that the College expects families to contribute typically ranges from 22 percent to 46 percent, with families with incomes below $50,000 near the 22 percent rate, and those over $100,000 near the 46 percent.

Boyer described how discretionary income is important in figuring out how to allocate aid for a specific family: Boyer said that families might ask themselves, “‘Do we buy a car, take a vacation or pay for college?’” He added, “Families at the low end of the scale have less choice – ‘can we afford to go out to dinner, do we fix the car or do we take out a loan to pay for college?’”

“Some families may even have so little discretionary income that they might have a zero contribution factor toward the cost of the College from their income,” Boyer added.

Financial Aid considers the middle-income population to be between $75,000 and $150,000. According to Boyer, the median family income of a student receiving financial aid at the College is about $80,000, and the range for students on aid is between zero and about $250,000.

While the economic recession that began in 2008 contributed to widespread financial anxiety nationwide, Boyer said that the College has not seen a substantial increase in the number of financial aid applications since that time. “Our numbers are up for sure, but only in the range of five to 10 percent, with about half of this group eligible for some aid,” he said.

Boyer did note that most of this recent increase in aid eligibility has been seen in families with incomes over $150,000. However, such families typically receive less than $10,000 of aid from the College in a given year.

Boyer also resisted the notion that these families, as well as upper-middle class families, are being “squeezed” into an undesirable education payment situation. “This type of family has not generated a lot of noise in our office, particularly when notified that they are not eligible for scholarship,” Boyer said. “So we would be hard pressed to say that there are lots of families [in] our population who are feeling … that Williams is not affordable to them.”

 

Williams Project on the Economics of Higher Education

 

The Williams Project on the Economics of Higher Education was founded in 1989 by Morty Schapiro, who served as president of the College from 1999 to 2009, Professor of Economics Gordon Winston and Michael McPherson, who was a professor of economics at the time.

Zimmerman said that the program “began to answer questions that are of relevance to decision makers in higher education,” and that “much of our focus has been on issues related to access to college, particularly for low income students.”

He added that between 2001 and 2008, there was a “period of increased generosity in financial aid packages” at the College and at comparable schools. It was also a time when colleges’ endowment returns had increased and when the federal government encouraged colleges to spend more of their endowment, prompting schools to contribute more to their financial aid programs. Another spurring factor, he said, was the recognition that elite schools should “increase their share of low-income students.”

“During that period, loans were replaced with grants [and] eligibility standards were expanded for financial aid,” Boyer said, allowing students of higher incomes to receive financial aid.

Income distribution at the College

 

According to Provost Will Dudley, the College’s budget for financial aid has tripled over the past 10 years and has doubled as a percentage of the College’s overall budget during that time. Dudley acknowledged that the College’s “aggressive recruiting” of qualified, talented low-income students has led to the misconception that middle class students are overlooked or rendered unqualified for financial aid. However, Dudley explained that “if you look at the income distribution of the student body, there isn’t any squeezing of the middle class, however you want to define ‘middle class.’”

Dudley noted that about 37 percent of students are from families in the first decile of national income, 28 percent are in the second decile, 9 percent are in the third decile, 17 percent are from families in the middle four deciles and 9 percent are from families in the lowest three deciles. Dudley said these numbers are estimates, because the College does not know the incomes of families of students who do not apply for financial aid.

“The reason you don’t see 10 percent of Williams students on each of these slices of the income distribution has a lot more to do with America than with Williams,” Dudley said, noting that if the College did not recruit students in the lower income ranges, there would be significantly fewer lower-income students at the College.

“It’s not true that we have a ton of people at the bottom and a ton of people at the top and nobody in the middle,” Dudley added. “We have a lot more people at the top than in the middle. We don’t have more people at the bottom than at the middle.”

Dudley said that even though middle class is a loosely-defined term, “there are more than twice as many students in the middle class here than there are low income students,” regardless of how middle class is defined.

“Financial Aid works really hard to make a fair determination of what you should pay,” Dudley said. “If we weren’t asking people … to truly contribute what they can, we would have fewer dollars to spread around for everyone to come [to the College].”