That's Where the Money Is

By Steven Menashi | Wednesday, October 7, 1998

Forty years ago, in a smoke-filled back office of some university hall, the eight Ivy League colleges and the Massachusetts Institute of Technology together decided to limit competition for desirable students by prohibiting merit scholarships. They allowed only need-based financial aid. Without such an agreement, competition for the best students, artists, and athletes could have led to large increases in their financial aid expenditures.

The Ivies recognized that allowing merit aid would have reduced their net tuition revenues without much change in the composition of their enrollments. Competition for the best students would have mostly been with each other, since Ivy League colleges already attract the undergraduates most likely to receive merit aid.

An annual meeting called Overlap decided the specific amounts of financial aid to offer prospective students. In 1991, the Justice Department filed an antitrust action against the Ivy League and MIT for colluding to fix tuition prices. Though the Ivies signed a consent decree with the government to abolish Overlap, they continued to use similar formulas for awarding aid, only to have collusion among colleges again legalized by an act of Congress in 1994.

Thus, financial aid packages at each Ivy League college have always been similar, with no one school consistently offering a better deal to undergraduates. Twelve years ago, Princeton initiated a financial aid program that granted some merit-based scholarships, but they abruptly discontinued the practice under pressure from the rest of the Ivy League.

Though the Ivy colleges maintain that they award financial aid solely on the grounds of need, they have appeared in recent years to be altering financial aid offers according to merit, primarily by broadening their formulas for determining need, to compete for desirable students.

This practice became virtually explicit last January when Princeton University announced a major overhaul of its financial aid program to 'significantly increase Princeton's affordability for lower and middle-income students.' Coincidentally, Princeton's new aid system rendered matriculation at Princeton more lucrative for financial aid students than matriculation at any other Ivy League school.

Soon after Princeton announced the changes, ostensibly in another coincidence, Yale, Stanford, Brown, MIT, and Harvard all announced similar revisions in their methods for calculating need. 'A competitive advantage can't remain with one institution for long,' says John O. Harney of the New England Board of Higher Education's Connection magazine.

As adopted by the Board of Trustees, Princeton's plan identifies three main initiatives. First, Princeton will entirely replace the loans currently given to students with family incomes under $40,000 with grants. For students with family incomes between $40,000 and $57,000, the loans will be reduced and replaced with grants.

Second, in determining the student's family contribution, Princeton will no longer include home equity in its calculations for most families with incomes below $90,000. For all other families receiving aid, the home equity component will be reduced by a factor of twenty-five to fifty percent. Third, Princeton will increase its funding for international students by one third.

Less than two weeks after Princeton announced its new plan, Yale revealed that it would increase international student aid by half, from $300,000 to $450,000.

In a February 5 appearance on CNN, Yale President Richard Levin declared that his institution would increase its total financial aid budget by ten million dollars over the next four years, topping Princeton's plan by a projected nine million.

The forty-two percent of Yale undergraduates who receive financial aid will now save an average of $1,400 per annum and enjoy one summer break from the required student contribution to participate in public service internships.

Rather than excluding home equity from the determination of need, as Princeton did, Yale will instead protect the first $150,000 of a family's assets, including home equity, from consideration in its aid formula.

Stanford formulated a still different policy. Shortly after Yale's announcement, Stanford unveiled a plan that, in its calculation of need, will cap home value at three times a given family's income. Stanford officials maintain that the change in policy was prompted in part by the rising California housing market and not related to changes at other schools.

Stanford will also allow students to keep all outside scholarship money they receive, without a concomitant decrease in institutional aid. To support the new policies, Stanford will increase its financial aid budget by $3.8 million per year.

'What's going to be confusing about this,' Yale Financial Aid Director Donald Routh told the Yale Daily News, 'is that Princeton, Yale, and Stanford have all gone different directions.' How the divergent methods for calculating need will affect the composition or size of the colleges' respective applicant and student populations remains to be seen.

Still later in the same month, Brown University reported that it will increase its financial aid budget by $1.6 million. Moreover, Brown will waive the summer work requirement for some upperclass undergraduates. MIT, in March, lowered 'self-help' aid — loan and work-study requirements — by $1,000 dollars per student, replacing that amount with grants.

Harvard resisted financial aid reforms until only recently; spokesman Alex Huppé took a haughty tone in response to the Princeton plan last year. 'Our system of financial aid,' he insisted, 'has been quite successful at getting just the kind of student that leading schools want.'

On September 16, 1998, however, Harvard Dean of the Faculty Jeremy Knowles unveiled a reformed financial aid plan for Crimson students. The motivation for the changes was to 'create a parity of opportunity,' claims Director of Financial Aid James Miller.

Still, concedes Harvard President Neil Rudenstine, 'There's no question the institutional changes made by Yale, Stanford, Princeton, and MIT made a shift in the landscape.' The Harvard aid package 'is also competitive,' he told the Harvard Crimson, 'I don't think that we should be . . . disingenuous about that.'

Harvard outdid MIT; its self-help requirements will drop by $2,000. Taking a nod from Stanford, Harvard also decided to allow students to direct all outside scholarship awards toward their self-help aid.

Unlike Princeton, Yale, and Stanford, however, Harvard opted not to alter its method of calculating the amount each family is expected to pay.

Though all these schools say that their financial aid reforms are merely necessary to render financial aid more equitable and fair, the propinquity of their announcements unmasks their actual motives. In its 1993 antitrust ruling in U.S. v. Brown University, et al., a Federal Appeals Court acknowledged that financial aid is not 'charity,' but 'part of the commercial process of setting tuition.'

'The higher than competitive tuition prices which MIT and the other Overlap members were able to charge, absent competition, enhances 'revenues,' if not 'profits,' which can be allocated to any conceivable internal institutional purpose.'

Dartmouth College administrators do not see the drive for profits undermining the current consensus in Ivy League admissions. 'I think that these places are always going to have to be need-based, financially,' says Dean of Admissions Karl Furstenberg. 'It's just too deeply entrenched a philosophical point of view.'

Nevertheless, already burdened by its remote location and a prominence scrawnier than that of Harvard, Yale, and Princeton, Dartmouth cannot begin to also offer less competitive financial aid. And it won't.

Parkhurst is now orchestrating an overhaul of Dartmouth's financial aid structure. Furstenberg reports that the reforms will address the three principal initiatives of other schools' plans.

First, the evaluation of family assets will be altered to put Dartmouth 'on par with the Princeton plan.' Second, Dartmouth will allow students to retain all money from outside scholarships. Previously, Dartmouth had allowed students to keep the first $500 of outside grants plus fifty percent of the difference.

Third, Dartmouth will reduce students' self-help requirements by replacing some loans with grants. Furstenberg claims that the change is a response to concern over excessive students debts. 'Probably it would be somewhat of a graduated kind of plan,' he explains, 'so that for the students that are in the highest financial need, the loan reduction would be the largest.'

There is concern that Dartmouth will be unable to compete with better endowed colleges. Though Princeton's endowment was already the highest in the country — $701,000 per student — it could not afford the new plan until the success of the university's 250th anniversary capital campaign.

Harvard's financial aid changes, too, were made possible by a fund-raising drive that swelled its already mammoth endowment of $12.8 billion. The new aid package 'would have been extremely hard without the campaign,' said Rudenstine, 'and without exceptional endowment earnings.' Furstenberg holds that Dartmouth's comparatively smaller student population renders its smaller endowment — $220,000 per student — harmless to the College in the aid race. 'We will be fully competitive,' he says.

When he was asked why he robbed banks, Willie Sutton replied, 'That's where the money is.'

Next fall, many freshmen may have the same explanation for their college choice.

That's Where the Money Is

Article Tools

Related Articles