Despite recent efforts by a number of Ivy League universities to become more affordable for middle-class students, Congress may take steps to force the nation’s richest institutions to reach into their heavily endowed pocketbooks to curb the rising costs of an undergraduate education.
The Higher Education Act, introduced today, contains a controversial amendment by Rep. Peter Welsh (D-Vt.), who serves on the House Education and Labor Committee. The amendment would require universities to spend at least 5 percent of their endowments annually, the same as the current requirement for non-profit organizations. This fixed percentage, which must be used to offset college costs, could include funds from endowments’ principals as well as interest.
Congress’ proposal is meeting opposition from administrators across the country. Harvard, Yale, Brown, Dartmouth and Penn have all spoken out against public regulation of private universities’ endowment spending. Officials at these five institutions cite the restriction of alumni donations to specific programs and the concern that the proposed rule does not consider the possibility of economic downturns.
“A fixed payout [of college endowments] would be a very bad thing for this country,” President Tilghman said in an interview.
Congress’ other house is also scrutinizing university financial aid.
Last month, the Senate Finance Committee requested 136 of the highest-grossing colleges and universities to submit information regarding their tuition, financial aid and endowment spending, according to The New York Times.
Sen. Charles Grassley (R-Iowa), who helped spearhead the proposal, explained that though college endowments have ballooned, so have tuition and college presidents’ salaries. “We need to start seeing tuition relief for families go up just as fast,” he said.
Tilghman said that universities should strive for better financial aid but explained that to make policy changes based on pressure from Congress is a “very big mistake.”
“I think there are many, many good reasons for trying to make colleges more affordable,” she said. “Doing it in response to what has been happening in Washington is not a good reason.”
Congress’ interest in regulating college endowment spending, however, has certainly not gone unnoticed by the leaders of the Ivy League, said Richard Vedder, director of the Center for College Affordability and Productivity, a Washington, D.C.-based think tank.
Last month, Yale announced that it would change its endowment spending rules and planned a 37 percent increase in endowment spending for the next year. Shortly after that, Harvard bumped up its annual endowment spending from 4.3 percent to 5 percent. Princeton spent 4.6 percent of its endowment last year. Average endowment spending last year, however, was the lowest it has been since 1999, according to Inside Higher Ed.
Colleges and universities are “scared,” Vedder added, explaining that institutions are concerned about possible infringement of their institutional autonomy.
“The colleges are not sure that this will blow over,” said Vedder, who is also an economics professor at Ohio University. “It has enormous symbolic value.”
Footing the bill
The “root cause” of congressional action and changes to financial aid policies is the need to respond to rising tuition and college-associated costs, Vedder said. The College Board reported that total costs for four-year colleges and universities rose 5.9 percent in the last year, higher than the rate of inflation.
“There’s a lot of anger out there about these colleges,” said Vedder, who served as a member of the bipartisan Commission on the Future of Higher Education, also known as the Spellings Commission.
“If you keep increasing the cost of colleges [ahead of the median income], people are going to be pissed off,” Vedder added.
Another big concern is that top universities focus on items like building projects at the expense of financial aid, Vedder wrote in The Washington Post, citing Princeton as one egregious offender.
“Princeton built a new dorm, Whitman College, that cost $120 million. It worked out to [to be] $350,000 a bed. It cost the same as the last Donald Trump resort,” Vedder said at a meeting on university endowments at the American Enterprise Institute.
According to Tilghman, however, the University built Whitman College with a long-term vision that merits the high cost.
“It is most sensible investment we will make in this decade,” Tilghman said in defense of the University’s recently completed sixth residential college, citing the recently demolished Butler College Quad as “what happens when you build universities on the cheap.” The Quad was torn down last fall after only 40 years in existence.
Raising the bar
Despite Tilghman’s admonitions against increasing endowment spending to acquiesce to pressures from Washington, the Ivy League has responded by instituting a sweeping wave of reform. Five of its eight member institutions have expanded their financial aid programs in the last year: Harvard, Yale, Dartmouth, Cornell and Penn.
Harvard, the most prosperous of the elite schools, led the charge by linking parental contribution to specific income brackets in December 2007. This reform also eliminated loans and removed home equity from asset calculations.
A month later, Yale had responded in kind. The Ivy League’s second-richest member also instituted income brackets almost identical to those of Harvard but stopped short of removing home equity from consideration.
Within a week, the next domino had fallen. On Jan. 31, Cornell announced its intention to eliminate loans for families making less than $60,000 next fall. Families in the $60,000-$120,000 income bracket will have a maximum loan of $3,000. It also intends to raise the upper limits of the brackets by 2009.
As the nation’s top colleges jump on the financial aid bandwagon, Princeton administrators are striving to remind peer institutions that it was the first in the Ivy League to replace loans with grants and eliminate home equity as a factor in financial aid calculations.
On the same day that Dartmouth announced its changes, Princeton posted a question-and-answer page by Financial Aid Director Robin Moscato on its main website.
“We’re trying to make sure that the awareness that Princeton was out in front of the curve on these financial aid improvements is at least out there,” Moscato said. “The fear is if we’re not making a new announcement, [prospective students and parents] won’t understand that Princeton has done all this already. That would be an unfortunate thing.”
The University has no plans to revise its current financial aid policy, Moscato said.
Upping the ante
While Ivy League students have benefited from the recent changes, less prosperous colleges have fallen farther behind.
Despite the fact that administrators from schools like Michigan State University and Northwestern University have joined their Ivy League peers in opposing Congress’ 5 percent proposal, the recent Ivy League financial aid expansion could negatively affect schools that are not nearly as affluent.
Non-Ivy private universities like Northwestern and the University of Chicago as well as large state schools, which compete with the Ivy League for applicants, lack the huge endowments of Ivy League schools, yet are still expected to compete in the “academic arms race,” Vedder said.
Vedder noted that these schools have traditionally attracted middle-class applicants with their low tuition costs. As the gap between the Ivy League and public institutions narrows, however, state schools may begin to feel the pinch as they struggle to maintain their advantage.
“They are the ones who are really being killed by this [trend] because they can’t compete with [the Ivies] dollar for dollar,” Vedder said.
Tilghman acknowledged that only a limited number of institutions will make such changes.
“Within a certain group of universities, this is approaching a national trend, but there are some universities who clearly can’t afford to do this,” she said. Because their assets are not entirely dependent on tuition, Tilghman explained, universities like Princeton are able to implement generous financial aid policies.
This contrast of means highlights what many perceive to be an increasingly stratified educational system in the United States. Compared to their peers, Harvard, Yale and Princeton are bursting at the seams financially. Harvard’s $34.9 billion endowment, for example, is the largest in the country, having grown by $5.7 billion in 2006-2007 alone. UC-Berkeley, on the other hand, has 70 percent more students than Harvard but only $3 billion in its endowment.
Such financial security enables top private schools to create opportunities denied to their cash-strapped competitors.
Ivy League students hear lectures by some of the best professors in the world and participate in pioneering research funded by their universities. And now, the price tag on such an experience is significantly lower for many.
This doesn’t mean that universities should be penalized for their success, Tilghman said. She sees the competition encouraged by the financial aid amendments as prime motivation for other colleges to reform their own policies.
“If there is a disparity that is growing [between the Ivy League and public universities], it is incumbent upon the states to come up with ways to strengthen their great university systems,” she said. “We’re not going to weaken the great universities just so that we can give a fair shake to the great state universities.”
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