The Money and Prestige Issue

November 15, 2021

Earlier this month, I was in New Haven, CT to talk about college admissions with a class of undergrads at Yale. The course on education policy and writing is taught by an old friend of mine, Jane Karr, a former editor at The New York Times.

Before the class, we had lunch at the Schwarzman Center, named after the CEO of the Blackstone private equity group. Schwarzman donated $150 million in 2015 to his alma mater for the renovation of the university’s historic Commons and Memorial Hall. I’ve seen a lot of bells-and-whistles in the 20+ years I’ve been visiting campuses and the Schwarzman Center is definitely among the most lavish.

Yale, of course, sits on an endowment north of $31 billion.

During the pandemic, Yale and other really rich colleges just got richer. The Wall Street Journal recently reported that large college endowments “notched their biggest investment gains in decades” last year.

Yale can offer lavish amenities, and hire star faculty, and give out generous financial aid to students. Later on in the class, one student mentioned how she received a much better financial-aid package from Yale compared to Rice University—a deciding factor in eventually coming to New Haven.

Given its wealth, Yale has been criticized for failing to enroll more low-income students with Pell Grants. But Yale also is among a small group of schools that meets full need without forcing students to take out loans—and does so with undergrads pretty far up the income scale.

💵 $3,000: that's the median net price for Yale students who applied for aid and come from families making less than $65,000.

💰 $5,700: that's the median net price for Yale students from families in the next income band—up to $100,000.

That makes Yale a bargain among most private colleges—and even most public institutions—where families around the $100,000 mark are expected to contribute significantly more toward the tuition bill. In 2017-18, the average net price for families making between $75K and $110K at a private college was around $27,000; at a public it was $19,000.

When you look at the distribution of family incomes at many colleges, it looks like “a lollipop”—with lots of wealthier students at the top with fewer middle- and low-income undergrads making up the stem—Martin Kurzweil of Ithaka S+R, a nonprofit consultancy group, told me.

Because most colleges don’t sit on tens of billions of dollars in endowment like Yale does, they have to make trade-offs by either sacrificing revenue or socioeconomic diversity.

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The rise in income inequality over the past several decades has been well documented, but could it also be to blame for higher college tuition, too?

Yes, according to Catharine B. Hill, president emerita of Vassar College, a Yale trustee, and managing director of Ithaka S+R.

Last week, while talking with Hill and her colleague Martin Kurzweil, she reminded me of a paper she authored in 2016: American Higher Education and Income Inequality.

What’s happening: As rich families have gotten richer over the past three to four decades, they’ve been able to pay a college’s full sticker price.

• Colleges compete for these students, Hill argues in the paper, “supplying the services they desire” from small classes to turf fields, which pushes up costs.
• At the same time, many schools have committed to enrolling more low-income and first-generation college students. But with lower-income families' incomes lagging, they need more financial aid and have become more expensive for schools to enroll 

By the numbers: The paper estimates that the sticker price at one of 30 selective colleges it studied would be around $4,000 less if household incomes in the U.S. had grown by the same aggregate amount between 1971 and 2009.

• That’s because higher-income families wouldn’t have as much money to spend on higher ed. Thus, they might demand fewer perks and ultimately provide less revenue to schools.
• Meanwhile, lower-income families wouldn’t have as much financial need.

Why it matters: Most colleges are stuck in a vicious financial cycle right now.

• They are discounting tuition—on average around 50%—to attract middle-income, and even many higher-income students.
• Even as colleges push up the sticker price every year, fewer people are willing to pay at all but the wealthiest, brand-name schools.
• So that leaves colleges with flat or declining net tuition revenue, the cash they need to invest in academic programs, pay debt on buildings, and put toward need-based aid to enroll lower-income students.

What’s next: The number of affluent, well-prepared high-school graduates whose parents attended college has propelled the expansion of higher education for the past several decades.

• Their numbers aren’t growing anymore. What’s growing are the number of low-income students whose parents didn’t go to college.
• “We’re going to have to figure out how to provide a good education to low- and middle-income kids,” Hill told me.

The bottom line: “If the income distribution were less skewed, the demand for services at one end of the income distribution on the part of higher-income families and the need for financial aid at the other end on the part of lower-income families would both moderate, reducing the financial challenges facing many colleges and universities,” Hill concluded in her paper.

• Go deeper with full paper (library access required)
• Good summary in a Washington Post op-ed by Catharine B. Hill

After a year of remote and hybrid learning, colleges and universities must find ways to keep students engaged and connected. Read about the latest trends in enrollment, retention, and transfer rates and how to help students access support services as well as foster an environment of diversity, equity, and inclusion. Read the report now.

How to Classify Thousands of Colleges?

There are more than 4,600 colleges and universities in the U.S., yet we talk about “college” and “higher education” as a monolithic thing, Arizona State University's president, Michael M. Crow, and I wrote recently in a Chronicle of Higher Education op-ed.

Background: In the early 1970s, Clark Kerr, the director of the Carnegie Commission on Higher Education and former president of the University of California system, developed a classification system to better define the thousands of colleges and universities.

• The purpose was to distinguish between institutional missions by using descriptors such as “research university” or “master’s level institution.”
• Further designations of “I” and “II”—based on scale and scope—were added to differentiate how much federal research money a college received, for instance.

The big picture: The classifications were designed to aid researchers and policy makers.

• But in 1973, a public version was issued that many saw as establishing a hierarchy, from small special-purpose institutions to what insiders called “R1” universities.
• Updates of the classifications, released every few years, set off a jockeying for prestige. Some presidents have made it an explicit goal to join the ranks of R1 universities—those institutions with the largest research budgets and most doctoral degrees awarded.
• Villanova University even went as far as to claim in 2016 that its new Carnegie category would “increase the type of intellectual discussion that occurs among undergraduates, graduate students, and faculty on our campus.”

Why it matters: The Carnegie labels do much more than just create a pecking order for college insiders, according to our piece in The Chronicle.

• They encourage colleges to copy one another in their structure and their policies in order to maneuver into what they perceive as "higher" categories.
• That impedes innovation because colleges must look the same in order to get into certain groups

Bottom line: It’s time to retire the Carnegie classifications.

• Over the last two years, working with a team of educational researchers, we have started to develop a different classification system for four-year colleges.
• Rather than a hierarchy, we constructed a cluster system, with 13 groups, which capture ways colleges provide access to students, deliver education, and produce new knowledge to benefit society.

🚨 Coming soon: A visualization of this cluster system.

👉 But in the meantime, go deeper with The Chronicle op-ed (registration required) and a sample of the 13 clusters.

SUPPLEMENTS

Changing demographics, new student preferences, and long-term job prospects will all disrupt the traditional admissions funnel in the next few years. Read about how these changes will impact your enrollment—and how to meet the changing needs of future students to set your institution apart. Access the report now.

We often talk about "OPMs" in higher ed, but exactly what are they? In the first of a new feature called Higher Ed 101, we explain what Online Program Managers are with one of the best analysts in the business.

Stanford’s decision to continue the test-optional policy comes after the University reported a record-low acceptance rate of 3.95% for the Class of 2025, nearly 25% lower than last year’s 5.19% for the Class of 2024. The University also received a record-breaking 55,471 applications to the Class of 2025.

The plans at the U. of California at Santa Barbara call for a dorm that houses about 4,500 students in single rooms -- 94% of which would lack windows! How is this even allowed under fire code?

New international enrollments plunged in the fall of 2020, but Karin Fischer reports in her newsletter, latitude(s), that new enrollments are up by 68% this fall.

Until next time, Cheers — Jeff

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