I guess I have been around too long, since I still remember K-Mart’s surprise sales. The loudspeaker would say “Blue Light Special on Aisle 3” and the stampede would be on for a genuine bargain. It was a great promotion for a few years and attracted many customers. It also helped shape the image of the institution. You can imagine my surprise and recollection when I heard the report last week that in the most recent year, schools in higher education collected only 59% of the full tuition/fees for attending. Yes, in the aggregate, higher ed’s discount pricing amounted to a 41% discount. Now that is a Blue Light Special!
My first reaction was a predictable knee-jerk criticism of what I called “Higher Education Socialism”. It seems so obvious – universities continue to raise tuition and fees at relatively high rates, so that those students and their families that had more wealth (or had been more frugal in their savings) would pay full freight and thereby subsidize the poorer students who were unable to afford the high price tags. So the Ivy League schools are able to charge the maximum increase the market will bear and use the extra funds to support the poorer valedictorians. (With an endowment larger than most countries I doubt Harvard really needs the cash!) So we have a neat transfer of wealth that increases opportunities for those in need and is supported by those most able to carry the freight. Depending on your political persuasion you might find this either very pleasing or very disdainful. But it does seem effective. Of course, each year these figures are announced there is a great deal of contentious discussion. One of the most compelling discussions was posed by Jordan Weissman in the Atlantic Magazine of May 12, 2013 in his article “How Colleges Are Selling Out the Poor to Court the Rich.”
I’ll have to admit that I was completely taken back by this story, I guess because of my naivety, but it sounded preposterous. He starts with the proposition that if the government aggregated all the funds it dispenses to students through a variety of loans, tax breaks, grants and other benefits, it could almost pay the entire tuition bill for ALL students in public colleges and universities (approximately $60 Billion). Of course this wouldn’t be very pleasing to the private schools and for-profits of the world, but it is an interesting concept that illustrates the dimensions of the dilemma.
But as I read I became more and more persuaded about the dynamics at work here. The additional factors that were added to the discussion were the role of Federal loans and other Federal tax benefits in the mix, combined with the increasing pressure on many colleges to compete for the better students.
Weissman refers to a report released recently by Stephen Burd of the New America Foundation on the state of financial aid in higher ed. It documents the “obscene prices some of the poorest undergraduates are asked to pay at hundreds of educational institutions across the country, even as these same schools lavish discounts on the children of wealthier families in order to lure them onto campus.” How so, you may ask?
These mid- and lower tier schools are relying on federal grants to cover the costs of needy students while using their own resources to furnish aid to richer undergrads. “With their relentless pursuit of prestige and revenue,” the report continues, “the nation’s public and private four-year colleges and universities are in danger of shutting down what has long been a pathway to the middle class for low-income and working-class students.” The theory was that, in a time of tight state budgets, charging wealthy students exorbitantly would allow them to charge poorer students reasonably. It hasn’t worked out that way. Unlike twenty years ago, the report explains, it is now more common for colleges to hand out aid packages based on “merit” rather than financial need. And “merit” is often a rather nebulous concept. In other words, low-income families are routinely being asked to fork over more than half of their annual income for the privilege of sending their child off to campus for a year, much more than other families.
Of course these institutions continue to stress the Federal loan program for newer students. These schools are accepting government money meant to make college accessible for low-income Americans, yet still charge them extravagantly. Meanwhile, they continue to hand aid off to wealthier students, either because they score higher on the SAT or bring in extra revenue.
The results are big discounts and lower prices for the wealthier students so that the school can be more competitive for the better students as well as increase its “ranking”. The poorer students are paying increasing shares of their income as the school’s aid is shifting elsewhere. No wonder student defaults on Federal loans are so problematic.
What are we left with? For me, the only way to make a difference is to find ways to lower the cost of higher education for all students, regardless of income. Secondly, the Federal loan program must be revamped to include more restrictive rules limiting tuition increases and their linkage with loans amounts. For too long colleges have raised tuition and fees each year to absorb the increasing loan limits. This is the very reason that students now graduate (or worse, drop out) owing large sums they will never repay.
At least Blue Light Specials applied to all customers equally!