Illustration by Kazu Nitta
Illustration by Kazu Nitta

The Best, the Brightest, and the Neediest?

Among colleges and universities, financial aid has become both a means to ensure access and an arena of competition. Experts debate whether more generous commitments will change campuses—and society.
August 1, 2008

Two decades ago, Charles Clotfelter, a Duke public policy professor, came out with a book called Buying the Best. The book's subtitle promised a look at "Cost Escalation in Elite Higher Education"—an exercise that Clotfelter embarked on by probing the inner workings of selective colleges and universities, including Duke.

Clotfelter '69 began by citing a front-page headline in The New York Times, from 1987: "Tuitions Hit New Peak, Igniting a Bitter Debate." One reason for those high tuitions, he observed, was the fact that "each research university is locked in continual battle with its competitors," or "an all-encompassing striving for excellence." At the same time, affluent households were doing better than ever, the economic returns from a college education were becoming more apparent, and top students were flocking to a small set of elite institutions. Given the perceived benefits of an elite education, students weren't particularly price-sensitive—irrespective of angry newspaper reports.

Today Clotfelter has a good laugh when told of an iconic—and ironic—bumper sticker spotted on an SUV driving near campus: "My kid and my money go to Duke." In his book, he documented the fact that financial aid was growing faster than any other category of campus spending. Economists think of financial aid as a form of price discrimination, he says, a term that refers to charging different customers different prices. Merit aid, which is a relatively small component of Duke's overall aid picture but which plays a bigger role at less selective institutions, overtly offers a price break to attract a certain kind of student. Need-based aid does that more subtly.

Are the rich, as they absorb hefty college fees, transferring income to the less-wealthy? "Well, yes and no," says Clotfelter. "Everybody, even someone paying full tuition, is not paying the full cost of education, because everybody's education is being subsidized by endowment. If some are paying more than others, even the ones who are paying more are arguably getting a bargain."

Need-based aid is defensible, he says, for hard-headed reasons and not just on the basis of social equity. "You can view financial aid of this sort as being a guarantor of the 'brand.' It protects the quality of the degree. If it were the case that the only way you could get a Duke degree would be by paying the full price, so you could come here only if you were affluent, that would diminish the value of what we're doing." Society gives more credit to distinctions earned through merit, he says, than to distinctions gained through wealth. So to be thought of as an institution for the wealthy is to carry a pejorative label.

Clotfelter observes, too, that those associated with higher education, and presumably many in the broader society as well, believe strongly that "students learn something that can't be taught in lectures and read in books from being around people who are different from themselves." Diversity in all forms, including socioeconomic diversity, becomes another aspect of the "branding" strategy, another way to be delivering (and to be seen as delivering) a superior education.

Now higher education's implicit social contract is being expressed with new vigor. And in the branding competition, the gap is growing between the institutional "haves and the have-mores," in the words of Christoph Guttentag, Duke's dean of undergraduate admissions.

In 2001, Princeton University, enjoying an enviable endowment-per-student figure, eliminated all loans and replaced them with grants—acknowledging, and accommodating, the upper middle class as well as the economically disadvantaged. Then, late last year, "the bidding war," as a New York Times article put it, took on a new character, with a flurry of aid announcements from Brown, Cornell, and Stanford universities, Amherst, Williams, and Dartmouth colleges, and many others. This spring the Times' education supplement presented Harvard University president Drew Gilpin Faust in the guise of Crazy Eddie, the iconic king of retail discounting. The cover showed Faust popping out of a banner that read, "Our prices are insane! Buy now, don't pay later. Up to 100 percent off. We can't be undersold."

These were the first financial-aid announcements to "hit the front pages," says Robert Shireman, president of the Institute for College Access and Success. "Certainly at the lower-income side—under $40,000, $60,000, or even $80,000—most of these colleges have had pretty good policies. Yet you still had a lot of families saying, forget it, there's no way we could pay for an expensive college. So now that these elite colleges have made announcements that are clearer and crisper and reach somewhat higher up in income level, we may have made some progress in getting out the message to low- and middle-income families as well."

If Harvard couldn't be undersold, Duke had the edge, at least, in promptness. Duke beat out official word of the Harvard financial-aid expansion by two days when, in early December, trustees unveiled a new plan. It eliminates the expectation of parental contributions for families with incomes less than $60,000 a year; students from families with incomes below $40,000 can now graduate debt-free. The university budgeted about $73 million for all forms of undergraduate financial aid this past academic year—need-based aid, athletic scholarships, and merit scholarships. Officials project spending some $86 million next year.

Duke president Richard H. Brodhead highlighted financial aid in his inaugural address in the fall of 2004. Since then the university has embarked on a $300 million Financial Aid Initiative, and has also enjoyed record earnings on endowment—establishing a bigger financial base for a bigger vision.

That's an attractive vision to Jim Belvin, who is about to retire after thirty-two years as director of financial aid and who has presented "Paying for College" seminars for middle-school students and parents around the country. The latest shift may be an appropriate career culmination, but Belvin says Duke has been "incrementally improving" its aid program for a decade or so, most recently by extending aid to cover summer enrichment experiences and making international students aid-eligible. With the December announcement, "We wanted to send the message to students and their families that Duke is affordable." Low-income families are debt-averse, Belvin says. "So we also wanted to remove the perception that they were going to see their child leave here with great amounts of debt."

By the terms of Harvard's plan, students whose parents make $120,000 to $180,000 will pay, on average, 10 percent of that income. The percentage declines steadily for families making less until hitting zero at the $60,000 mark. Harvard no longer considers home equity in determining financial need. "If you look at what Harvard did, that's huge, a huge cut in price, for a lot of people who are clearly not poor or middle-income," says Sandy Baum, a senior analyst with the College Board and an economics professor at Skidmore College. "That's not what most schools did. Many of the other initiatives say that if your family income is less than $40,000 or $50,000 a year, you don't have to pay anything to come to our school. That's what really helps the low-income students."

Yale University's version of a helping initiative reduces average costs by more than half for families with need. At MIT, the dean for undergraduate education framed a new aid policy with the statement that, for eligible undergraduates, tuition bills will approximate "the in-state cost of many public universities." When Stanford added to the array of announcements this past winter, its financial-aid director said, "We heard very clearly from our parents, especially parents that considered themselves middle income, that the amount that we expected from them was very difficult."

The Stanford plan prompted an appreciative editorial in the Duke Chronicle. "As students, we are fortunate enough to witness a financial-aid arms race among institutions of higher education," according to the editorial, which also speculated that students might "go simply where the money is." Because of Duke's "relatively small endowment," the editorial went on, "we simply cannot keep up with our academic peers in financial-aid spending."

Of course, the set of Duke's "academic peers" is narrow and a "small endowment" is, indeed, a relative concept. Duke's $5.9-billion endowment as of June 2007 falls well below Harvard's $34.6 billion, but still ranks fifteenth among colleges and universities nationwide. "This is not the beginning of a new trend, but the acceleration of a continuing trend," says Tony Pals, director of public information for the National Association of Independent Colleges and Universities (NAICU). "But now it's snowballing. We've seen what those institutions with large endowments, like Harvard and Duke, have been able to do. Smaller institutions with smaller endowments have also been taking steps to enhance their affordability; enhancing affordability is at the top of every institution's list. But they simply can't do what the elite schools have done. They don't have the financial resources to do that."

Illustration by Kazu Nitta

Just as the Chronicle editorial appeared, the president of Lafayette College in Pennsylvania, Daniel H. Weiss, sent a letter to college supporters. "The national dialogue about access and affordability that these decisions have engendered is, in my view, healthy and welcome," he wrote. "I am concerned, however, about the fundamental division that is being created between the majority of America's colleges and universities and the handful of super-wealthy schools—schools that have benefited from extraordinary resources for generations—that have now shifted their orientation from market-based economics to resource-based economics. As proud as we are of Lafayette's endowment [now about $775 million], we simply cannot match the actions of a school like Harvard, which benefits from an endowment of around $35 billion."

Conversations about access and affordability aren't particularly new in college admissions, says Duke's Guttentag. "Even when I started, twenty-five years ago, this was a subject of conversation within admissions offices. However, when it cost $20,000 to go to college, I think it was easier for low-income and moderate-income families to conceptualize shrinking that gap between their income or their assets and the costs of attending college." In terms of percentage of family income, "The gap may not be any bigger," he adds. "But in pure dollars, it looks bigger."

"The other thing is there's a greater burden on the schools now to provide financial aid, because the federal government is providing less. If you look at the percentage change of school-based rather than government-based financial aid, you see a significant shift."

Illustration by Kazu Nitta

On campuses, the income gap is now seen in sharper relief, says Richard D. Kahlenberg, a senior fellow with the Century Foundation and editor of America's Untapped Resource: Low-Income Students in Higher Education. Kahlenberg notes that a visitor is twenty-five times more likely to run into a rich student than a poor student on the nation's elite campuses. Just 10 percent of students at those institutions come from the bottom half of the socioeconomic spectrum. Kahlenberg calls such findings "extraordinary," especially given that they don't represent any "differences in innate talent among the different groups."

Kahlenberg commends higher education for having grappled with the scarcity of racial diversity. "But there hasn't been the same recognition of the importance of economic status." Elite institutions are "populated by good liberals who, appropriately, care about racial diversity," he says. Working-class people have not commanded their attention, he adds; they're not seen as a group with a history of struggle for validation. So their relatively small presence on campus "does not have the same galvanizing effect as the under-representation of students of color."

Several studies have found that economic affirmative action is actually far more popular among the general population than other forms of affirmative action, Kahlenberg says. He cites a national poll conducted five years ago by the Los Angeles Times. By a 24-point margin, respondents said colleges should not take into account the ethnicity, gender, or geographic location of applicants. In the same poll, by a majority of 2 to 1, respondents said they favored giving preferences in education to those who come from "an economically disadvantaged background," regardless of their ethnicity or gender. Kahlenberg says the findings comport with traditional ideas "about the American dream and about social mobility and about fairness and deservedness in the admissions process."

The social-mobility ideal is hardly reflected in the actual college-admissions process. In the admissions competition, "It's basically a wash whether you are low-income or not. It doesn't hurt you, but it certainly doesn't help either," Kahlenberg says. In fact, one consequence of the "need-blind" policies of selective schools—policies that separate admissions decisions from financial-aid awards—is that admissions officials don't probe a candidate's financial circumstances. The elite institutions do tend to reward alumni ties unabashedly, even though, according to Kahlenberg, that, too, is an unpopular stance among the public. In Duke's case, a "legacy" candidate has, on average, double the chances of acceptance.

This past spring, The Chronicle of Higher Education reported that the proportion of financially needy undergraduates at the wealthiest colleges and universities dropped between the 2004-05 and 2006-07 academic years. In 2004-05, 14.3 percent of the undergraduates at the country's seventy-five wealthiest private colleges received Pell Grants, which are awarded to students from families with annual incomes of less than $40,000. Two years later, Pell Grant recipents made up 13.1 percent of the student body at those schools. For Duke, the Pell Grant percentage in 2004-05 was 10.8; it was 9.5 percent two years later. (The federal Pell Grant program has its own problematic aspects, even as the number of Pell Grant recipients has increased over the years. Twenty years ago, Pell Grants met up to 60 percent of total tuition, fees, room, and board at the average four-year public college or university. Today the figure is closer to 33 percent.)

Another report, prepared by the Brookings Institution and sponsored by the Pew Charitable Trusts, showed that in recent years, only 11 percent of children from the poorest families have earned college degrees, compared with 53 percent of children from an income bracket in the top fifth. The Pew report also accents the continuing tie between a college degree and social mobility: A college graduate from a family in the lowest fifth of earners has a 62 percent chance of joining at least the middle class.

But low-income backgrounds don't characterize the student bodies of elite colleges. Like its peer institutions, Duke has long struggled to overcome the notion that it is a place for the wealthy. Duke's family-income level is high, even among its peer schools. According to self-reported data from last year's Duke seniors, more than a quarter came from families with incomes of $250,000 or more. There's a considerable concentration on the other end of the scale, though: Some 22 percent had family incomes of $75,000 or less.

"Is Duke a rich kids' school? Yes, to a certain extent all elite universities are rich kids' schools," says Sam Swartz, who graduated in May with a major in political science, a certificate in global health, and a minor in international comparative studies. With two other seniors, Swartz wrote a guest column in The Chronicle, "New Aid Policy Not Enough." The financial-aid expansion is "a great boost for the school," he says, "but the biggest problem is getting people in the pipeline," that is, getting students from lower-income families to apply. Swartz tutored sixth-graders at a Durham public school. He was struck by their responses when he asked where they might apply to go to college: "Duke is just too expensive." Swartz says, "Duke is not even on their radar, and it's just down the road.

"So many kids come here from these really rich suburbs. They go to wealthy public or private high schools, and they live these really cloistered lives of privilege in these elite enclaves. They come to Duke, and they see Durham as this impoverished place that they don't want to have anything to do with; they never come into contact with people who force them to think differently."

Swartz says an atmosphere of privilege influences many aspects of campus life—how often students go out to eat, where they spend their breaks, and even their choice of first jobs, since they want to buy into campus-wide notions of success. He mentions one of his classes, in health policy, where the conversation turned to the national problem of obesity. One of his fellow students observed that the solution would be for everyone to shop at places like Whole Foods. "Obviously, she never went into a Piggly Wiggly and saw that there is no organic-foods section, and she never thought about how some people have to be concerned about maximizing their calories, which may lead them to junk food." A more representative student body would provide "a more realistic educational experience," Swartz says.

It's not surprising that the economic elite dominate the higher-education elite—an illustration of the longstanding link between income and achievement. According to Guttentag, "You can show how a student from an advantaged family has an easier time getting a higher rating" in every area in which candidates for Duke admission are considered. "A family may be able to afford a house in a better school district. The student has access to more advanced courses; that affects the curriculum rating. If the student is having a little difficulty, the family can hire a tutor, and that affects his or her grades. Or a guidance counselor has a load of 100 students instead of 700 students. That affects the counselor's ability to advocate in-depth for the student in a recommendation letter.

Illustration by Kazu Nitta

"We all know about the correlations between test scores and family income. And think about the student writing a college essay and doing what every student does, which is asking his or her friends, parents, and older siblings to take a look at it. Well, imagine if they're all in families where there are graduates with advanced degrees, where there are thousands of books in the home. Then imagine if the parents, maybe, don't have English as a first language and finished their education at high school."

Guttentag says his office is constantly scrutinizing its recruiting and selection criteria; he's interested in "casting a wider net," as he puts it, and in understanding the context in which a particular applicant has performed. "One of the themes we talk about in our office is distance traveled: How much has the student done with the opportunities that he or she has been given?" In the most recent admissions cycle, Duke mailed information about its new financial-aid programs to about 1,000 high schools identified as having low-income students of high ability.

If higher education is paying more attention to affordability, that's in part a self-interested—or a preemptive—response to the anxiety attached to a slowing economy. A recent statement from NAICU said "the force behind colleges' efforts" in financial aid was "consumer concern about rising tuitions, exacerbated by family incomes that have steadily lost ground to the Consumer Price Index over the past decade." With the current squeeze on home values, the credit crunch, and the price spirals in the grocery store and at the gas pump, families may be finding it hard to make the parental contribution that's called for in the typical financial-aid formulas.

At the same time, student debt has been growing, notes Robert Shireman of the Institute for College Access and Success. According to data assembled by an offshoot of his organization, the Project on Student Debt, at private universities debt levels for graduating seniors with student loans nearly doubled from $11,356 to $22,125 over the past decade. Nearly two-thirds of students at four-year colleges and universities now graduate with student-loan debt; in 1993, less than one-half of college graduates had student loans. Shireman says there's evidence that loan-repayment burdens dissuade students from attending graduate school and from entering public-service careers. He says he's also concerned that debt discourages entrepreneurial activity; students may choose a secure job over a risk-taking path.

Student debt is one theme that, for years, has echoed through Congress. There have been tough questions about why colleges and universities enjoy tax-exempt status even as their endowments—along with their tuition rates—are growing. This past winter, the Senate Finance Committee sent a detailed survey to 136 of the nation's wealthiest institutions. The fact-finding letters, covering endowment-spending and financial-aid policies, were sent by Iowa Republican Senator Charles Grassley, who held hearings last fall on the growth of college endowments. "Tuition has gone up, college presidents' salaries have gone up, and endowments continue to go up and up," Grassley said. "We need to start seeing tuition relief for families go up just as fast."

Replying to Grassley's request on behalf of Duke, President Brodhead made a clear link between tuition and financial aid. In the interest of "providing access to a diverse socioeconomic population," he wrote, "Duke has long held a policy that increases in its tuition are accompanied by a greater rate of increase in financial aid."

Critics of higher education who are sympathetic to Grassley note that colleges relentlessly hike tuition in response to more than financial-aid demands. Brodhead's letter, in explaining Duke's tuition policy, referred to a "commitment to affordability" and also to "programmatic needs," "market factors (relative tuition ranking, strength of student demand)," and "alternative revenue sources," notably endowment income. As the critics see it, top-tier institutions pay out too modest a percentage of endowment earnings—particularly compared with the extraordinary rates of return that their endowments have enjoyed. "Covering the expenses of low-income and working-class students is expensive," says the Century Foundation's Kahlenberg, adding that it will require greater federal support and "will also require that universities make financial aid a higher priority."

In recent years, endowment growth has been a high priority, and a certainty: The endowments of seventy-six colleges and universities have reached $1 billion or more. Private foundations are required to spend a minimum of 5 percent of their endowments a year. Colleges and universities face no such requirement, and many—including some that have led with the recent financial-aid announcements—have lower payout rates. Over the last decade, the average spending rate for Harvard was 4.25 percent. For Princeton, it was 4.0 percent. For Duke, it was 4.04 percent.

The growth in Harvard's endowment last year, thanks to investment income as well as new gifts, was $5.7 billion—a sum larger than all but fourteen other universities' total endowments. (Harvard estimates the annual cost of expanding its financial-aid program to be $22 million, just a fraction of its annual earnings.) Fewer than 400 of the roughly 4,500 colleges and universities in the U.S. had even $100 million in endowments.

Those figures illustrate a wealth gap that is growing more appreciable in higher education, just as it is in society broadly. As Grassley's line of questioning suggests, it may be harder for the higher-education elite to argue that it can't afford to be more affordable.

Above all else, higher education's focus on access may reflect a social imperative—or recognition of demographic reality. Applications to selective colleges and universities reached new heights this year: up 19 percent at Harvard, 5 percent at Duke, and 2 percent at the University of Pennsylvania, in part because of an unprecedented swelling in the high-school population. But the next decade will bring a decline in the number of affluent high-school graduates, along with an increase in the number of poor and working-class graduates.

Demographers project a national decline of 10 percent or more in non-Hispanic white students, the population that traditionally is most likely to pursue higher education. They foresee a double-digit rise in the proportion of minority students, especially Hispanics, who traditionally have been less likely to attend college and to go into debt to fund education. Colleges and universities will be recruiting, then, from a different pool of applicants—one that won't look like the pool that Clotfelter scrutinized in the 1980s.

That applicant pool of the future inevitably will be needier, says Tom Mortenson, a higher-education policy analyst and senior scholar with the Pell Institute for the Study of Opportunity in Higher Education. (Mortenson identifies with Senator Grassley as a fellow higher-education watchdog; both are Iowans.) Families will be looking for strong signals that they can absorb college costs, seemingly approaching stratospheric levels. They're not likely to feel assured, he says, until higher education forges a fuller and more forceful social contract.

The rest of the world has been "furiously expanding educational opportunity and educational obtainment," in his view, even as the U.S. has stood still. "In this country we have seen income brutally reallocated according to educational attainment. I think we must expect that this will occur between countries as well. The question of who gets a college degree has everything to say about how socially healthy and vibrant and prosperous and cohesive and secure we are."

Low-income students are increasingly concentrated in community colleges, says Mortenson, even as the population of low-income young people is growing: The share of kindergarten-to-twelfth-grade enrollments approved for free and reduced-price school lunches has grown from about 30 percent in 1989 to 45 percent today. In a few years, if the trend continues, those needy students will form the majority of school populations. Will they then be drawn, say, to Duke?

According to Mortenson, the U.S. has been veering away from an opportunity-oriented society. The shrinking size of federal Pell Grants, declining allocations to state universities, and rising tuition levels across the higher-education landscape are prime indicators, he says. As an undergraduate at the University of Minnesota in the early 1960s, he paid $125 a quarter—an amount that he was able to fund through summer earnings and by becoming the university's very first work-study student.

In essence, he shaped his own financial-aid initiative. Today's students don't have that option.