How to Pay for a Good College

TOWARD the end of the 1980s, as university budgets tightened, I found myself worrying about how long Stanford University, of which I was then the president, could hold to its stated (some would say actively touted) policy of "need-blind" admissions -- the practice whereby some private institutions admit undergraduate students without considering how much financial aid each will require. It is an expensive policy, supported by endowments that have been shrinking in real terms in many places. Thus a general retreat seemed probable, and that was causing concern among prospective applicants, their parents, and their college counselors. "Need-blind" had taken on symbolic value: it signaled that merit mattered more than means, that ability could guarantee access. Minority students in particular were distressed at the prospect that a trusted commitment might be withdrawn.

I'm glad to say that Stanford still has a need-blind policy. But, as Michael McPherson and Morton Schapiro demonstrate convincingly in The Student Aid Game, the policy looks a lot like an endangered species over most of its range. This timely book appears amid a gathering storm of protest about college costs and how to meet them -- a circumstance that finds admissions and financial-aid officers facing more anger and dismay than they can remember. But the colleges are adding to the problem: students deciding where to go -- and then trying to figure out, with their parents, how to pay for it -- now encounter a bewildering array of "enrollment strategies" and offers of discounted tuition. Elite institution A has a view of the family's financial need different from that of institution B; meanwhile, institution C, slightly less prestigious, is offering a free ride. The resulting confusion and apprehension often drive families into the arms of private counselors, who offer, for a price, to help them master the system. They would be well advised to save their money and consult McPherson and Schapiro instead.

The authors, distinguished economists who have specialized in higher education, clear up the confusion in a remarkably lucid and thorough analysis of an increasingly complicated system. Financial aid, they explain, is best understood as a price discount offered by colleges and universities to fulfill their own particular needs. An increasing number of institutions are just trying to meet enrollment goals: the marginal cost of adding one student is less than it costs the college to educate the average student; thus charging the extra student less makes perfect sense. But the wealthiest and most selective private schools want the very best students; their need-blind admissions policies are attractive to high-merit applicants who can choose among colleges on the basis of quality rather than price.

Need-blind admissions policies are based on another principle, less sharply delineated in the book. It is the value that diversity (not only racial and economic diversity but a range of interests and talents) brings to the university as an educational asset -- just like good laboratories and excellent teachers. This principle rests on the little secret, closely held in elite higher education, that students extract more value from their fellow students than from the faculty. Prestigious institutions offer their students bright, interesting, and diverse companions in learning -- and, not incidentally, valuable networks to carry into the rest of their lives. Financial-aid policies support this asset by allowing the institutions to compose, rather than merely admit, a first-year class. The linchpin of this strategy is to admit students without regard to need, and then to meet the full need of those admitted. Its practitioners argue that the policy supports another important principle: that higher education should be accessible to students of high aptitude and accomplishment without regard to their ability to pay. It reflects both the meritocratic conviction that society needs the best minds and the egalitarian view that the opportunity to be at the top of the merit heap should be open to all.

And yet, as McPherson and Schapiro show, all but a few private colleges and universities have found the need-blind, full-need policy too costly, as the gap between tuitions and family income has widened, and as discretionary institutional resources have shrunk. In the struggle to attract students (the term "game" would not be out of place) financial-aid and admissions strategies are formulated against a background of vital economic necessity: the need to fill classrooms and dormitories. Financial aid may be directed, as "merit aid," to attract good students, while applicants who have indicated an especially intense desire to attend are denied aid on the presumption that they will enroll anyhow.

The authors are understanding about the financial exigencies that lead to such strategies, pointing out sensibly that "there is nothing ethical about keeping a policy that drives the school to financial insolvency, forcing it to sacrifice instruction, basic student services, and other essentials." They are less forgiving, however, toward those institutions whose resources and distinction place them just on the fringe of the need-blind sector. Knowing that it is an important label to keep, these places often practice a kind of technical virginity -- either creating a category at the margin in which students are admitted but denied aid, or "gapping" by offering some students less aid than the standardized federal means tests say they need. Sadly, this hypocrisy is driven in part by the ranking systems employed by certain popular newsmagazines and some college guides. These lists, much criticized but closely watched in the higher-education community, include "selectivity criteria" that allow an institution to improve its ranking if it can show improvements in the proportion of admitted students who actually enroll. Student aid has become a device for manipulating these yield statistics.

MUCH of The Student Aid Gameis devoted to private institutions, where both authors have spent most of their careers and where relatively high tuitions make financial-aid policy an especially compelling matter. But of course the majority of enrolled students are in public (that is, state-supported) institutions. The behavior of the public universities and colleges in many respects resembles that of the private: they compete for the same students and are ranked in the same popular guides. But there is an important difference: most state-university tuitions are held far below the cost of education by policies formulated in an era when "higher education for all" had universal political appeal.

The authors present new data on student choices between private and public institutions. These indicate that 38 percent of first-year students from families with annual incomes over $200,000 attended public institutions in 1994, whereas 31 percent of the equivalent income group did so in 1980. The New York Times, in an article that preceded the book's publication, described this finding in a story headlined "AFFLUENT TURNING TO PUBLIC COLLEGES." Whether one views that shift as significant probably doesn't matter much; the important question, on which McPherson and Schapiro touch only lightly, is whether the huge subsidy thus offered to wealthy undergraduate students represents a sound public investment.

In California a magnificent state university system serves more than 120,000 students, of whom more than a third come from families whose incomes are too high to qualify for financial aid at most of the state's many private institutions. The gap between the nominal tuition charged by the University of California (always labeled "fees" -- "tuition" is a politically incorrect term in that system) and the real cost of undergraduate education cannot be calculated precisely, because UC has never revealed the latter figure. But it is surely not less than $10,000 annually. That amounts to a $400 million annual subsidy, with no means test whatsoever. It is small wonder that a bargain of this quality is being snapped up by students; they love it, and their association defends it with a paid lobby in Sacramento that vigorously opposes any increase in fees. One does wonder, though, how long free rides for wealthy kids could survive serious scrutiny against competing social needs.

AMONG the many splendid qualities of this book is how clearly it illuminates such policy questions. When they turn to the role of the national government, the authors have some pointed advice. First of all, don't scrap federal aid programs for the wrong reasons. William Bennett, when he was Secretary of Education, claimed loudly (though without evidence) that government student-aid programs caused private colleges to capture the revenue by raising tuition. McPherson and Schapiro devastate this claim -- first by showing that the structure of the existing Pell-grant programs gave colleges no incentive to raise tuition, and then by reporting an empirical study in which multiple financial variables were compared. The study demonstrated that there was no relationship between the federal student aid an institution received and the tuition it charged.

The authors argue that some current proposals by the Clinton Administration -- especially the tax-deduction feature -- could provide incentives to raise tuition. They are not particularly kind, either, to the Hope and Honors scholarship initiatives, which are directed at helping students of relatively high achievement. Their analysis shows clearly that these students are being well taken care of in the present scholarship "market." Federal programs should therefore focus on the issues of need and access -- areas in which the present student-aid game has left significant voids.

Perhaps the authors' sharpest advice is reserved for the private colleges and universities. There are clearly have and have-not institutions in terms of financial security, and further declines in public and private financial support will, McPherson and Schapiro believe, tend to increase the gap between them. No one should expect that all institutions will deploy financial aid or practice admissions in the same way. But, the authors emphasize, we have every right to expect that each institution will disclose its policies and discuss them openly. The authors set a good example in confessing a quandary of their own having to do with "merit aid" -- scholarship assistance given entirely without regard to need. They are plainly uncomfortable about it, having a predilection for equity and recognizing that it is the high-prestige places that offer the largest subsidies for each student's education. Yet they point out that merit aid spreads good students among more places, raising the quality of some less highly regarded institutions, and placing students in colleges that will care more about them. They don't supply a ready-made answer, thereby reminding the reader that this is, after all, a tough, complex challenge in educational policy -- one that engages that old and difficult balance between quality and access.

Donald Kennedy is the president emeritus of Stanford University, where he is the Bing Professor of Environmental Science. His most recent book is Academic Duty (1997).

The Atlantic Monthly; March 1998; How to Pay for a Good College; Volume 281, No. 3; pages 112-116.