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January 23, 2008, 06:34 PM ET
Like Being Mugged in a Dark Alley
Harvard set the bar pretty high. Most private colleges can’t get over it.
Talk to a private college president or, even better, a private college CFO and be prepared for an afternoon of anguish. I have had several such conversations and each starts out pretty much the same — quiet consternation followed by a kind of confused anger expressed in the message “Why is Harvard doing this to me? It makes no sense. We don’t compete with Harvard, we don’t charge what Harvard charges, and we sure don’t have a $35-billion endowment that will allow us to provide the kind of financial aid that Harvard has so freely promised its upper income families. And yes, in our applicant pool, families with annual incomes in excess of $125,000 are decidedly upper income.”
What is likely to follow is the testimony of an exasperated college official who faces nothing but bad choices in trying to match Harvard’s largess. Private institutions of moderate to low endowments — a category that includes most private colleges and universities — have only three options if they are forced to adopt Harvard’s policy on maximum family contribution. They can redirect institutionally funded financial aid from the very poor to the near rich. Or they can substantially reduce their costs by reducing faculty and staff plus freezing salaries for the indefinite future. Or they can try to make up in volume what they are loosing in price. All three options will likely lower the quality of the institution making even greater the gap between it and its better endowed and until now higher priced competitors
Why, you may ask as I did, should the college even worry about what Harvard does? The answer, I was told, was painfully obvious. What Harvard does matters. For more than a century it has set the standard for academic excellence. Now it will set the standard for maximum family contribution at 10% of annual family income. It is a standard that no one but Harvard and a handful of its well-endowed private competitors can meet. The rest of higher education will have to suck-it-up, reducing costs and shifting financial aid from the poor to the near rich all in the name of providing a more affordable college education. And what will Harvard and its immediate peers be doing? Increasing their spending per student in hopes of warding off a Congressional probe focusing on how, at tax-payers expense, they massed such large endowments in the first place.
Maybe we should all be chewing nails.
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