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About the Author
Bob Zemsky describes himself as being old and round enough to be mistaken for a pooh-bah. He was a member of the Spellings Commission and, as an author and researcher, has focused on making colleges and universities mission-centered and market-smart. He has focused on what globalism might really mean for higher education, on what technology has not accomplished, and how to make learning important to the higher education market. Bob currently serves as professor and chair of The Learning Alliance at the University of Pennsylvania.
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Recent Posts
Lessons From the Cost-Quality Curve | Comment [2]
Quality -- Reform's Fourth Horseman | Comment [4]
Access to Success | Comment [2]
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Featured Articles By the Author
Like Being Mugged in a Dark Alley
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.
Posted at 05:34:59 PM on January 23, 2008 | All postings by bzemskyComments
Commenting is closed for this article.
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Next: What Was Harvard Thinking?
Or, colleges can simply be honest and say “Harvard has the money to do this- we don’t. If you can get a better deal from Harvard or Yale or wherever, and you want to attend that school over us, take the deal- you’ll be happier there.” The reality is that most schools are not in direct competition with Harvard for that many students- and for those few, plenty of other factors will also be in play.
You write “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.” Fine- that may increase pressure a bit. But do you also match Harvard’s library system, or the access its students have to research facilities, or any of the other things Harvard likes to brag about? Why is this different? This is not some sort of Wal-Mart phenomenon, where Harvard has announced intentions to expand to serve 100,000 undergrads at conveniently located campuses. This will affect a few thousand students.
I should note that one of my degrees is from Harvard. It is an excellent school, but it is not the best in every category for every person. Perhaps administrators should try believeing what they say about the need for a fit between student and university.
— Another John · Jan 24, 08:01 AM · #
People who have this worry have been promoted beyond their level of capability. They can start saving money by firing themselves. The REASON Harvard moved on financial aid was Harvard’s love of having tax and other law changes rammed down its throat by the US Congress. It was this love that inspired Harvard to spend 1/umpteenth of its endowment (far less than congress will soon force it to spend) on expanding financial aid. Harvard sets a standard of greed and miserliness in all of its aspects (departments that body counted “progress” in the Vietnam war till career and national respect suidice), persons (the inventors of recent financial leverage instruments now rampaging through the global economy destroying middle class lives), styles (publish method rich papers stripped of results so lucrative faculty consults can ensue), and programs (figure out how to sell everything on campus from single ideas to toilet paper) that the road to hell itself is paved with. Anyone “inspired” by that, is, well, how shall we say, “evil”.
— Richard Tabor Greene · Jan 25, 06:17 AM · #
What I don’t understand is why Harvard is giving the tuition break to upper-income kids. I imagine it has something to do with stemming complaints from wealthy parents—the “why does so-and-so get a tuition break but we don’t?” kind of argument. But in reality, all it is is the rich shifting money from one pocket to the other. What’s so innovative about that?
— madame smartypants · Jan 25, 07:07 AM · #
I never thought I’d say this (since I come from a lower middle class background) – but families earning $125,000 these days aren’t really that rich, given the cost of living in many parts of the country. For certain, families at that income level aren’t exactly struggling to make ends meet. But families making $125,000 year will definitely have a great deal of difficulty paying tuition and living expenses at elite private universities. So I can understand why Harvard has chosen to level the playing field a bit for some (upper end) middle class families.
As far as other elite private schools, such as the University of Pennsylvania, being hurt by Harvard’s actions, I’m not sure that I’m compelled to feel their pain. Many of the best and brightest will still go to Penn, or Princeton, or Yale, as well as to top-flight public universities like Cal Berkeley, Michigan, and Texas at Austin. The point of going to college should be to get the highest quality education, not to buy your way into a privileged elite social stratum.
— ballytyrone · Jan 25, 09:34 AM · #
Trying to “keep up” with Harvard is the source higher education’‘s out-of-control arms race. Runaway spending is based on rankings and one-up-manship, not improved education. It is now twice as expensive to educate a student today (on an inflation adjusted basis) than it was just 20 years ago. Are students coming out twice as smart? When higher education spends ever more dollars to educate the same level of student, productivity declines and we all suffer as a nation in terms of our competitiveness with the rest of the world. Higher education may be the only industry consistently rewarded for lowering its productivity and inflating its perceived value.
— smcdonald · Jan 25, 11:43 AM · #
There are two very important, paradigm-breaking matters in this development at Harvard, in my judgment. First is the idea that a tuition-free institution is possible. This is movement toward a new reality. Every university in America should be taking a step back and asking, “What level of endowment would we have to have in order to do what Harvard is doing?” It’s not 35 billion dollars. Let’s say a mid-level state institution has an annual operating budget of $250,000,000. And let’s say of that, 65% is met through student tuition, room and board, or $162,000,000. That would require an endowment of about $3.45 billion dollars, assuming the endowment contributed 5% annually to the institution and that the entire corpus of endowed funds was connected to scholarship dollars. And let’s say the plan to make that work (accounting for inflation and other factors) would take 40 years. Ok, that’s a long time. But so what? I’m pretty sure the next 40 years are going to go by anyway. This is possible. It really is. But it will take vision, planning, and a willingness to stop pushing for more, more, more at every level of the institution.
The second paradigm shift comes in understanding that for many, many years now, Harvard’s endowment growth has come from investing the corpus of already endowed dollars, not private donations. Most people I am talking to about this story really had no idea what level of endowment Harvard possessed. It needs to be noted that in 2005, the Harvard endowment was roughly $25 billion. Therefore, the endowment grew $10 billion in just 2 or 3 years. Larry Ellison (founder of Oracle) was criticized by some for backing out of an approximately $115 million dollar multi-year pledge to Harvard in 2006 (Ellison backed out because then Harvard President Larry Summers resigned.) But the investment growth of the corpus itself vastly overshadows any individual donation or bequest Harvard has ever received or will ever receive. Schools like Notre Dame, Duke, and Rice don’t even have a total endowment corpus of $10 billion.
In short, the biggest donor to the Harvard endowment is the Harvard endowment. This reality offers up a whole new paradigm for university funding: there can come a time when we don’t need more, more, more from donors. Of course there is a dangerous loss of accountability on some level in that. At the same time, though, what an amazing legacy is available in this new age of private equity fund billionaires.
— John Sherk · Jan 25, 12:09 PM · #
I applied to Harvard undergrad 5 years ago, but when the financial aid package came back, the offer wasn’t feasible for my family. I went to a small liberal arts college close to home because it made more financial sense at the time. If I were applying to Harvard undergrad today, I would have been one of the main beneficiaries of their new financial aid program and would have accepted without a second thought. While some smaller colleges probably feel that they need to keep up with Harvard, there is another concern: The largess of Harvard (and the other Ivies who will all eventually follow suit, as Yale has) might draw away more of the top students at SLACs. If Harvard offered me the same finacial package as the SLAC did close to home, I would have chosen Harvard over the merit-based SLAC package. Essentially, Harvard now makes it much harder for other schools to “buy” top students. This isn’t to say that I didn’t enjoy my SLAC experience, but now that I am at Harvard for grad school I see all I missed, too.
— Anonymous · Jan 25, 01:42 PM · #
Three obervations regarding Mr. Sherk’s conception of an endowment and its uses:
(1) “In short, the biggest donor to the Harvard endowment is the Harvard endowment”. More accurate would be
“In short, the biggest donor to the Harvard endowment is the Stock Market”. Let’s see what 2008’s market, already down from 14,000 to the low 12’s, does to the Endowment. If the Endowment went up $10B in two or three years, it can go down the same amount.
(2) “And let’s say of that, 65% is met through student tuition, room and board, or $162,000,000”. I couldn’t find Harvard’s percentage, but, as for Princeton, (disclosure: my alma mater) “Even the students whose families can afford to pay full tuition at Princeton receive a discount, since the tuition they pay covers only about half of what their educations actually cost the University to provide.” (http://www.princeton.edu/main/news/archive/S10/64/10Q72/index.xml) In Harvard’s or Princeton’s $1B undergraduate budget, that 15% = 150M that has to come from (a perhaps falling) endowment or tuition.
(3) “…assuming …that the entire corpus of endowed funds was connected to scholarship dollars.” Sorry, only about 15% of Harvard’s endowment is discretionary: “In most cases, the terms of the gift determine how the funds must be used. Thus, 85 percent of the endowment is said to be restricted.
http://post.harvard.edu/harvard/hcf/images/HCF_Results.pdf
— princeton67 · Jan 25, 02:09 PM · #
Good points all princeton67. Just a couple of thoughts in reply. I’m not aware of where the Harvard money is invested. My guess is that they have done some very savvy hedge fund investment to get those returns. There can always be a downturn in the market, but the best financial advisors out there that I am aware of will take this kind of growth and widely diversify it beyond the stock market and into everything from municipal bonds to international real estate holdings, especially given the size of the investment corpus. I doubt very much that the Harvard corpus would decline to that degree in the same amount of time, BUT it is a very volatile market out there right now to be sure. I don’t think my 65% number is very far off for specifically what I’m calling mid-level state colleges (a totally arbitrary category of my own invention). I’m thinking of schools that are academically very solid state universities, but lower profile when compared to the elite schools. These kinds of universities serve primarily in-state students from within 150 miles of the campus (or so). Often these universities have very low tuition rates compared to the elite school market. That’s why these are, in my opinion, the very best candidates.
Here’s an example: let’s take the University of South Florida. For the record, I have no ties of any kind to USF. I chose them simply by Googling “best value state colleges”. According to USNews.com they have approximately 35,000 undergraduates and the annual in state tuition for a student is $3340. (http://colleges.usnews.rankingsandreviews.com/usnews/edu/college/directory/brief/drglance_1537_brief.php) Compare that to the Princeton annual tuition of $33,000 (http://www.princeton.edu/main/news/archive/S16/93/18C15/index.xml?section=newsreleases).
They are, of course, already getting state subsidies that allow them to keep the tuition low—but that’s why state schools are a good lens for this kind of paradigm. Just doing the math, 35,000 students at $3340 each comes to $116,900,000 of revenue. That same amount of revenue could be provided by an endowment of $2.338 billion dollars paying 5% of corpus back into the university annually. The current USF endowment is just under $330,000,000, again according to the USNews.com page above.
This idea of tuition-free universities is a very do-able proposition WITHOUT new government funding. But it requires a deep passion to make education accessible to the lower economic quartiles of high school students. And handled properly, it could make a strong, quality university education (such as a student would I’m sure receive at USF) as accessible as a high school education—at least in theory. Would that degree have the same cache as a degree from Harvard or Princeton? No. But I’m not talking about the kind of students that would end up at Harvard or Princeton. I’m talking about those students that end up as 30 year veteran middle school teachers, and EMTs, and small business owners (and the like)—the nameless heroes that are the backbone of smaller communities all over America. They’re not the kind of people who end up as hedge fund managers on Wall Street or teaching Egyptology at the University of Chicago. Not that there is anything wrong with elite or exotic professions—I’m just saying that there are different markets of students out there.
On the last point about restricted funds, again good point. Even annual funds are struggling these days to get unrestricted dollars. However, restricted does not mean not-for-scholarships. Someone may endow a scholarship for a student majoring in history with a high school GPA above 2.5 and SAT scores above 1000. That is a restricted fund, but a scholarship none the less.
All this, ironically, is not really an argument for elite, private universities. They serve a different market of students. But this example at Harvard shows that, in fact, it is possible to talk about tuition-free state university educations. It IS possible. But it will require the vision to really offer it in those settings where it is most appropriate instead of taking new revenue and using it to simply try to become more like Harvard. Harvard and Princeton (and others) are obviously very good schools. But, frankly, so is the University of South Florida. However they serve very different groups of students.
In the end, though, the idea of all 50 states having a place where students think of getting a four-year degree to be something as accessible as a high school diploma—well that just makes my heart beat fast. And that’s the kind of dream worth sacrificing for, in my opinion.
— John Sherk · Jan 28, 12:44 PM · #
I hope you guys are actively working in the field of education reform. It certainly could use your kind of vision and creativity!
— Janet · Jan 28, 01:23 PM · #