college Archives - Bankers Anonymous

June 14, 2023June 14, 2023

Higher Education Philanthropy Priorities

April’s big higher education philanthropy news left me grumpy. I mean, yes, it’s nice that financier Ken Griffin has pledged a gift of $300 million to Harvard University. In exchange Harvard will rename its Graduate School the “Kenneth C. Griffin Graduate School of Arts and Sciences.” Higher education is good, philanthropy is good, and Harvard is good. It should be all good.

Still, here’s why I’m grumpy. Harvard is the least worthy use of hundreds of millions of philanthropic education dollars I can possibly think of. They need it the least.

Among universities, Harvard already boasts the largest endowment of any university. With $50 billion under management, cynics (like me) have long quipped that Harvard is a world-class hedge fund with a fine educational institution attached to it.

Harvard does not really elevate learning in our larger society, except in the most extreme trickle-down kind of way. The profile of a student actually boosted by Griffin’s donation is extremely narrowly selected. A $300 million gift seems like a bizarre over-allocation of resources to people for whom resources are truly not scarce.

Among 4-year colleges, Harvard is already quite generous with families of demonstrated financial need. But these students admitted from low socioeconomic strata are extremely few. The path into Harvard is so narrow that only rarely does a student from a lower-income family gain admittance. Second, these narrowly selected students – rich, poor, or middle class – probably would thrive wherever they went. Third, most of Harvard is made up of students from relatively privileged backgrounds, making the institution far less impactful on society as a whole, when considering it as a recipient of philanthropy.

Griffin giving $300 million to Harvard helps an organization that doesn’t need it, which in turn serves mostly students who largely don’t need it, or students who would succeed without it.

What Ken Griffin mostly bought for his $300 million was naming-rights as a monument to himself in perpetuity, burnishing his own reputation as a “success,” via brand-affiliation with Harvard. A personal monument and a name brand. It’s Griffin’s money and he gets to prioritize what he wants. But the gift just struck me as the worst kind of higher-education philanthropy.

Meanwhile, the contrast with the very best in higher education philanthropy is very stark.

In the midst of the pandemic in 2020 and 2021 MacKenzie Scott – author, philanthropist and via divorce from Jeff Bezos a 4 percent owner of Amazon – set a new and better standard for higher education philanthropy. Scott’s lessons were ones that Griffin either didn’t notice or chose to not learn.

She gave billions in total to organizations vetted for accomplishing great work but that suffer from insufficient resources. The opposite of Harvard in terms of need. She gave to hundreds of organizations that actually needed the money.

She thoughtfully targeted institutions – like Big Brother Big Sister, or community colleges, that serve a broad and inclusive swath of people who themselves had insufficient resources. Again, the opposite of Harvard. People who actually needed the support.

Because social and economic class is self-reinforcing (in contrast to our national myth of social mobility) higher status and more selective higher education institutions matriculate students from higher income families, on average. Also, higher status and more selective institutions generally cost more. As a result, if you want to help social mobility through increasing educational opportunity, the place to focus is regional and community colleges. So that’s what Scott did. That’s where the transformation in people’s lives and in society is likely to take place.

At Harvard, less than 12 percent of students come from the bottom 40 percent of households by income. A larger cohort at Harvard, 15 percent of students, come from the top 1 percent of households by income. All of this is according to research done by Harvard’s own Raj Chetty and a team of economists.

At UT Austin, 15 percent of students come from the bottom 40 percent of households by income. Which itself is a result of its highly selective status. At UT San Antonio, 26 percent of students come from the bottom 40 percent of households by income.

In Bexar County’s Alamo Colleges, 43 percent of students come from the bottom 40 percent of households by income. So that’s where Scott gave. Where the students with the most financial need are actually studying.

The socioeconomic origin of families of students is just one measure – but an important one – of the role higher education does, or does not play, in creating pathways to social mobility.

For all of Harvard’s successes in championing lower socioeconomic access to higher education – a pitch made with just about every alumni solicitation for donations that it sends out – a much more effective way to support this cause would be to donate to higher education institutions that truly serve middle and lower-income families. Like community colleges, or public universities that serve a region or state.

In San Antonio, Scott gave $20 million to San Antonio College, and $15 million to Palo Alto College, both part of the Alamo Colleges District.

Dr. Mike Flores, Chancellor of the Alamo Colleges District, admires Scott’s philosophy of giving to under-resourced communities. Further, Scott allows the recipient institutions full discretion in how to best spend her gifts.

Scott’s donations went into programs such as $4 million to support students in high-demand degrees in tech or nursing that will likely transform their lifetime economic prospects for the better. $5 million went toward the $75 million endowment for AlamoPROMISE, which provides scholarships to make an Associates degree affordable for most area high school students.

I think what MacKenzie Scott got for her $25 million to Alamo Colleges was life-transforming social mobility among people who need it most. And they didn’t name anything after her. She doesn’t really get bragging rights through brand affiliation with a community college. Instead she just gets to make a difference.

A huge priority for Alamo Colleges is to make sure any area high school graduate can get free or greatly subsidized tuition, with wrap-around services, on the way to getting an Associates degree, what Dr. Flores deems the “moonshot” program known as AlamoPROMISE.

Dr. Flores, when asked how he thinks about transformational gifts in higher education, “Just imagine, an $80 million dollar gift could guarantee graduating high school seniors access to AlamoPROMISE in perpetuity for Bexar County graduates for decades.”

Scott didn’t build a monument to herself when she gave her gifts, but she demonstrated a far better philanthropic model than the old one Griffin followed this month.

Harvard is not a bad institution. It represents greatness in many fields and is a cool place for a fortunate few. As a destination for philanthropic dollars, I just would personally place it last on my list.

Disclosure: In 2022 I offered consulting services – online personal finance lessons – for employees of the Alamo Colleges District.

A version of this ran in the San Antonio Express News and the Houston Chronicle

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November 19, 2016November 19, 2016

College Finance – A Response

Editor’s Note: The History Teacher sent his eldest daughter off to a private four-year college this Fall, so read my posts on college finance with particular interest, and decided to respond. As you can read, his views on their choices are also influenced by the recent election.

Dear Michael:

These thoughts were prompted by your recent blog post on College Finance Prep. I have been thinking about it ever since, because I did not take your mother’s advice for my daughter. It was a hard decision, as her advice is usually the kind I (as a former teacher and advisor) would give to parents and students: save your money, go to a Community College, then a public college.

Indeed, that is exactly what I did and it turned out just fine. However, recent studies of the impact of globalization and technology on future employment trends have given me cause for concern about the benefits of an education similar to mine. To be honest, I don’t think I would be particularly employable in this new environment. I had always hoped that my daughters would be prepared, but a video on Artificial Intelligence and an article on college education caused me to change my mind about how best ready my daughters for the future. The video predicts the growing importance of Artificial Intelligence and explains how we are close to having AIs do many of the jobs that professionals do today in journalism, law, and medicine. Those with typical college degrees, like mine, would not be employable or particularly valued in such an AI dominated world.

The second is a newspaper report on a study of critical thinking and university education that found:

“Forty-five percent of students made no significant improvement in their critical thinking, reasoning or writing skills during the first two years of college, according to the study. After four years, 36 percent showed no significant gains in these so-called “higher order” thinking skills.”

I vividly recall an HR executive at a tech company, lamenting to me the lack of critical thinking ability of many of her recent hires – from the local public university – who only knew how to solve problems by going through check lists. If the solution was not on the list, they could not solve the problem.

Without developing critical thinking skills, I fear that my daughter would lead an unreflective and unfulfilling life. In addition, she would not be able to compete with AIs and she would fall through the social and economic cracks of the AI-dominated future. Thus, after much consideration with my wife, we decided to sacrifice a great deal to financially support our daughter through a very expensive, private liberal arts college.

We had three reasons for doing so and one of them already seems to be paying off in her freshman year. The most important is the quality of the teaching she is receiving. She is taking interesting classes (not your usual Introductory courses), working really hard, and stretching her knowledge, her critical thinking skills and exercising her creativity. There is a great deal of interaction with the professors and other students as the classes are small. I am most pleased that she is developing skills of social and human collaboration. She is learning and maturing considerably. This compares favorably to her former high school classmates who are in freshman classes of 500 or more at a nearby public university.

The second is her ability to make useful connections with her professors (who can recommend her to grad schools) and her upwardly mobile classmates (who might help her in the future with employment). We shall have to wait and see if this has any long term benefit.

Finally, there exists a cachet of being at a top ranked college which might help her with both grad school applications and with employment. Am I wrong here? From your personal experience, has your Harvard education helped you in this regard?[1] I think it is probably the least important reason, but it is still a factor.

I do not mean to argue that all public institutions do not provide critical thinking skills or that only private liberal arts institutions do, but that students need to select their college choices with this in mind. Thus, if they can find a public university with an honors program and/or whose classes emphasize reading and writing critical essays and research papers, they should take up the opportunity and challenge. According to Dr. Aram: “Students who took courses heavy on both reading (more than 40 pages a week) and writing (more than 20 pages in a semester) showed higher rates of learning.” This should be a minimum standard for an expensive private university. The key is for students and parents to be informed consumers.

Editor: And now, some further thoughts from The History Teacher, prompted by the election results:

I am writing this sitting in front of my computer still stunned at the election results and listening to Gregorian Chants (they suit the raining weather and my mood). Indeed, I woke up this morning dreaming about a war with Iran.

I feel like one of the “good Germans” who were Social Democrats or Volks Partie and voted against but then could only just watch in horror. Well, as Marx wrote about Napoleon III, to paraphrase, everything in history happens twice, the first time it is a tragedy, the second it is a farce. I tried to escape by reading PG Wodehouse and delving into the past (those sensible Plantagenets.)

I feel too drained to have any emotion at this stage. This feeling is family wide, except for the dog: Mary and my daughters are very depressed. We are all in mourning. Anna cried and Cecilia[2] said that she and her friends at Middlebury are walking around with vacant expressions on their faces. I have stopped watching the TV and reading the papers for the nonce: just too masochistic.

Forced to my own resources, I am trying to make sense of it all. To me, it boils down to education or the lack thereof (surprise, me being a teacher). Trump supporters with their racism, misogyny, and grievances are the product of a refusal to recognize reality (France constructing the Maginot Line—remember?) and a lack of critical thinking skills. They have learned how to memorize and use check lists to solve problems, but not to analyze. As a consequence, the modern economy with its emphasis on technology, globalization, and the absolute requirement of the ability to work with diverse teams are leaving them behind. Trump might as well try to stop the tide as to stop this process.

It is going to get worse as Artificial Intelligence becomes more and more utilized. The latter will threaten the livelihoods of the college educated, particularly those who did not develop critical thinking skills.

[1] Banker’s Response: I didn’t enjoy Harvard at all but I’ll admit it’s been totally useful as a door-opening brand.

[2] We made up these names to maintain the fun of anonymity!

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March 11, 2014March 11, 2014

Interview Part II: Advisor on Whether College Is Broken

Podcast: Play in new window | Download

This is Part II of an interview with Julie, a College Advisor, who talks about whether the old 4-year college model even makes sense.

Please also see related posts:

Interview Part I – The Rising Cost of College

And College Savings and Compound Interest

Michael: Hi, my name is Mike and I used to be a hedge-fund manager.

Julie: I’m Julie. I am a college advisor for over 25 years.

Michael: Does college as traditionally understood – a four-year institution – make sense anymore? The clear alternatives are:

1. Community college for a few years and then enroll and do the final years for your terminal degree

2. Or online learning

3. Returning to more vocational learning.

Julie: I think all three of those have to be much more heavily explored. The only predictor of graduation from college now is family income. Scores, or grades, do not predict graduation from college, only family income. This is not the meritocracy that we like to think we have. It’s really sad that that’s the case. I would like to see, instead of more and more beautiful and elaborate live-away-from-home paradises at higher and higher costs, with many many more administrators, I would like to see some change along those lines, those three that you mentioned, and see if we can get back to some sort of reality.

WHAT DOES COLLEGE REALLY GIVE US?

Michael: In your opinion, what does college at this point really give you that can’t be otherwise obtained online or with more vocational training? Is there something that you just can’t get or are we just not exploring deeply enough what you can get? I’m interested historically, 50 years ago versus today but also just today and for the next 30 years; do we just have the wrong model or is there something intrinsically essential to the traditional four-year college model that you really can’t reproduce in any other way?

Julie: I would find it hard to know what that is. I think the kind of education that my students get in high school is I think life changing and it’s a very intense experience intellectually as well as in terms of the skills. The whole myth of the “college experience”: living away from home probably for the first time, it seems to be very heavily involved in alcohol consumption.

I’m not saying this is new but I just don’t know that it’s absolutely necessary. I also think that many students are not getting an exciting intellectual experience. They’re in big lecture halls, if they even go to the lecture. Class participation is based on pushing a clicker to show you’ve been there. Is that really going to get them much, change them in some fundamental way for the better? I’m not convinced. I think we really need to rethink a lot.

Michael: It’s pretty grim sometimes when I think about it. College at the elite level seems to be somewhat about training the mind a little bit; a lot about cultural capital you acquire through friendship networks and broadening your horizons. Whatever small community you came from suddenly is expanded. Then in a large sense it seems to be market signaling to potential employers and potential mates and potential colleagues; that I’m a person of your group, as shown by my degree from that institution you’ve heard of. That seems to be a lot of value, like buying a brand. It’s not the value we admit that it has, which is supposed to be “I got a great education.” But it seems that’s a very small part of it.

Julie: Granted, it’s certainly what a lot of my families want and what I got and you got. But that’s just a very small number of people in this country that are going to end up with that little extra branding.

IS A PRIVATE COLLEGE AT $50,000 A Year A GOOD DEAL?

Michael: Outside of the market signaling and cultural capital you acquire at an elite place, what are you getting for something below that, but you’re still paying pretty much full freight at $50,000 a year? Is that a good deal?

Julie: I think it’s okay if you have a lot of money and you want to spend it. But I don’t think it’s a great deal. It’s hard for me to think there are places where you should spend 50,000 dollars instead of 25,000 dollars. Now, granted, a great many people are going to get financial aid and decent merit aid, so for the majority of people it isn’t a question of 24,000 versus 55,000. There’s going to be a narrower gap. But for you who just went online and found out that you’re supposed to come up with the first 50,000, you could go to the University of Texas for probably 20,000. What would make you think that you’d want to mortgage your life and your child’s life to spend the extra $30,000 per year?

Michael: It’s got be very worthwhile.

Julie: Yeah and I’m not sure that anyone is offering that big a difference, even if we compared top status with University of Texas status. That’s a lot of difference, unless you really are rich.

TEXAS GOVERNOR RICK PERRY PUSHES A $10,000 COLLEGE DEGREE

Michael: One of the agendas of Texas Governor Rick Perry, interestingly enough, is instituting the 10,000 dollar a year undergraduate education,[1] which is so far mostly talked about rather than implemented. It’s not available yet, I don’t think.[2] But it’s seemingly a big agenda of his. It seems to be something we would applaud and you would think this is technologically available and totally necessary. If you could get the learning part of it not to be out of reach at 10,000 dollars a year, it would be harder to acquire the cultural capital of living together but as you said; much of that may be beer-based.

Julie: I am a big believer that many, many things about education require some group activity with a teacher. But that doesn’t have to be – and I don’t really see a great deal of value in – the 250 people in the lecture hall being lectured to by the professor. I cannot see why a lot of stuff couldn’t be done online. And of course a lot of the students know it’s online and they don’t go to the big lecture. And then save the money for the small encounters with the other students and the teacher. Which would then we hope some of that would really be meaningful.

Michael: If Rick Perry was really able to institute the 10,000 dollar undergraduate education in Texas, that would be pretty transformative. I think people would pay attention. It seems the market for undergraduate education is ripe for a disruptive innovation there. I think it’s a bubble, and if interest rates change, that bubble could burst and these not-quite -top-tier colleges could be in deep trouble trying to justify – why are you charging $50,000 when this other group has figured out how to provide essentially the same product for $10,000? It would be interesting to see. It’s a neat idea of an experiment. It seems like the industry is ripe for disruption that way.

rick-perry_yell_leader — TX Gov Rick Perry as an undergrad. Could he disrupt the college education industry?

EUROPEAN AND ASIAN UNIVERSITIES ARE DIFFERENT

Julie: I would be very interested. Keep in mind that in Europe and Asia, developed countries, there is no great tradition that the majority of students go off and live in a dorm for four years. That’s a luxury item that we’ve invented. That’s not to say people aren’t doing that, some people, but it’s much more common that you go to university in your area, your town.

Michael: Living at home, saving that money, and spending only on tuition.

Julie: Yeah, and some great universities have operated that way in Germany, France, and elsewhere. I would like to see much more emphasis on how can you have your big lectures done for less, and if it has to be electronically that’s okay with me, and then how can you have some meaningful student involvement with their peers and teacher in a way that really works. A section of 40 people, that doesn’t work. I’m now ready for a lot of experimentation.

I’ve loved being educated. I love working in the school. I’m definitely not one to feel people don’t need more education but we really need to be thinking of some different models. We need to be thinking of lifetime learning. We need to think about whether our government policies need to be directing and encouraging students to certain kinds of careers as opposed to others.

We have no national policy that pushes some of the education we know we need to push, such as engineering, science, math. Other countries have maybe too rigid a policy. Ireland has decided it’s going to come back from its financial debacle by having the government be very involved in what it’s going to support in terms of education. That’s what is going to put them back on their feet. Maybe that’s a model that would be way too coercive for us. But is it really a good idea that we have no national policy that I can discern?

Michael: They’re going to determine how many engineers per year, how many dentists per year, that kind of thing?

Julie: They’re certainly going to put their money where they think the economy should be going. We’re not doing that.

Please also see related posts:

Interview Part I – The Rising Cost of College

And College Savings and Compound Interest

And College Savings vs. Retirement Savings

[1] I had this wrong in the interview – Its actually $10,000 total, a much more ambitious target. Here’s some more information on the plan. The Austin-American Statesman says the target is sort-of, kind of, reachable.

[2] Actually – My information in this interview was not correct. It is available. But it’s not very widespread yet. The program requires a student to accumulate many college ‘credit hours’ during high school, it may rely heavily on online learning, and the $10,000 all-in cost usually does not include books.

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March 10, 2014March 11, 2014

Interview Part I: Advisor on the Rising Cost of College

Podcast: Play in new window | Download

In this interview, Julie – a college advisor, offers her perspective on the rising cost of college, which has become financially unfeasible for most middle class families in the last 25 years.

Please see related post on Compound Interest and College Savings

THE INTERVIEW:

Michael: Hi, my name is Mike and I used to be a hedge-fund manager.

Julie: I’m Julie. I am a college advisor for over 25 years.

Michael: I’m interested in the perspective of a private college school college guidance counselor. But understanding that for many or the majority of people, they are not in private school, so your financial picture will be a particular slice of American life. In your experience have parents typically prepared for the cost of college by the time the student is getting to their junior year, or are they taken by surprise?

Julie: Actually my parents are not particularly rich. We’re not in a very affluent area and so a lot of my students have financial aid at our school, even though we’re only a day school and don’t have a very high tuition.

Most parents, however, have not been able to prepare for college because if they are thinking in terms of a private college in the northeast where we live, the cost now is 55,000 dollars or as much as 60,000 dollars. It’s very hard to save that money, even if you start the day the child was born. That’s a very hard thing to prepare for.

CALCULATING BORROWING NEEDS FOR COLLEGE

Michael: I went to the College Board site that you pointed out to me, and inputted some of my information. Indeed, although we don’t feel like we have a lot left over at the end of any month or year, it’s a 49,000 dollar estimated obligation according to the College Board, for a typical four-year college. It’s kind of a scary experience to put in your numbers and think I’m not wealthy; I’m just kind of ordinary getting by here, and yet the institutions are basically saying “thanks for your numbers; you’re going to pay-“

Julie: 200,000 dollars at least for college. You’re the banker. How much would someone have to be saving every day, every year, from the day a child is born to have 200,000 dollars by the time the child was 18? Even if they got 8% return, which they’re not getting anymore, how much would they have to be saving every year?[1]

Basically I will mention to people you’ve got to run these numbers and that was junior year I brought it up. But they [the parents] don’t want to run them because they don’t want to know. So senior year rolls around and they may not have even run the numbers. Then I can’t give very good advice because if they have 200,000 in the bank or they have a very high income which means they could scrape up 50,000 a year, after taxes, that’s one thing. But that’s not the majority of people.

If they’re not going to get very much in financial aid, they really need to be thinking what is a lower cost college, what could I have instead. That’s going to have to be either a state university, possibly a Canadian university. Maybe they could go overseas, but they can’t go to a private college in the northeast.

Michael: Among the private school families then that you’re dealing with, what percentage of parents or kids or the combination are willing to forego the high cost, presumably higher status college to go for the lower-cost approach? What percentage of your 25-30 students are actually making that choice at the end of the senior year?

URGING AGAINST TOO MUCH DEBT

Julie: That’s a good question. Last year I had a lot of students who at my urging were trying to avoid high debt. The problem is that you can get into a college that costs 55,000. Your parents can maybe come up with some money, and then the college might even give you 15,000 or 20,000 but there could then be this gap between what you can squeeze out from the home income and the small amount of financial aid you’re eligible for. That gap can be easily filled by borrowing by the student. The colleges will help arrange for the kid to borrow 15,000 or 20,000 dollars. I don’t want them to do that.

Michael: To what extent are those families who are choosing to fill the gap with 25,000 dollars of a student-loan debt, in your opinion are they fully understanding the implications of the debt or are they saying there’s nothing more important than a college education for my child so I’m doing it, or do you think they’re closing their eyes and doing what we would in another context say it’s really irresponsible to run up 25,000 dollars of credit-card debt? Yet they’re doing it in another form through student-loan debt because student-loan debt is considered good debt. Are your families walking into this with their eyes open?

Julie: Recently, I think a lot of them have taken my advice, which is they don’t want to do that. They’ll choose the option that has the lowest debt. But that will still be at least 5,000 dollars for the student. If you can get into Harvard, maybe it’ll be less. Wellesley – that’s pretty good financial aid. There are a few places that are so rich they really give significantly better financial aid than every place else. But most students are facing at least, if the parents don’t have the full amount, at least $5,000 a year in debt.

Michael: Which is $20,000 at the end of four years.

Julie: Right, but most of the packages will be closer to $12,000 to $15,000 per year.

HISTORICAL COMPARISON

Michael: So you’re getting up to $45,000 dollars worth of debt or $60,000 dollars worth of debt for a 22-year old. What is the historical comparison? Have you been doing this for close to 30 years, what was it like 30 years ago?

Julie: The problem is my children went to college 20-30 years ago. It was expensive but it was manageable. But in the last 25 years, the rate of increase of the cost of college has been astronomically much higher than the regular cost of living increase. You have 2-3% cost of living increase and you’ve got 7-8% every year compounding in the cost of college. The numbers now simply don’t work. What was a sacrifice for people 20-30 years ago is now simply an impossibility without tremendous debt. Of course, the starting, average salary for a college graduate has actually in real dollars declined over the last 20 years. It’s a pretty scary situation.

IS THE COST OF COLLEGE A BUBBLE?

Michael: In financial terms there seems to be an analogy between, say, the housing bubble that we experienced from 1998 to 2008 in which that asset price – housing price – went up by 10-15% per year, year-over-year, and yet peoples’ incomes didn’t increase to that extent. If the nominal rate of inflation is 2%, and the price of college is going up 7% year-over-year for 10-15 years, it does seem to be an unsustainable sort of asset-price bubble, analogous to the housing market.

Julie: What you have are the most expensive, elite colleges, are heavily populated by very affluent people, even though a place like Harvard or Princeton will give tremendous financial aid; they still have 75% of their applicants, are pretty well off.

Michael: One of the thoughts I had in your discussion of the asset-price bubble of college tuition, if indeed that’s what it is, is the relationship between the cost of debt which got very low – the cost of mortgages, mortgage rates were very low while asset prices were going up. At the same time analogously the student loan debt is extremely cheap from an interest rate perspective, which kind of helps subsidize the extraordinary principal amounts of student-loan debt. If it’s at 3.5% you can carry 50,000 dollars, whereas if it was at 8% or 10%, where it might have been 30 years ago in the ’80s, you can’t really carry 50,000 dollars worth of debt as easily.

But it’ll be interesting, as it is real estate reacts very quickly to changes in interest rates, if interest rates go up, real estate prices typically drop quickly. It’ll be interesting and unpleasant presumably for universities, if interest rates go up and suddenly people can’t really carry 50,000 dollars of what was previously 3% debt, then becomes 7% debt. There has to be a reaction to that, although the government is heavily involved in the student-loan market, keeping it low.

Julie: There’s no question that if the government had not been subsidizing these loans and making them so easy to get, that we’d have a different situation. On the one hand, we’d have even more of a premium on being well off to be able to go to college. On the other hand, colleges might not have been able to increase their costs and prices as they have by 7% and 8%. Because where would the money have come from? A few elite schools are going to be able to price it at almost anything, but I don’t really see how all the small private schools that are not highly regarded are going to be able to keep up this situation.

COLLEGES GET PRETTY MERCENARY

Julie: I’ve had people come to my office who are representing the college, and they’re admissions officers out recruiting. I’ll say what about this student, would this be a likely fit for your college? Would she fit the profile for admission? If I mention the person is a full pay, they’ll say “Yeah yeah, full pay, I think they’ll probably get in.”

Michael: That’s pretty mercenary.

Julie: It’s pretty bad. But they’re just being truthful. That’s now almost your best bet for admission, not at the most competitive school, but at many, many, being a full pay is going to be very useful to you. And if you’re a full pay at any college other than the most elite, you’re likely to get a discount. For a college that charges $55,000 and you’re basically a full pay, they’ll discount it by $10,000 or even $15,000 because they’d rather get someone who’s paying $40,000 than have to subsidize someone who can only pay $10,000 or $20,000. That’s what the whole merit aid system is; it’s a subsidy for the people who are basically full pay but might come to your school, your college if they’ll discount the tuition. Outside the elite colleges, all schools are giving merit aid, discounting the price. The discount is bigger for students with high scores and good grades.

The sticker price is not true for a decent student but it’s still too high. You’ve read in the New York Times there are middle-class families whose children are going to community college for a year or two, and then if you have to borrow $15,000 or $20,000 a year for the last two years, that’s not so bad. That’s certainly a strategy I recommend.

Michael: Is there any good news? What kind of students get financial aid or merit aid or sport scholarships or international students? What do colleges actually pay for, anything happy?

Julie: Anything happy? They’re trying. The colleges aren’t trying to rip people off. But they have for some reason felt that their college needed to be spending money and raising their price by 7% or 8% when inflation wasn’t anywhere near there. That’s where I’m critical of the colleges. I’m critical of this huge change in how many teachers there are. There isn’t a huge change. But how many administrators there are, there’s a huge change. Why is that? What became so hard to manage?

Michael: The mean version would be the students need to have their coddled lives, but maybe I just sound like an old person resenting those college students having a good time.

Julie: I don’t think it’s probably related to the kids as much as bureaucracy tends to grow. That’s just the way it is. And if the money is there – or seemed to be there – because it was easy to borrow it, for the students, where would be the incentive for them to lower prices, never mind hold the line?

Please see related posts:

Interview with College Counselor Part II – Is the college financial model broken?

College Savings and Compound interest

College savings vs. Retirement savings

[1] I recommend readers turn to this post, in which I discuss the amount of money we might need to save to have enough. Also, I recommend inputting your own numbers into the College Board’s calculator, to figure out scenarios for you and your family.

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