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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."
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