Tuesday, November 21, 2006

When The Alma Mater Asks For Money

A Director for alumni affairs recently contacted me to find out if I'd like to give the alma mater some money. I told him that I was screwed by the University during my studies, because I started out with a full scholarship and ended up dropping out on financial probation because they raised the tuition without raising my aid. Here is what he said to me:

Director: I appreciate your candid feedback during our meeting on October 20th, as this information is necessary for us to hear. It allows us to be responsive to alumni and current students alike, so thank you.

I am, therefore, following up on our conversation about the university. Specifically, I have information for you regarding scholarship policies here at the university, as you mentioned that as a concern of yours because of your experiences as a student. Hopefully, the information I am providing to you will ease some of your concerns regarding your hesitation to support the University....

I contacted [the] Dean of Admissions and Financial Aid for the College. I described your experiences regarding your scholarship to [him] and inquired as to whether your experience would happen today. In addition to getting a detailed response to your concern, which is below, [he] has offered to speak to you directly should you want to do that.

Hopefully, our response will be sufficient, and that you will consider providing scholarship support to the university that can help worthy students. I would welcome the opportunity to discuss this with you in greater detail should you have interest.

In the meantime, here is [his] response. Kindly let me know if this information fully answers your questions. Also, if you want to speak with [him], I can help arrange that, too.

I look forward to hearing from you.

Best wishes,


The Dean's response:

I’m happy to take G-man’s call. I was a junior in college in 1984, and not at [the university], so I can’t speak too much about policies here at that time. However, I was working 40 hours a week and earning scholarships, so I can relate to his experience.

Things have improved. The standard practices and programs for aid have shifted a lot in the past 20+ years. The lingo has shifted a little. A student entering here who receives a “scholarship” understands that it is based on his achievements in high school, and that he will never see that scholarship reduced or increased while he’s here (except in the very rare case of flunking out).

On the other hand “grants,” which we award based on information we have about a family’s income, can in theory go up or down. In practice, they don’t change much because the family’s income doesn’t change much—wages and other earnings increase at about the same rate as college costs. So in any given year, about 70% of student grants stay roughly the same, about 25% go up enough to notice, and about 5% go down.

Those 5% usually understand exactly why this is happening. In today’s aid world, the only way a student’s grant decreases is if the family’s income increases faster than inflation, or if the number of children in the family attending college decreases. As a rule of thumb, we typically have to pick less than 20% of the new pocket money, so for a student’s grant to be reduced by $1,000 would generally require that the family’s income had increased by more than $5,000 after taxes. This scenario can happen: people get big raises sometimes, or a spouse may start earning (more) income because the child has left, or sometimes one parent cashes out a retirement option. But most people experiencing a sharp increase in income are aware that some of this new money is now considered available for spending on college. A more dramatic drop in eligibility and grant money can occur if there were two students in college during one year, but during the next year the sibling graduates or leaves school. In that case, we might typically ask for 2/3 of the money the family was formerly spending on the other college student. It works in reverse: if a younger sibling enters college, the continuing student’s eligibility increases by quite a bit.

Speaking of leaving as in G-man’s experience, it’s uncommon these days for students to drop out of private universities, earn money and return for future semesters. When students see financial trouble coming (usually because sometimes parents don’t want to pay as much as they can afford), they most often borrow more in order to finish on time. They expect to pay back their larger loans with their higher post-college earnings, and if they graduate from [the university], that works: our loan default rate here is among the lowest in the nation…less than 1%, or about seven graduates per year.

That’s not to say the concept of working your way through school has died. 2/3 of our students work, and more than 1/3 of upperclassmen work 20+ hours/week. About 3-4% work full time during the school year to pay a large share of their way through college, and many more will work overtime in summer. But dropping out and coming back isn’t a common plan, because the salary differential has increased in the last 20 years. There are on average far fewer high-paying jobs for people without a bachelor’s degree, so dropping out for one, and re-starting the countdown toward post-degree earnings, seldom makes financial sense. I recall that in 1984 in Los Angeles, I found jobs that paid $10 an hour, and that felt like good money to help pay my college bills. The problem now is, the jobs non-graduates can get may still pay only $10/hour…and often even less. Meanwhile both tuition and bachelor’s degree earnings have more than doubled.