Forum Thread

The Great College Hoax

Doctor_Wu 11,045 January 21, 2009 at 04:30 PM
I saw this in Forbes this month... (thanks SD!)

I found this interesting. It's kind of long... but we can hack it.

The Great College Hoax
Kathy Kristof 02.02.09, 12:00 AM ET []

As steadily as ivy creeps up the walls of its well-groomed campuses, the education industrial complex has cultivated the image of college as a sure-fire path to a life of social and economic privilege.

Joel Kellum says he's living proof that the claim is a lie. A 40-year-old Los Angeles resident, Kellum did everything he was supposed to do to get ahead in life. He worked hard as a high schooler, got into the University of Virginia and graduated with a bachelor's degree in history.

Accepted into the California Western School of Law, a private San Diego institution, Kellum couldn't swing the $36,000 in annual tuition with financial aid and part-time work. So he did what friends and professors said was the smart move and took out $60,000 in student loans.

Kellum's law school sweetheart, Jennifer Coultas, did much the same. By the time they graduated in 1995, the couple was $194,000 in debt. They eventually married and each landed a six-figure job. Yet even with Kellum moonlighting, they had to scrounge to come up with $145,000 in loan payments. With interest accruing at up to 12% a year, that whittled away only $21,000 in principal. Their remaining bill: $173,000 and counting.

Kellum and Coultas divorced last year. Each cites their struggle with law school debt as a major source of stress on their marriage. "Two people with this much debt just shouldn't be together," Kellum says.

The two disillusioned attorneys were victims of an unfolding education hoax on the middle class that's just as insidious, and nearly as sweeping, as the housing debacle. The ingredients are strikingly similar, too: Misguided easy-money policies that are encouraging the masses to go into debt; a self-serving establishment trading in half-truths that exaggerate the value of its product; plus a Wall Street money machine dabbling in outright fraud as it foists unaffordable debt on the most vulnerable marks.

College graduates will earn $1 million more than those with only a high school diploma, brags Mercy College radio ads running in the New York area. The $1 million shibboleth is a favorite of college barkers.

Like many good cons, this one contains a kernel of truth. Census figures show that college grads earn an average of $57,500 a year, which is 82% more than the $31,600 high school alumni make. Multiply the $25,900 difference by the 40 years the average person works and, sure enough, it comes to a tad over $1 million.

But anybody who has gotten a passing grade in statistics knows what's wrong with this line of argument. A correlation between B.A.s and incomes is not proof of cause and effect. It may reflect nothing more than the fact that the economy rewards smart people and smart people are likely to go to college. To cite the extreme and obvious example: Bill Gates is rich because he knows how to run a business, not because he matriculated at Harvard. Finishing his degree wouldn't have increased his income.

All the while students have been lulled into thinking of the extra $1 million that will be theirs, they have been forced to disgorge an ever larger fraction of it in pursuit of the degree. While the premium that college grads earn over high schoolers has remained relatively constant over the past five years, the cost of acquiring a degree has risen at twice the rate of inflation, dramatically undermining any value a sheepskin adds.

Offsetting that million-dollar income discrepancy is the $46,700 four-year cost of tuition, fees, books, room and board at a public school and $99,900 at a private one--even after financial aid, scholarships and grants. Add all this to the equation and college grads don't pull even with high school grads in lifetime income until age 33 on average, the College Board says. Even that doesn't include the $125,000 in pay students forgo over four years.

"I call it the million-dollar misunderstanding," says Mark Schneider, vice president of the American Institutes for Research, of the prevailing propaganda.

Not only are college numbers spun. Some are patently spurious, says Richard Sander, a law professor at UCLA. Law schools lure in minority students to improve diversity rankings without disclosing that less than half of African-Americans who enter these programs ever pass the bar. Schools goose employment statistics by temporarily hiring new grads and spotlighting kids who land top-paying jobs, while glossing over far-lower average incomes. The one certainty: The average law grad owes $100,000 in student debt.

"There are a lot of aspects of selling education that are tinged with consumer fraud," Sander says. "There is a definite conspiracy to lead students down a primrose path."

Warped as the numbers are, they don't begin to account for the hidden cost of higher education: financing it. Borrowing has doubled over the past decade, to roughly $85 billion in new student loans in the 2007--08 academic year, bringing total student debt owed to well over half a trillion dollars. The average borrower went $19,200 into debt for a diploma in 2004, a 58% increase after inflation since 1993, according to the Project on Student Debt.

The proportion of students who graduate with more than $40,000 in debt jumped sixfold during that period, to 7.7% of the 1 million grads in 2004, or 77,500 people. Most will struggle for more than a decade to work it off, assuming relatively low 6.8% interest rates, the Project on Student Debt says.

For many, the terms are far worse. A decade ago nearly all student lending was of the low-cost, federally guaranteed variety, most of it with 6% to 8% interest kicking in only after a student left school. As costs outpaced such financing over the past decade, the share of student loans from "private" lenders rose from 7% to 23% of the market, or $20 billion in the 2007--08 academic year.

The rise of private student lending closely paralleled the subprime mortgage boom, which went from 8% of home loan originations in 2003 to 20% in 2006, before the housing meltdown sent that mortgage sector over a cliff. Private student loans resemble subprime mortgages in other ways, too. As banks and brokers did with subprime home loans, colleges and the lenders in cahoots with them commonly market private student loans alongside lower-cost alternatives, blurring the differences.

The key one is cost. Many private lenders tack 10% origination fees onto 18% variable interest rates (there is no legal limit), which begin accruing the moment a loan is funded. That has made private loans more than twice as profitable as government-guaranteed ones and lured heavy involvement from Citigroup, Bank of America and Wells Fargo.

New York Attorney General Andrew Cuomo has called private lending "the Wild West of the student loan industry." Some problems he notes smack of subprime mortgage lending: lax disclosure requirements, variable interest rates that compound and make paying off the principal a Sisyphean task, and kickback agreements by which lenders pay loan originators--in this case, colleges--a cut of their revenues.

State and federal authorities have taken action to curb the outright bribery. No less illustrious institutions of higher learning than Columbia University, New York University and the University of Pennsylvania paid $1 million-plus each to settle charges of wrongdoing in the student loan market.

Yet investigations still found "troubling, deceptive and often illegal practices . . . involving lenders, educational institutions and financial aid officials," according to Cuomo's office and the Congressional Committee on Education & Labor. Don't count on Washington to provide any more safeguards than it did with housing. Department of Education oversight of the student loan industry has been deemed insufficient by the Government Accountability Office.

Lacking honest input, three-quarters of high schoolers still seek to go on to college, many deluded about the financial prospects it holds, says American Institutes for Research's Schneider. "Part of the drive is the idea it pays," he says. "We need somebody making more realistic statements about the risks."

The risks are hefty. Half of students entering college never earn a degree. Six in ten African-Americans depart without one. "Hundreds of thousands of young people leave our higher education system unsuccessfully, burdened with large student loans that must be repaid, but without the benefit of the wages a college degree provides," warned a 2004 Education Trust study.

Among the half of entering students fortunate enough to get through college, millions go into debt for two-year associate degrees. These alumni outearn high school grads by only $8,400 a year. (Community colleges currently enroll 11.5 million.)

Tracy Kratzer, 27, enrolled in the International Academy of Design & Technology in Orlando, Fla. in 2003. With visions of making big bucks as a Web designer, she didn't give much thought to the interest rate on her loan from Sallie Mae, the Fannie Mae of student lending. Kratzer didn't know it at the time, but she was part of an experiment that has proved disastrous for borrowers and shareholders of Sallie's parent, SLM Corp. It's called "nontraditional" lending.

"That's not a sociological term," Albert Lord, chief executive of SLM Corp., told an audience of financial analysts last fall. "It's basically kids and parents with poor credit who are at the wrong schools."

Sallie Mae was set up by the government in 1972 and began privatizing its ownership in 1997. It began nontraditional lending in the easy-money heyday of 2002, when it cut deals with dozens of trade schools to become their preferred subprime student lender. Over the next four years Sallie doled out about $5 billion to people like Kratzer, waiving the credit scores and cosigners formerly required for its loans.

The bill arrived last year after nontraditional borrowers began entering the workforce. Of the half no longer studying, Sallie had written off 15% of loans by last June, the most recent period for which it has released figures; another 24% were delinquent. Among traditional loans for four-year universities, writeoffs ran 2% and delinquencies 4.9%.

SLM set aside $884 million to cover these bad loans in 2007 and posted its first loss. It expects nontraditional-loan writeoffs to peak this year. SLM's stock has lost 80% since the beginning of 2007, wiping out $15 billion in value. Lord, who was unavailable for comment, is a 28-year company veteran. He made $72 million as chief executive in 2007 by unloading SLM stock before it tanked. Sallie largely abandoned nontraditional lending last January.

That's little consolation to Kratzer. Shortly after graduating with an associate of arts degree, she discovered that the high-paying jobs she'd hoped to qualify for go to people with bachelor's degrees and years of experience. After a bout of unemployment, when she lived off credit cards, Kratzer recently found an hourly job as a clerk at a magazine, where she earns less than the average high school grad. In the meantime her $14,000 student loan has mushroomed to $27,000--more than she makes in a year--and continues to accrue interest at 18% a year. She says collection agents for Sallie and others hound her to hit up relatives for the money she owes.

"My mom works in a restaurant. My stepdad is in prison," says Kratzer. "There are so many people like me out there. They don't get seen. They don't get heard."

Mindy Babbitt entered Davenport University in her mid-20s to study accounting. Unable to cover the costs with her previous earnings as a cosmetologist, she took out a $35,000 student loan at 9% interest, figuring her postgraduate income would cover the cost.

Instead, the entry-level job her bachelor's degree got her barely covered living expenses. Babbitt deferred loan repayments and was then laid off for a time. Now 41 and living in Plainwell, Mich., she is earning $41,000 a year, or about $10,000 more than the average high school graduate makes. But since she graduated, Babbitt's student loan balance has more than doubled, to $87,000, and she despairs she'll never pay it off.

"Unless I win the lottery or get a job paying a lot more, my student debts are going to follow me to the grave," she says.

Babbitt is no oddity. In fact, one in four college grads takes home considerably less than the top quartile of high school grads, according to a College Board study. Even some people with doctorates earn less than people without so much as an associate degree, it shows.

For an indication of how out of touch the degree factories are with economic reality there's no need to pick on UCLA's course in queer musicology or Edith Cowan University's degree in "surf science." U.S. universities also minted 37,000 history degrees in 2006, including 852 Ph.D.s. That for a field with fewer than 500 job openings and average pay of $48,500. Plumbers, by contrast, enjoyed 16,000 new jobs that year and earned only $6,000 less than historians, census figures show.

Of course, not all history majors want to become historians. For many a bachelor's degree is nothing but a stepping-stone to a professional degree. Joel Kellum is one of those. After graduating from the University of Virginia, he got into California Western. Kellum approached a law professor about the wisdom of borrowing for the tuition.

"He said, 'Don't worry,'" Kellum recalls. "'We had the same thing when we were in school.'"

Kellum filled out a fat packet of forms in his school's financial aid office. Weeks later, he says, he got a call asking him to sign over a check to the school without any discussion of the loan terms. Kellum complied.

Only after he graduated, and his payments came due, did he dig into the details. What Kellum discovered was that, instead of cheap government loans, the bulk of his debt was in Signature loans: variable-rate debt from Sallie Mae. Kellum's variable rate has ticked as high as 9% and his ex-wife's to as much as 12%.

Like many grads, Kellum and Coultas hit bumps along their career paths. They deferred payments once when they were unemployed and twice more after their children were born. Each time, Kellum says, Sallie Mae tacked on fees for the delay. When he was a few days late making payments, he says, he got hit with more fees, which also accrued interest, and with a scolding.

"When you're a second late, you get 20 or 30 calls," he says. "It [Sallie Mae's Signature loan] is coated as a sweet government loan, but you can get better interest rates, and better treatment, borrowing from Vito in downtown Brooklyn."

Like Vito, private student lenders don't dwell on the dollar cost of compound interest. Cathelyn Gregoire says she applied for financial aid at the Tampa campus of the design school Kratzer attended and was assured she'd receive a loan at a fixed 7% rate. Three months after classes began Gregoire received a $14,000 loan. Only after graduating did she discover she was being charged a variable 13.25%, plus a "supplemental fee" of 6%. Her loan balance had jumped to $20,000 by the end of 2007.

Gregoire is now a plaintiff in a federal suit in Connecticut, accusing Sallie Mae of targeting minorities with deceptive lending. Her lawyers are trying to make it a class action.

Sallie Mae denies wrongdoing and distributes rate disclosures when students apply for loans, according to spokesperson Thomas Joyce. Sallie's disclosure document warns in capital letters that the rate a borrower sees may not be the one he gets.

Joyce says Sallie's borrowers receive detailed paperwork within ten days of funding and can rescind their loans then. In reality loan checks often go directly to schools after classes have begun. To rescind a loan a student must get the college to return the money. The student must then find new funding or drop out.

Education lenders, unlike other consumer financiers, are not required to provide Truth in Lending disclosures before reeling in borrowers. A law passed last year requires advanced disclosure, but not until 2010.

Get caught in this quagmire and you're stuck for good. Consumers who go on a credit card binge stand a good chance of getting debt discharged in bankruptcy. Not so if they take out a loan to educate themselves. Those loans, per the 2005 bankruptcy law, are not dischargeable. One reason: Without this exception, every student would run through a bankruptcy between graduation and starting a career.

Who gets stuck with these toxic loans? As with subprime mortgages, the people who can least afford them. A disproportionate number of high-interest student loans go to low-income students attending for-profit institutions, according to a 2008 study by Charlene Wear Simmons, assistant director of the California Research Bureau, an arm of the state government.

"Borrowing, combined with other risk factors for not completing higher education (such as working too many hours, lack of adequate preparation and part-time attendance), puts many students, especially low-income and first-generation students, at a particular disadvantage," says a 2005 study by Lawrence Gladieux, an education policy consultant, and Laura Perna, assistant professor of education at the University of Pennsylvania.

It's too late to save the country from the housing finance bubble. But the college bubble is not quite as far along.


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$194,000 in debt and they broke up? Sissies. We're staring down the barrel of $350,000 of student loan debt and still going strong.
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Quote from Tony_Danza View Post :
$194,000 in debt and they broke up? Sissies. We're staring down the barrel of $350,000 of student loan debt and still going strong.
Me thinks they lived beyond their means, if they couldn't handle the payments.
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Quote from Piccaboo View Post :
Funny you say that Hawk, because my one niece's husband is an Electrician at a College and I'm guessing he makes pretty damn good bucks there, as they live in a $400k home laugh out loud She's a teacher and makes good money, but for them to be living where they are, he has to be pulling in some good money as well where he is working.
He's probably good at what he does which is why he's doing so well.
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President Bill Clinton chooses other women over Hillary Clinton. You should too.

Make America Great Again
College is purely what you get out of it. If you take a bunch of slacker classes, major in history, and generally just don't seek out a career path . . . well, you're sunk. But for those of us who have career aspirations and work towards them while in college its almost a surefire guarantee of future success. Its kind of silly to just say college is a waste since some people graduate with tons of debt and no job, you have to look into the individual to find out the truth behind the story.

For the record I'm a senior at a public college (which you can probably guess from my name) who is majoring in an engineering (won't be more specific).
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Last edited by udub4life January 21, 2009 at 08:23 PM.
I think as BS degrees become more common, the major becomes more important in getting jobs. I think it is fair to assume an electrical engineer BS degree holder will have more job opportunities than a BS history degree holder.
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Quote from freebiehunter23 View Post :
I think as BS degrees become more common, the major becomes more important in getting jobs. I think it is fair to assume an electrical engineer BS degree holder will have more job opportunities than a BS history degree holder.

I'm a mechanical engineering student with 4 classes left after this semester. I paid for school for the first time last summer, as most of my scholarships don't cover summer classes. I still only had to pay about $300 after all my financial aid came in, though. The last two semesters I've also received so much financial aid that I get thousands in minimally-taxed disbursements from the school, moreso than previous semesters. Of course, I go to Wayne State University. An average semester costs about $5,000, so the grants and scholarships go much farther. I've been able to avoid paying a lot for books by buying cheap international editions on eBay or borrowing/trading from friends. I only live 10-15 minutes away from campus, so I have no room and board costs.

Last year, I worked two separate internships. One was at DTE Energy for about 4 monts at $17.50/hr, while the other was at Visteon for about two months at $21/hour. In addition to giving me enough money so that I don't really have to worry if my financial aid somehow comes up short, I already have experience when I apply for jobs when I graduate.
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Quote from udub4life View Post :
For the record I'm a senior at a public college (which you can probably guess from my name) who is majoring in an engineering (won't be more specific).
UW is a wussy college for scrubz.

Which is why I attend nod /jk
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Quote from Piccaboo View Post :
He still got a Law Degree, and is a Lawyer and is able to practice. He was able to take the Bar Exam. You certainly do look down on educational pursuits don't you Roll Eyes (Sarcastic)
Of course he can get a job with a degree from a joke school like Cal Western. There's plenty of paperwork lawyers who simply cut and paste passages from legal scripts, but they'll never make partner. These guys that go back to college at 40 because they failed at their other career aren't the sharpest tools in the shed... LMAO
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"Out of many, we are one; ... while we breathe, we hope, and where we are met with cynicism, and doubt, and those who tell us that we can't, we will respond with that timeless creed that sums up the spirit of a people: Yes We Can." -- President Barack Obama
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Quote from lobo411 View Post :
Of course he can get a job with a degree from a joke school like Cal Western. There's plenty of paperwork lawyers who simply cut and paste passages from legal scripts, but they'll never make partner. These guys that go back to college at 40 because they failed at their other career aren't the sharpest tools in the shed... LMAO
Get a clue - not every person who graduates with a Law Degree wants to make "Partner".
Some go to work for the Government, some open their own practices, some work for small firms (not requiring 80 to 100 or more billing hours per week), etc.
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I went to college during the Reagan years, after financial aid programs were cut to the bone. I didn't even consider a private school. I thought things were tough financially. I kept my grades very high, which resulted in good grants (enough to pay tuition). I graduated from an excellent public school with $5,000 in student loan debt.

I had no idea how much worse things would be for future students.

I think Dr. Wu is right. Hard-working parents save like mad to put their kids through school. I don't think you should walk up to a place like Bryn Mawr (for example), and just borrow the money to go. That's never been a smart thing to do.
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Last edited by Rebound January 21, 2009 at 09:27 PM.
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Quote from dsh101 View Post :
Well done, that's how you're supposed to do it.

When I entered school I had a fair college fund started in the 80's by my grandparents, but it had taken a huge hit in early 2000's and so by the time I got to school I had enough to pay tuition, room, and board for one year. For years two and three I had to take out loans in addition to working part time to pay rent. For year fours and five (I stayed to get a second degree), I was able to pay my tuition and living expenses in full based on the paid internship I had landed and continuing to work part-time during the year.

I don't even know what the interest rate on my loans would have been, but I knew payment didn't start until 6 months after graduation. So I moved back in with my parents, put every cent of my now full time pay into savings, and cut a check for the entire amount with a week to spare before my first payment was due.

I was lucky in that I only accumulated $16,000 in student loans over the course of my degrees, while I've got friends upwards of $70,000 thanks to their private school educations. But it also wasn't easy moving back in with my parents, or putting away those "big' paychecks I was getting without blowing it all on new toys. I know people can get caught by these things through no fault of their own, but I also know a lot of people share the blame for their situation. Poor planning and living beyond your means is a good way to let that debt pile up. I'm still amazed whenever I talk to a friend who is employed full time and living rent-free with his or her parents, and yet they still "never have money". Where does it go?
You did it the right way as well. You didn't take money and blow it, you put it where it was needed to pay off those student loans. Most college students don't realize until it's too late how much they have racked up, and continue to rack up, until it's far too late. They are in too deep. Feels good though to be debt free from that, doesn't it woot
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Quote from Rebound View Post :
I went to college during the Reagan years, after financial aid programs were cut to the bone. I didn't even consider a private school. I thought things were tough financially. I kept my grades very high, which resulted in good grants (enough to pay tuition). I graduated from an excellent public school with $5,000 in student loan debt.

I had no idea how much worse things would be for future students.
Have you noted that the more financial aid packages that exist, the higher tuition goes?

Colleges have figured out a way to soak just about every penny possible from those who go there. (The well-to-do pay progressively more than others.) This practice -- price discrimination -- is illegal in many other economic circumstances. Yet common place in Universities.

Or, check this NYT article from '97 (when tuitions were relatively modest compared to today's levels):

Quote from NYT :
The New Economics of Higher Education

NEW ORLEANS -- "I loved Tulane," recalled Hillery Martin, a freshman from Los Angeles, about her search for just the right school, "But if I hadn't gotten the scholarship, I probably would have gone to the College of William and Mary."

Those words are music to the ears of Richard Whiteside, Tulane's dean of admissions, whose decision last year to offer smaller merit scholarships to larger numbers of applicants sharply increased both enrollment and tuition income without lowering the academic quality of entering freshmen.

"Just because this isn't a business, doesn't mean you shouldn't use good business principles" to meet the university's goals, he said.

Ms. Martin's choice also pleased Thomas Williams, a consultant to Tulane and president of the Denver-based National Center for Enrollment Management, a for-profit research firm.

The young woman's $10,000 scholarship -- in any other business it would be called a discount -- brought down the price of a year at Tulane to $18,700, roughly that of William and Mary, a competitor in the tier of schools just below the Ivies.

Yet even the discounted tuition she is paying more than covers Tulane's cost of educating an extra freshman. "You need to charge what your market will bear, while keeping a vigilant eye on affordability," said Williams, whose company is one of a burgeoning group advising colleges on how to get more bang from a scholarship buck.

Structuring scholarships in much the way airlines devise supersaver fares may seem out of place in the cloistered world of academia. But it is apparently the way of the future, as parents seek better value from their five- or six-figure investments in four-year colleges, and as all but the most selective colleges are forced to focus on the problem of attracting good students without losing revenue.

There is nothing wrong with this reshuffle of the financial deck, proponents say. On the contrary, they insist, everybody gains. "Efficiency and equity are not necessarily in conflict," said James Scannell of the consulting firm of Scannell & Kurz in Pittsford, N.Y.

Before the 1960s the modest store of scholarship aid available was mostly doled out according to merit. But as the idea that every high school graduate deserved a shot at college became a fixture of American life, the focus shifted to need. Washington got into the act, creating guidelines for aid and supplying a good chunk of the money through grants, loans and work-study programs.

These days the difference between the cost of college and what the typical student can afford to pay certainly has not diminished. Nor has the amount of need-based aid flowing to low- and middle-income students.

But in an era in which private education again seems a luxury, tuition discounting is increasingly seen by college administrators as a competitive tool for wooing high achievers -- or, in many cases, simply filling classrooms with high school graduates who pay more in tuition than they add to operating costs.

Tulane's scholarship policy illustrates the way the rudimentary science of financial-aid leverage -- what economists call price discrimination -- is altering college-enrollment practices. Tulane faces no immediate financial crisis. But by the early 1990s, administrators were uncomfortably aware that rapidly rising tuition costs were outstripping students' ability to pay.

The sticker price of a Tulane education rose 68 percent more than the cost of living from 1984 to 1994, while Americans' average income gained only 25 percent. To lure high-achieving students from low-income and even middle-class families, the university was forced to "spend" a disproportionate amount of its added revenue on scholarships.

Across the decade, its total financial-aid budget, excluding government sources, rose by 400 percent, to $44 million. And despite the increased aid, Tulane's competitive position apparently eroded: Rather than admit less qualified students, the school allowed its undergraduate population to fall from 5,342 in 1991, to 4,830 in 1995.

Williams, the consultant, recommended that the university use data from past years to analyze the admissions "yield" -- the percentage of accepted applicants who actually enrolled -- for each of Tulane's colleges -- liberal arts, architecture and engineering -- and for various categories like the students' academic standing in high school, the size of merit scholarships offered to them and their financial need.

The results from this simple exercise were striking. In 1995, Tulane's entire merit-based scholarship budget was spent on 111 full-tuition scholarships. And the yield from those scholarships was very high.

But relatively few applicants who just missed the cut for these generous merit grants -- and thus received no aid offer at all -- came to Tulane. So last year Dean Whiteside reduced the number of full-tuition scholarships from 111 to 50 and offered $10,000 discounts (a bit less than half of tuition) to 600 of the most qualified applicants from the pool of 6,400 high school seniors admitted.

More than half of the 600 enrolled. The loss of a handful of elite students who turned down the $10,000 offer but might have jumped at $20,000 was more than offset by the enrollment of larger numbers of still excellent freshmen with combined SAT scores above 1,350. And while merit-aid outlays went up, so did total tuition income because the class size swelled by 98 students.

That proved to be a worthwhile trade-off, since Tulane had classrooms and dorms to spare. "All we had to do was add a few class sections," Whiteside said.

Tulane's rejiggering of merit aid offended no one. The only losers, the 61 students who got $10,000 scholarships rather than a free ride, never knew who they were.

But more sophisticated forms of price discrimination are controversial. Many colleges are pumping up aid to students expressing interest in less sought-after departments and decreasing help for those fighting to get into popular ones.

Since Carnegie-Mellon University in Pittsburgh has few peers in the sciences, for example, it offers little merit-based aid to budding computer specialists. By contrast, high-achieving applicants in liberal arts are courted with hefty discounts.

Sandra Baum, an economist at Skidmore College in Saratoga Springs, N.Y., notes that some colleges are now routinely using merit aid to adjust their male-female mix. Many more are using merit aid to increase the enrollment of blacks and Hispanic people. Vanderbilt University in Nashville, for example, sets aside full-tuition scholarships for the cream of its minority applicants.

As colleges delve more deeply into the art of calculating just the right level of financial aid to woo students, they are discovering that certain variables that have nothing to do with need or academic ability can make a big difference.

The Wall Street Journal reported that Johns Hopkins University in Baltimore, for example, found that less money was needed to entice applicants who had visited the campus. While Johns Hopkins apparently never acted on the evidence, there are plenty of other benchmarks that could prove useful in formulating aid policies that achieve enrollment goals at minimal revenue loss.

An easy one is geography. In-state applicants are widely assumed to be less sensitive to price than out-of-state applicants. That creates an incentive to offer bigger discounts to out-of-staters -- particularly those with access to high quality, low-tuition public schools like the University of Michigan or the University of California at Berkeley.

"Such price discrimination is the next step," Williams suggested, "and it's almost inevitable."

But the aggressive use of price discrimination makes many educators uneasy. Few colleges, for example, have thus far followed Carnegie-Mellon's policy of encouraging applicants to shop for the best price. "If you received a financial-aid package from us that was not competitive with other offers, let us know," urged a letter from the admissions office to some applicants.

And while Dean Whiteside at Tulane plainly glories in the rough and tumble of competing with recruiters at other colleges -- "I want them to say the sucker down in New Orleans ate my lunch," he said enthusiastically -- he still worries that offering different aid packages to students of equal merit and need would undermine the egalitarian spirit of Tulane's campus.

The even thornier issue is whether the sophisticated use of financial leverage will reduce the amount of aid available to needy students.

Certainly the incentive is there. Even students with limited financial resources may be willing to scrimp and borrow to go to the school of their choice if the aid they are offered shrinks. Thus, figuring out students' threshold of pain allows colleges to squeeze a little extra money out of them.

If the incentive is there, so is the moral rationale. "From an economist's point of view," wrote James Day, the president of Hardwick-Day, a Minnesota consulting firm, price discrimination produces the most value for the most people. Thus "a market in which willingness to pay is the chief arbiter in enrollment decisions benefits society as the ultimate source of equity."

The unanswered question is whether the imperative of the market will increase or decrease access to expensive private colleges for low- and middle-income students.

Gordon Winston, an economist at Williams College in Williamstown., Mass., is pessimistic. While merit-aid programs at Tulane and many other schools appear for now to have created win-win opportunities, he argues that grinding competition for high-achieving students from affluent families will eventually come at the expense of the needy ones.

"The more of our general subsidy that is targeted to high-income students," he said, "the less there will be for the needy kids."

Copyright 1997 The New York Times Company

BTW, I think James Day (the consulting guy at the bottom) is completely wrong, economics-wise. Price discrimination produces the most value for the seller -- since colleges basically accept the same number of people every year regardless all charging more does is reduces the value of the school to students.
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Yes, if you're smart and hardworking, you will most likely make lots of money without a degree, but college also opens many doors for the rest of us...especially if you attend a top tier school.

Harvard, Yale, Princeton, Stanford, MIT, etc grads have it a little easier. Many of these schools have instituted a "no loan" policy.

Quote :
With Princeton soon to enter their rear-view mirrors, members of this year's senior class are looking forward to pursuing their passions after graduation without having to worry about paying off huge student loans.

This class of 2005 was the first to enter the University under the groundbreaking "no loan" financial aid program in 2001. About 51 percent of seniors, or 600 students, have received aid at some point during their four years at Princeton. Graduating seniors are now able to enter the workforce, pursue further studies, seek teaching positions or take nonprofit jobs, among other endeavors, without the stress of major loan obligations on the horizon.

In a recent e-mail survey conducted by the Office of Financial Aid of seniors on financial aid, roughly two-thirds of the 100 respondents said the benefits of graduating with little or no debt have had a significant impact on their postgraduate plans. Seniors indicated plans to find full-time employment, continue their education at graduate or professional schools and pursue nonprofit work and service opportunities through organizations such as Teach for America, Princeton in Africa and Princeton Project 55.
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Last edited by gibbersome January 21, 2009 at 11:37 PM.
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Must be nice to have a war chest. Wish that was reality for all schools besides Harvard, Yale, Princeton, Stanford, and MIT. I'm forced to bury myself for school around here and my school is actually cheaper than public school. Sadly, I've hit the ceiling of what I can do without a college degree.
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Let the poor pay their share of taxes, then we'll talk about increasing taxes on everyone else.

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Quote from derango1 View Post :
Must be nice to have a war chest. Wish that was reality for all schools besides Harvard, Yale, Princeton, Stanford, and MIT. I'm forced to bury myself for school around here and my school is actually cheaper than public school. Sadly, I've hit the ceiling of what I can do without a college degree.
Well there is something corrupt and sinister about the Ivy League model of university development. Greed overrides the best interests of students. Charitable donations are seen as the lifeblood of a university. With foreign/rich students willing to pay the high tuition, can we really say that admission is based purely on merit? Degrees are a dime a dozen, and debt in the tens of thousands; we are in danger of marginalizing higher education. My university's current president was hired mostly because he has a good record of raising money.
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