in the changing landscape of financial aid
aid for students has again been much in the news. Princeton announced
in January that henceforth its undergraduates would not be expected
to borrow in relation to their financial-aid awards but would
instead receive outright grants. This has provoked a wave of questions
and comments across the world of higher education, especially
private higher education. What would be the implications for other
institutions? How many would feel compelled to follow suit? Would
the traditions of need-based aid at some institutions be threatened?
Some observers applauded Princeton's generosity. Others opined
that it was not a good idea for higher education.
as not to prolong a certain part of the suspense, let me say right
off that only a very small number-in single digits-of institutions
will be able to afford to imitate Princeton. For the rest, including
the University of Chicago, it will not soon, if ever, be an option.
The change in policy will cost Princeton $16 million next year,
and that sum will come from increased payout from its endowment,
now at $8.5 billion. Furthermore, Princeton's financial-aid budget
is supported almost entirely from endowments restricted to that
an endowment of just under $4 billion, Chicago derives about 18
percent of its financial-aid budget from restricted endowments,
the remainder coming from unrestricted funds, principally tuition.
Furthermore, the percentage of our undergraduates who demonstrate
need is higher, and the amount of need that they demonstrate is
also higher on average. Indeed, a good deal of the impetus behind
Princeton's initiatives in financial aid in recent years originates
in the fact that the percentage of its students demonstrating
financial need had been declining. With greater need for funds
for financial aid and with fewer resources from which to supply
them, we have no realistic way of adopting Princeton's policies.
The same is true of most of our peers.
is important to understand just how much wealthier some institutions
are than others. Princeton's endowment per student is about $1
million. At Chicago this figure approaches $300,000. The difference
is thus about $700,000 per student, and the annual income on this
amount according to current payout policies would be about $35,000-about
what it costs to attend for one year. In other words, if we were
suddenly to have an endowment of $1 million per student and did
not change our cost structure, we would not have to charge at
all-not for tuition, not for room, and not for board for anyone,
whether they demonstrated need or not.
then will be the consequences of this somewhat altered financial-aid
landscape? In the first instance it will affect only a very small
number of students, namely those who are admitted to Princeton
and the two or three other institutions who follow suit, and of
these students, only those who demonstrate need. These same institutions
have typically won out in the competition for students with their
less wealthy peers in any case. Thus, the rest of us could perfectly
well do nothing in response, and the numbers would not change
very much. There could, however, be another, perverse effect on
some of the rest of us.
University of Chicago cannot afford to eliminate everyone's loans
in favor of grants. But will we be tempted to say that we would
be willing to discuss the matter with any student who happens
to have been admitted to an institution that does not ask its
students to take on debt? Conversely, could we imagine saying,
in effect, to students with the good sense to know that the University
of Chicago was the right place for them that we would give them
less grant aid because they had not bothered to apply to certain
other schools? The word perverse captures some of the flavor of
is not to say that we will not continue to offer some merit-based
aid to the students that we would most like to attract. Even the
Ivy League institutions have ways of giving merit-based aid without
calling it that. But for us merit ought to continue to be defined
in terms other than the fact of having been admitted to some other
institution on the banks of some body of water like the Charles
River or Lake Carnegie (of which only a few rowers have ever heard
in any case).
less discussed than the aid for undergraduates, but of perhaps
rather greater consequence for the University of Chicago, is Princeton's
simultaneous decision to increase substantially its financial
aid for graduate students. We have much larger graduate programs
than they, other institutions are more likely to imitate this
initiative to some degree, and we are more likely to be in direct
competition for students with these institutions. The competition
for the best graduate students is already quite intense, and since
support for graduate students is in general not based on need,
levels of support matter more across the board. Here again, and
even in a context of free markets, we ought not to want to assess
too high a financial penalty on the student who has the sense
to know that Chicago would be the best place to study.
response to these developments will be twofold. First, we must
substantially increase our resources for the support of both undergraduates
and graduate students across the University. We must increase
the number of endowments that support financial aid and conversely
reduce the fraction of financial aid that comes from unrestricted
income such as tuition, for to rely too heavily on tuition income
for this purpose is to engage in a kind of income redistribution
that is not the University's proper business.
second we must continue to stand for the values that have made
us the institution that we are-an institution that only certain
of the very best students (and faculty and staff) will want to
be a part of. We are not about the imitation of other institutions,
and for some students we should simply not want to compete, regardless
of where else they may have been admitted. We will want only to
continue to offer the best education there is to students with
the ability, experience, and commitment to profit from it most.
Don Michael Randel has agreed to write a column in each issue
on a topic of his choosing.-Ed.