FROM THE PRESIDENT

Chicago in the changing landscape of financial aid

Financial 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.

So 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 purpose.

With 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.

It 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.

What 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.

The 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 the situation.

This 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).

Much 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.

Our 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.

But 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.

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President Don Michael Randel has agreed to write a column in each issue on a topic of his choosing.-Ed.