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May14, 2008

Vol. 108, No. 13

Cover Story

Financial aid: Who wins?

As elite schools offer financial aid to more affluent families, other colleges struggle to stay in the game

By Katherine Hobson ’94
Published in the May14, 2008, issue

Photo illustration: Third Eye images, Lonnie Busch/Conrad Zobel

“Your money is always greener before your tuition’s paid, 
And if the years are leaner, you must get financial aid. 
And so the administration, not too many days ago, they changed the situation. 
Now all can afford to go ...

Princeton is free! Princeton is free! 
We’ve got to keep it the best-kept secret in Ivy League! 
The Orange and the Black the way to go, everyone else pays through the nose.

We’ve got the plan here, save all your clams here, Princeton is free!”

The Nassoons’ song, a crowd favorite the group set to the tune of “Under the Sea” in 1990, is still satirical — but less so than it was when it was added to the repertoire. In the seven years since Princeton said that it would get rid of loans and remove the value of the family home from aid calculations, the portion of each incoming class receiving aid has risen sharply, from 38 percent to about 54 percent — and the average size of those grants has more than doubled, to almost $31,200. Today the average financial-aid grant for a student from a family earning up to $100,000 a year is more than the $33,000 cost of tuition. Even students who would be considered quite well-off by most Americans get assistance: Among families applying for aid who earn between $150,000 and $200,000, 80 percent receive help — an average of $17,100.

Since Princeton’s 2001 policy changes, a host of other schools have introduced their own measures, including a flurry of recent moves sparked by Harvard’s announcement in December that even families nearing $200,000 a year in income may pay as little as 10 percent of their incomes for college. It all has lucky students and their families celebrating, and schools scrambling to keep up. “There’s quite a bit of pressure now to follow the moves that Princeton was able to make seven years ago,” says Robin Moscato, Princeton’s director of undergraduate financial aid. “In addition to no-loan packages, the trend now is for schools to improve aid for middle-income families.”

The ripple effect of these changes has yet to be fully felt or even imagined; most were announced after students applying for spots in the class of 2012 had sent in their applications, so the impact likely won’t be understood for at least another year. But college presidents, while praising anything that broadens access to higher education, also have their questions about the most expansive policies. Some worry that the trend toward greater aid for wealthier families will cause even the affluent to believe they have no obligation to save for or invest in a child’s college education. What will the new policies mean for the universities and colleges that implement them? What are the effects on schools that don’t have the money to compete with similar plans? And, more broadly, how do these changes affect higher education in general — will the poorest students get squeezed out if aid attention turns to the upper-middle class?

“Anything that Princeton or Harvard does is going to make news; it will help us focus on a conversation that this country needs to have,” says Jennifer Raab *79, president of Hunter College, the largest college in the City University of New York system. As part of that conversation, PAW asked Princeton alumni who head colleges and universities, as well as other experts, for their thoughts and predictions.

First, let’s look the aid policies themselves. As Moscato says, some schools simply are replacing loans with grants in their aid packages, either for all students or for those from families earning less than a certain amount (which varies at each college). But a handful are doing that and much more. Under Harvard’s plan, families with annual incomes between $120,000 and $180,000 usually will pay just 10 percent of that in costs. Yale said in January that it would help families earning up to $200,000. Dartmouth, Brown, and other schools have announced so-called free-tuition programs, in which families earning less than a certain threshold pay no tuition at all. That’s not the term Princeton used to describe its 2001 changes, but the result is similar.

Eliminating loans is the more affordable step for colleges to take, and it’s also widely — though not universally — applauded. One obvious goal is to make sure that students don’t graduate with a burdensome debt (the average student-loan debt is now more than $20,000). A 2007 study co-authored by Princeton professors Cecilia Rouse and Jesse Rothstein found that an extra $10,000 in debt diminishes the odds that a graduate will take a public-service or other lower-paying job: “When students were relieved from the need to incur debt, they shifted toward lower-salary jobs in public-service industries,” the study found. Loans as a component of an aid package also disproportionately scare off lower-income students, whose families tend to be more uncomfortable taking on debt than middle-income families, aid experts say.

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