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Financial Aid Confusion

Sexton Commons, Saint John's University

Among the complexities of higher education, the private college financial aid model is often the least understood, as it varies among schools, and many schools, like Saint John’s and Saint Ben’s, offer both need-based and merit-based aid.

Below is a column written to try and clarify some of these issues, written in response to an earlier opinion piece in the Minneapolis Star Tribune that was critical of the Minnesota private colleges for their financial aid policies.

Counterpoint: Yes, ‘The Price is Right’ for higher education – and it’s not at all unfair*

For typical Minnesota private colleges like Saint John’s, there’s no “cross subsidization” among students. Still, it’s a tough balancing act.

The economics of higher education are quite complicated. College leaders struggle with these issues every day, including by trying to make them understandable to students and families. “Are you the next contestant on ‘The Price is Right?’ ” touched on these important and complicated issues but in ways that were ultimately misleading.

The article focused on private, nonprofit schools in Minnesota. As an economist by training and president of Saint John’s University in Collegeville, an institution typical of hundreds of small, private, liberal arts colleges around the country, I hope to bring some clarity to this confusing topic.

At Saint John’s, we are selective, but not elite. Our students generally come from the upper quarter academically of their high school classes. We have 1,700 students and a very typical campus with dormitories, classrooms, laboratories, athletic facilities, administrative buildings and, atypically, a world-famous church set amid the lakes, forests and prairie of central Minnesota.
We are, alas, not particularly rich; nor are we especially poor. Our endowment is in the middle of the pack among small, private, liberal arts schools.

At one level, our economic story is very simple. Our revenues come from tuition, alumni gifts and endowment income. Our economic costs are, foremost, compensation for faculty and staff; annual operating costs such as energy, books, journals, copying, etc.; and capital expenses including the costs associated with buildings, land, equipment and technology.

Comparing revenues and costs results in an important, possibly surprising, and little understood fact about our economic model. If every single one of our Johnnies paid our full tuition of $43,000 a year, which almost none do, we would still not have enough revenue to cover the full cost of providing our students the exceptional education they receive.

The economic reality is that every one of our students receives a subsidy, regardless of what they pay. That subsidy comes from Saint John’s alumni and friends, past and present. It does not, as some believe, come from higher-paying classmates.

At Saint John’s, as is true of virtually every higher education institution I know, there is no “cross subsidization” between students. Every additional dollar necessary to cover the true cost of the students’ education beyond the sticker price comes from nonstudents: either from many decades of investment in our campus facilities and endowment or annual fund gifts in the current year or through future fundraising that will cover wear and tear on facilities used by current students.

Quadrangle Building, Saint John's UniversityThis fact may be hard to believe, but the compensation of highly educated faculty and staff and the capital embodied in extremely expensive and high-tech buildings that makes the American model of higher education so exceptional also explains the high per-student cost of America’s best-in-the-world education.

The second part of the economic model for schools like Saint John’s is much harder to navigate and understand. The reality is, of course, that most of our students cannot pay our full tuition without financial aid. Then the question becomes how to use our limited financial-aid resources and discounts to further subsidize the tuition costs for our students.

There are two basic choices. If the school is what might be called an elite institution, enjoying excess demand for the limited number of seats in its entering class, it is very likely to provide only need-based financial aid. Families submit financial-aid forms and then, using federal government formulas, an expected family contribution is calculated. Those students whose families have the economic resources to pay the full sticker price are asked to do so and those families who demonstrate financial need in order to cover tuition receive financial-aid packages commensurate with their need. These elite schools are very limited in number but include the usual suspects such as Harvard and Stanford.

The second financial aid model is the one Saint John’s and the vast majority of private schools use. When we package financial aid for each of our students, we consider both financial need, as described above, and student merit, which is based on the applicant’s academic record.

Why would we choose to use some of our precious financial-aid dollars and limited discounts to reward students from well-off families who could pay our sticker price? Because, for non-elite institutions like Saint John’s, it is valuable to all of our students to maintain a certain academic standard. By attracting a stronger overall academic class through the use of merit aid, the educational experience for all of our students is enhanced.

This is what economists refer to as a positive externality. Stronger students will raise the overall academic level for their peers and improve the performance of the whole cohort.

It is certainly true that every dollar we spend on merit aid is a dollar we cannot spend on need-based aid, so there is most definitely a trade-off. A further complexity is that many students get both kinds of aid.

Because of this trade-off, one can debate the equity of a financial-aid system that includes both need-based and merit-based aid. Yet for non-elite schools — like the vast majority of Minnesota private colleges — that don’t have multiple equally qualified applicants vying for every spot in an entering class, it is certainly a defensible choice to offer somewhat less need-based financial aid in exchange for the benefits to all students of attracting a stronger overall academic class.

This difficult balancing act, however, does not result in a subsidy from financially needy students to academically strong students — neither of those students pays the full cost of their education, as described above, but the amount of subsidy each individual student receives does depend on how a school chooses to allocate need-based and merit-based financial-aid dollars, both of which discount the cost of tuition.

It would be great if every school had the financial resources and applicant pool that elite schools have, but that, of course, is why they are elite.

At Saint John’s, as a selective but not elite school, we work hard every day to provide an exceptional and affordable education for students from a full range of economic circumstances, subject to our resource constraints. We also strive to honestly educate students and families about the complex economics of higher education that are understandably confusing.

I can also say with complete confidence from having worked with and competed with my Minnesota private college peers for years, every Minnesota private, nonprofit college does the same.

*Published in the Minneapolis Star Tribune on May 21, 2018

 

Is Education a Waste of Time and Money?*

Those of us in higher education have become used to criticisms of our work.  Recent polls have shown decreasing public confidence in the value of education and even the recent tax reform bill had provisions that were implicitly critical of higher education.  But some of the recent criticism comes from a surprising source: inside the academy itself.

Bryan Caplan, a George Mason University economist, has written a book whose title succinctly describes his criticism: The Case Against Education: Why the Education System is a Waste of Time and Money.

This criticism is particularly surprising coming from an economist because one of the most robust research results in economics is the positive impact education has on earnings for individuals and on GDP growth for countries.  (See here  and here  and here)

Caplan’s basic argument is that a college degree serves primarily as a signal to employers of the types of traits a potential employee will bring, such as “brains, work ethic and conformity,” rather than providing any real skills that will be useful on the job.  Caplan writes that, “the only marketable skill I teach is ‘how to be an economics professor’.” In short, Caplan believes there in little value added in higher education.

Caplan starts from a pessimistic and ungenerous premise about students.  “Most kids are philistines—they are that way deep in their souls.”  Therefore, he asserts, education is wasted on them.

While not every 18 year old is worldly and cultured when they enter college, surely they should be allowed the scope to grow and develop intellectually, emotionally and spiritually.  Education is all about hope and possibilities.  The transition from childhood to adulthood is a powerful and important time in the lives of most people, and a four-year college experience is often an important part of that transformation for young people.

This lack of confidence in education also comes from Caplan’s view of education as a rote process.  He says, “Most of the stuff [students learn], right after the final exam, they’ll never need to know again.”  Needless-to-say, this is not how most faculty approach their subjects or their interactions with students.  While students invariably forget specific details from courses, most faculty would argue that education changes the habits of mind and skills of students. Education can improve critical thinking skills and research skills, as well as writing and communication skills – all widely applicable in the job market and providing a payoff over a lifetime.

Caplan focuses almost exclusively on what happens between the professor and student while paying little attention to the significant learning that takes place outside the classroom.  Athletes, student journalists, musicians, student senators and volunteers all gain valuable skills through their extracurricular activities.  Furthermore, the informal interactions in residential settings also provide students with opportunities to learn from peers who have had other kinds of experiences or upbringings or hold different worldviews.  The ability to listen and learn from others clearly benefits both the individual and ultimately society as a whole.

Are we in higher education successful in transforming all students equally?  Of course not.  Could we improve our teaching and add more value?  Certainly.  But to suggest that the whole educational enterprise is just a charade, that clever students “go through the motions” and cynical faculty play along simply to signal job readiness to narrowly self-interested employers is an assessment that is deeply at odds with the experience of most educators and students I know.

I suspect that most students with college-educated parents will pay little attention to criticism such as Caplan’s, having experienced within their families an educational reality that is rather different from what he describes.

I worry most about another group who may hear criticisms such as Caplan’s. He sends exactly the wrong message to those students and families who have not had the experience of college in their past.   For students who are capable and ambitious, not attending a four-year college prevents them from achieving the well-documented economic benefits that accrue to degree holders over their lifetimes, to say nothing of the many other personal benefits of higher education.

Caplan’s general thesis is certainly a view to be considered and some of his criticisms are fair, but I trust an application of sound critical thinking and some informed research will persuade students and their parents that a college degree is still an exceptional investment.

*A version of this post was published in the St. Cloud Times on February 25, 2018.

Reflections on a Liberal Arts Education: Part III

What Google Learned

Among the tech companies, Google is probably the most famous for its rigorous hiring process.  As Cathy Davidson, the author of The New Education: How to Revolutionize the University to Prepare Students for a World in Flux, writes:

Sergey Brin and Larry Page, both brilliant computer scientists, founded their company on the conviction that only technologists can understand technology. Google originally set its hiring algorithms to sort for computer science students with top grades from elite science universities.

Obviously this algorithm would fill Google with STEM graduates at the entry level and presumably those employees would eventually become the successful mid level and top management in the organization.

True to its DNA, Google decided to use data to analyze how well its hiring algorithm was at producing successful employees.  Davidson writes:

In 2013, Google decided to test its hiring hypothesis by crunching every bit and byte of hiring, firing, and promotion data accumulated since the company’s incorporation in 1998. Project Oxygen shocked everyone by concluding that, among the eight most important qualities of Google’s top employees, STEM expertise comes in dead last. The seven top characteristics of success at Google are all soft skills: being a good coach; communicating and listening well; possessing insights into others (including others with different values and points of view); having empathy toward and being supportive of one’s colleagues; being a good critical thinker and problem solver; and being able to make connections across complex ideas.

This list is very much like the skills and experiences that are touted by residential liberal arts colleges: critical thinking, communication, living and learning in a diverse community, and synthesizing ideas. I’d also note that some of the Benedictine values we emphasize at Saint John’s University and the College of Saint Benedict map nicely onto this list: respect for individuals, hospitality and the importance of community.

Google did further research in 2017, employing anthropologists and ethnographers, and found further support for the importance of soft skills:

Project Aristotle analyzes data on inventive and productive teams. Google takes pride in its A-teams, assembled with top scientists, each with the most specialized knowledge and able to throw down one cutting-edge idea after another. Its data analysis revealed, however, that the company’s most important and productive new ideas come from B-teams comprised of employees who don’t always have to be the smartest people in the room.

Project Aristotle shows that the best teams at Google exhibit a range of soft skills: equality, generosity, curiosity toward the ideas of your teammates, empathy, and emotional intelligence. And topping the list: emotional safety. No bullying. To succeed, each and every team member must feel confident speaking up and making mistakes. They must know they are being heard.

As a result of its research Google has broadened its hiring model with the goal of including humanities majors, artists, and even MBAs, candidates that the STEM-heavy organization had previously viewed with skepticism, at best.

None of this is particularly surprising for fans of the liberal arts.  The philosophy behind a broad based curriculum emphasizing exploration of the humanities, arts, natural sciences and social sciences is that such an education both makes students more successful in their major field of study and better prepares them for the diverse and changing world they will live in.

What Google’s research suggests is that even technology and science companies that embrace the liberal arts find themselves more successful and better at understanding the needs of their customers and the changing marketplace.

This worldview is shared by another highly successful tech company that is a neighbor of Google’s in Silicon Valley.  Steve Jobs famously said of his company, “It’s in Apple’s DNA that technology alone is not enough — it’s technology married with liberal arts, married with the humanities, that yields us the results that make our heart sing.”