Stanford university’s annual undergraduate tuition is over $41,000 and our endowment is a gasp-inducing $17 Billion. Based on these facts, many people would argue that I work for one of those money-grubbing dens of elitism that is preventing middle class parents from providing their kids a world-class education.
Since I am a professor, let me respond to these concerns with a pop quiz. Try answering the following three questions.
1. What has been the inflation-adjusted increase in Stanford’s net tuition (i.e. tuition minus financial aid) from 1994 to the present day?
2. What is the modal amount of debt taken on by new Stanford graduates over their time at the university?
3. If your family were in the 75th percentile of American income, how much would Stanford charge you for tuition?
All three questions have the same answer: Zero.
There are many ways for a wealthy university to allocate its resources. My own I am proud to say has chosen to spend heavily on ensuring that anyone who is admitted can afford to attend. Families whose incomes are under $100,000 pay no tuition at Stanford. Families whose incomes are under $60,000 pay no tuition, room or board. Three fourths of students graduate debt-free, and the remaining fourth have an average debt less than what you would take on to buy this 2008 Toyota Highlander with 82,000 miles on it (If you are facing that choice, my strongly held opinion is that a Stanford degree will get you farther in life).
Does Stanford’s commitment to access solve the widely-reported and widely-decried problem of many families not being able to send their children to college? Of course not. We are a small university in a big nation. But Stanford’s example does suggest that nuance is required when analyzing rising college tuition.
First, focusing on tuition sticker prices is as misleading as focusing on health care prices. In both cases, few people pay the sticker price and what truly matters is the actual cost to the purchaser. In health care, that’s typically the sticker price minus whatever discount the payer has negotiated. The university parallel is tuition minus the discount the university gives through financial aid. If your family has an income of $90,000 a year, what Stanford charges on paper for tuition could just as well be $41 million and it wouldn’t matter to you because it all is discounted away by the university and you never see a bill.
Second, college cost crunch stories tend to focus on elite universities, but that may not be where the problem primarily lies. Most of Stanford’s peer universities also have generous financial aid packages that blunt the impact of on-paper tuition increases. In contrast, many less wealthy institutions raise tuition steadily but do not have the resources to offset those rises with financial aid. Their rising sticker prices thus reflect a true increase in cost.
Third, student debt is an important variable that does not necessarily bear a close relationship either to sticker price or actual current cost. When a university such as Stanford does not charge a student tuition because of family income, the student’s cost is zero in perpetuity. In contrast, when a student’s tuition is paid through loan programs the student’s cost is in some sense zero, but only for the moment. The cost has simply been deferred and will indeed increase due to interest. Analysts trying to understand the increase of net tuition should thus distinguish financial aid that truly lowers costs versus just kicking the can down the road.
Coupla things:
1. The problem is not with elite universities like Stanford. But there is a significant problem with wannabe elites like GWU, NYU, and BU, all of whom try to signal quality with a high rack rate that does not represent high quality. They will waive the rack rate if a Stanford-grade student comes their way. But most of their students aren’t Stanford-grade.
2. The biggest problem is with state schools, that are increasingly turning to tuition, since state legislatures aren’t appropriating funds anymore.
3. The slimiest part of the problem is the for-profits, which at worst are little more than engines for creating student debt.
The issue with college tuition costs is not really about the sticker price at ultra-elite institutions*. Rather it’s about three things:
1) Many not-so-elite private institutions charge similar sticker prices (a bit lower, but not by much), but neither have the endowment resources to counter the high sticker prices with generous financial aid nor send their graduates out into the world with the early-career earning power of a Stanford graduate. They are able to do this partly because federally subsidized student loans allow the “buyers” to sign up for something that they will not feel the pain of paying for for many years at a time in their life when they are especially ill-equipped to estimate what their future ability to pay down debt will be (which in turn is helped along by simplistic and incredibly deceptive comparisons of the lifetime earnings power of college graduates with non-graduates). If the big banks deserve to be punished for “predatory” housing loans what exactly is the appropriate response to 3rd tier universities with $30K annual tuitions that accept student loan checks on behalf of kids majoring in sociology with 2.7 GPAs?
2) Many young people are not graduating from college in four years. This is partly their own damn fault for not working as aggressively as they should and for not engaging with proper seriousness early about their choice of major (and here I’m referring not the student who has a life-changing experience with an elective Philosophy course in his junior year, changes majors and then takes an extra year to graduate. I’m referring to the hungover-three-or-four-days-a-week student who doesn’t give any truly serious thought to life after college until his junior year). Its partly the fault of the system which makes college unaffordable and thus compels many students to work long hours during school. And its partly the fault of the colleges and universities that fail to provide adequate academic advising (and face no real incentive to do so given that the 6th year undergraduate is a 6th year tuition payer).
3) Many young people are graduating from college without the earnings potential to turn their high student debt load into an evenly modestly attractive ROI. See reasons for #2 above.
*That said, if I were on the elite university gravy train I wouldn’t be so dismissive of the terrible PR problem that high sticker price creates for such institutions. It’s all well and good to say that $41K per year doesn’t matter because very few people actually pay that amount. But that level of nuance gets easily lost in the public debate and I’m not sure its the general public’s fault that they don’t immediately grasp the reality behind a system that is quite literally designed to obfuscate the costs of attendance. It’s not as if the current system is the only option available to the Stanfords of the world. First, Stanford could simply lower tuition across the board. They would end up subsidizing a handful of kids from rich families, but this is likely a drop in the $17B bucket. Or they could do what some private (mostly Catholic) high schools do - charge a low tuition but make it very clear to the families of the wealthy that their initial admission and continuance as a members of the school community in good standing is contingent on a sizable annual donation that trues up their out-of-pocket costs to what they would pay for a school of similar quality that played the high-tuition, high-financial aid game.
But that level of nuance gets easily lost in the public debate
As this is a central point of my post and my motivation for writing it, of course I agree.
As for your argument that any Stanford PR problem regarding costs/elitism would be resolved if it moved to a system that subsidized the very rich, count me skeptical.
In re the last sentence, it seems to me the crucial datum missing here is the actual tuition revenue of the university. Is that information available to you? If so, then total elimination of tuition would have a cost to the university of $X, which could be partly offset in the manner of Stephen’s last sentence.
I think the PR problem would be a lot less if the rich paid a lower tuition, same as the plebes. Because it’s still about the sticker price.
Another side of this: what about work requirements? Back when I was in school, the more generous tiers of financial aid (e.g. my former friends from deepest Brooklyn) involved not only a part-time job during the term but also a serious summer job, with almost all the income going to the university. Which imposed a burden on getting class work done and also severely limited options for exploring alternative career paths. Nowadays the money a student could earn from such work would be an even more ridiculously tiny fraction of college costs, so I wonder whether those requirements still exist (perhaps out of calvinism, or to provide class distinctions where they might otherwise be eroded.)
@paul: I worked two to three part-time jobs all the way through college, which led me at the time to read about work and educational achievement. The striking results: Students with jobs have significantly better grades than those without. Granted that may have changed, but I would not assume that without evidence.
Note also that all jobs are not equal. I had a job flipping burgers, but I also had a part-time job as a research assistant to a professor. Yes, it took away from study time but I learned a lot about science from him in our one-on-one interactions (as opposed to being one of a hundred students in a lecture course) and he helped me get into graduate school (and I really needed the help), so unlike burger flipping, that was a part-time job that directly added my academic goals.
The striking results: Students with jobs have significantly better grades than those without.
Hmmm … Any “post hoc ergo propter hoc” implied there?
The money a student can earn during the school year is pretty much books and spending money. It doesn’t make a dent in tuition. And, to make matters worse, many student jobs these days involve staying up late because all of the student amenities are open until 1 AM. My daughter had a very hard time keeping up with her job in the student pizza parlor (although it was very forgiving during finals) and also getting up for 8 AM classes. Summer jobs? even construction doesn’t really help much with tuition.
Stanford is enabling NYU/University of the Pacific/ Pepperdine/ Linfield to get away with their tuition rates. I’m with Stephen: you get into a third tier institution, and you see the tuition is about the same as Stanford/Princeton, and you think, okay, this is what it costs. And you don’t know that Stanford and Princeton give everybody whose name is not Trump or Mellon a deal. So you borrow, and when you get out, you face the dreadful prospect of paying off $110000 on a $35000 wage. Minus taxes and rent and food.
Hmmm.. are you sure you want to communicate to universities that you think overcharge for their services “You are blameless victims, Stanford makes you do this”? They would be grateful to you for letting them off the hook I suppose, but that doesn’t make it a compelling analysis.
I would not put it as strongly as dave schutz did, but I do think that it is true that Stanford, Harvard, Williams, etc. set a standard by which other, less-generously-endowed schools design their operations and set tuition rates. The fact that Stanford doesn’t pass its substantial costs on to students from middle- and lower-income households does not relieve Stanford of its moral obligation to be a prudent steward of its resource, particularly given that Stanford receives a substantial public subsidy in the form of income tax deductions for its donors. Brad DeLong noted a few years ago that Harvard over the past two generations has done little to expand its level of service over the past couple of generations notwithstanding its considerable preexisting endowment and enormous donations during that period. Has Stanford been more efficient than Harvard during that time?
alkali wrote Has Stanford been more efficient than Harvard during that time?
I don’t know about Harvard. The only Stanford financial aid data I know of is from 2008-2012. Over that 4 year period, Stanford’s need-based aid increased by 68.5%, which is four times the increase in costs.
Pointing to aid doesn’t address the efficiency question. If Stanford is using its resources to buy cake for everyone, the fact that students from middle- and lower-income households are not charged for any cake — thanks to other students and Stanford’s generous donors — does not mean that it is an efficient use of Stanford’s resources to buy all that cake.
Sorry, I didn’t understand your question. Now that I do I am sure I have no idea as to the answer.
I don’t think my message is that they are overcharging, exactly, relative to their costs: I suspect it costs that much to provide, you know, nice dorms and climbing walls and fresh cooked meals and professors with PhDs and campus WiFi and getting your papers corrected and campus diversity officers whether you are UoP or Stanford. Problem for the UoP grad is that, having paid a Stanford price for the degree, s/he is getting a far lower offered wage at the end of it all. You can’t pay back a UoP loan on a UoP graduate wage. “Stanford made you do this”? I think more, “Stanford gave you cover to do this, and you ran with it”.
Dave: What evidence is there that college students assume that starting salaries and job opportunities for Stanford grads are no different than starting salaries and job opportunities for the universities you are talking about? You are assuming that people’s general perception is that all educations are equal, so if Stanford charges X, they should expect to be charged X everywhere else. I don’t buy that.
At the age where it mattered, my perception certainly would have been that a school like George Washington was providing an education of higher quality than the large mid-Atlantic public universities, because I bought into their marketing that their tuition reflected a near-Ivy level of quality. I would have been wrong to think that.
Don’t you think you’re getting through the easy route with NO DIFFERENT? Sure people understand that there is SOME difference. But lots of people think that a college education is a college education, and that the education at a second tier school is pretty close to that of a first tier school. And for the most part they are correct so far as the education itself goes. Stanford is better in education, but not all that much better.
What really pays off is the networking with rich and powerful people that you don’t get out of ‘lesser’ schools. But lots of people don’t know that. And even among those who do, many don’t understand the magnitude of the effect.
Further, many people (wrongly) take price as a signal of quality. So an almost Ivy League price is an almost Ivy League quality. Is that Stanford’s fault? Well to answer that question you need to explain why it has a high headline price and work from there.
Mmm, y’know, NYU is a better school than the others y’all have mentioned. It really is Ivy League quality these days. Back when I was applying, 1968, it wasn’t all that good.
The claim that 75% of Stanford graduates leave debt free [citation needed] is not necessarily an indication that a Stanford education is affordable. It could just as easily be the case that people who would have graduated with crushing amounts of debt decided not to attend/apply to Stanford. You can’t use statistics about people who attend Stanford to make claims about how Stanford’s policies affect people who don’t attend Stanford.
For comparison, try this sentence on for size: “Luxury European vacations are very affordable; over 75% of the people who take them are able to do so without borrowing a single penny.”
That’s an interesting point, if you don’t read the rest of the article. If you have read it, then it’s just blather.
There is something to this point, if not put as strongly as Travis.
The high sticker price certainly deters some applicants who are not sophisticated about financial aid; I can say this with confidence as it happened with me. I considered the high prices as prohibitively high, even assuming some level of support. To prevent the temptation of incurring unaffordable loans, I bent my college applications away from the more expensive places, even though I would not have paid tuition, room, or board under Stanford’s current standard.
Isn’t the real problem (and not just a PR one) that $41,000 per year is hardly affordable for many who will still have to pay that rack rate? And that is the case for Stanford as well as BU, GWU and NYU?
This is a really important point. I was fortunate to come from a family with enough means, on paper at least, that I would not have qualified for free tuition under these rules. Of course, we were still by no means capable of affording anything like the sticker price at these schools. My parents made very little money early in their careers and were not really upper-middle class until I was a teenager. I did not apply to Stanford, but the Ivy to which I was accepted offered me nothing in aid at all, and neither my family nor anyone at my high school had any idea how the game was played with regard to negotiating for aid at these schools, so I never tried. I attended a public school of reasonably high quality that made an attractive offer and did well. I don’t exactly regret it, but I do occasionally feel a little bitter when I see a post like this that suggests exorbitant tuition rates at top schools don’t really affect who can and cannot attend.
If you have kids who might someday benefit from college, and you’re not contributing as much as you can spare every pay period to a 529 account, you’re an idiot.
We started “paying for college” when our son was three years old. Compound interest is a beautiful thing when you’re on the receiving end.
I appreciate the implication that my parents are idiots, and I’m sure they would too. They did pay for my undergraduate education, and my sibling’s. The money saved was enough to cover a public school in-state, or the equivalent cost after scholarships elsewhere.
burnspbesg:
Being proud that you (think) you are beating (or at least getting on with) a system which sets a fake list price for its service and uses “non-profit” status to amass billions and billions of of untaxed dollars is based on a mis-reading of the situation. Folks who save for college are really setting themselves up to be cheated by the college financing system.
IMHO, much of the current inflation in list tuition has the effect of freezing out poor and middle class kids who find it very difficult to deal with the elaborate college financing paperwork. I include among them the inner city high school students I try to help pro bono in deal with this and other matters.
If you live on Chicago’s North Shore and go to New Trier High you are likely to get all the paperwork help you need. If you go to Bowen or Bronzeville, not so much.
If I had had to do tons of paperwork to get a maybe leg up from Cal before becoming a very dumb and unsophisticated undergrad I wouldn’t have been able to do it. The free tuition I got at Berkeley (thank you, people of California) was, in my case, and in the case of many of my fellow students, an enabler of education for those not so very upper class.
I still remember the gasp-inducing walnut paneled walls and oriental carpets in the executive offices at Harvard. Rather like Downton Abby.
Nonetheless, I am sure that students who have contact with Prof. Humphreys are much the better for it. If they can get over the pricy hurdles to getting there.
It’s hard figuring out the line between working on a systemic problem and protecting those you love from it, isn’t it?
Professor Humphreys, this wasn’t in the lecture.
As I say to my students “There are no right answers. Only wrong ones.”
Can I improve my grade with volume?
“In both cases, few people pay the sticker price and what truly matters is the actual cost to the purchaser.”
Is that information easily available to prospective students?
Stanford and a few other rich private universities have the same pricing model as luxury hotels: a sky-high rack rate and deep selective discounts to fill the beds / benches.
The student paying the (unpublished) mean tuition is supposed to feel grateful for the institution’s generosity, when she could more fairly see the rack fee as a progressive tax on her rich, ungifted classmates.
(Declaration of interest: I was an exhibitioner (lesser scholarship-holder) of Corpus Christi College, Oxford. I think it was worth £40 a term. That was in the halcyon days when government grants covered all the fees. Things have changed, and Oxford now has to put substantial funds from alumni into scholarships that mean something.)
It’s great that Stanford gives a free ride to students who come from families earning $100,000 or less, but what about the poor saps who earn $105,000? Do they pay full price? That hardly seems fair. A family of three or more living on $100-105K/year is hardly rich any way you slice it, and $41K/year in tuition is clearly out of reach unless they’ve been saving like demons since before the child was born.
I suspect the drop off in aid is progressive, not a cliff.
That is my understanding as well.
In a way it’s kind of cheap grace to offer free ride to people with 60th percentile incomes, since a huge fraction of the kids who have been polished to a great shine for Haverford/Dartmouth/Stanford are from families with 90th and above. It’s a good thing, don’t get me wrong: there is some social mobility enabled here. What should Stanford be doing? If I were trying to enable kids whose families were rougher around the edges, I think I would cut off grade preferences at an A-, figure out some way to level between kids who go to schools where there are AP courses and those who go to schools where there are not, and give an equivalent weight to Eagle Scouts as to salutatorians. Parent-bought-and-paid-for enriching experiences in Salvadoran villages should not do more for an applicant than working full time in the summers. Legacy preferences aren’t doing much for social mobility, nor are preferences for Deval Patrick’s/Chris Edley’s children. I would read teacher reference letters very carefully, and maybe give a small boost to applicants from any school which hasn’t sent anyone to Stanford in the last five years.
Dave: since a huge fraction of the kids who have been polished to a great shine for Haverford/Dartmouth/Stanford are from families with 90th and above.
You have a habit of making a lot of strong assertions without evidence. Where is your evidence that most students at Stanford are from families over the 90th percentile of income? If that were true, financial aid would be a rarity when in fact it is the norm.
Keith Humphreys, you said “You have a habit of making a lot of strong assertions without evidence. Where is your evidence that most students at Stanford are from families over the 90th percentile of income? If that were true, financial aid would be a rarity when in fact it is the norm.” But what I had said was: “a huge fraction of the kids who have been polished to a great shine for Haverford/Dartmouth/Stanford are from families with 90th and above”. It’s sort of a reach to read that as “most kids at Stanford are from families over the 90th”
90th percentile is $138 thousand:
The top 20 percent or 80th percentile: $100,000
The top 10 percent or 90th percentile: $138,000
The top five percent or 95th percentile: $180,000
And Stanford’s financial aid page says:
Zero Parent Contribution for Parents with Income Below $60,000
For parents with total annual income below $60,000 and typical assets for this income range, Stanford will not expect a parent contribution toward educational costs. Students will still be expected to contribute toward their own expenses from their summer income, part-time work during the school year, and their own savings.
Tuition Charges Covered for Parents with Income Below $100,000
For parents with total annual income below $100,000 and typical assets for this income range, the expected parent contribution will be low enough to ensure that all tuition charges are covered with need-based scholarship, federal and state grants, and/or outside scholarship funds.
Families with incomes at higher levels (typically up to $200,000) may also qualify for assistance, especially if more than one family member is enrolled in college. We encourage any family concerned about the ability to pay for a Stanford education to complete the application process. If we are not able to offer need-based scholarship funds we will recommend available loan programs.
Now, the collegedata.com web site says: 59 per cent of Stanford frosh applied for financial aid, and that that was 987 people. So that suggests that the size of the class is 1650 plus or minus. Same site says 827 were found to have financial need. So that suggests that the other half of the class is from families which make over $200000.
On August 12, 2010 the Stanford Daily said “According to Director of Financial Aid Karen Cooper, the median family income at Stanford is approximately $125,000; by contrast, the median family income in the United States in 2008, the last year for which data are available, is $61,521.†So, the Stanford Daily says the median income of students is closer to the 90th %ile than the 80th. As well, Stanford gives financial aid up to $200000, which is well above the 90th %ile. If you are giving financial aid up to $60000 OVER the 90th %ile income, yes of course financial aid will be the norm.
I would note that the average family income should probably be the average income for families with children, which is higher (basically, retirees have lower incomes). I don’t have a source for the other percentiles, but since the median is used in the bankruptcy code, it’s available here and is about $85,000 for Virginai.
“strong assertions without evidence” Well, yes, guilty. When I was at Berkeley, we thought ourselves gritty strivers, in contrast with the silver-spoon swells at Leland Stanford Junior University. And it’s been nearly forty years now, and I first wrote based on memory from then. But, actually, when I did dig for evidence, it looked pretty decent, no?
I tend to want to know what percentage of kids get these full rides. I’m also a bit skeptical about using student indebtedness as a counterpoint as you seem to suggest by pairing point two and three in te original post. Is student indebtedness low because most students get a full ride or nearly a full ride? Or is it low because most of the students are helps of the rich? A clear way of presenting such statistics might be to note what the median student pays. Or to give us the total tuition collected for undergraduates and the number of undergraduates.
To understand why this is important, you should realize that your point 3 would be statistically valid if Stanford accepted no students whatsoever in the under 75% earning group (tuition is zero because we don’t accept such students) or if they gave one full ride scholarship and only accepted one such student. The headline statistic would be technically correct but grossly deceptive.
Similarly, the debt number is nice for the students, but says little enlightening about actual practices. Is it low because you mostly exclude the poor?
If it turns out you don’t, and most of the class pays MUCH less than the headline price, then the question turns to why such a high headline price. The obvious answer is signaling. But in the thread you actively resist the signaling explanation when you want to push back against other (less generous?) schools following the signaling lead.
So either the statistics you use are misleading, even to you perhaps, or there is a tension in your views that you haven’t resolved.
There are buckets of admitted students at elite universities: One bucket for the bright student who has parents making $101-150K, who has to be at 2400 SAT levels and over 4.0 grade averages and captain of a team or president of a major club-or won a Nobel Prize. Another bucket is for wealthy and legacy students whose parents will pay the full price of tuition, room and board (no merit scholarship or financial aid), and whose SAT score need only be around 1900 and have a 3.5 average and be a member of a team or club-no Nobel Prize necessary. If the rich or legacy student has superstar credentials, so much the better. But trust me, I know there are more 1900 SATs and 3.5 GPAs in this bucket. Anyway, another bucket is for the student whose folks never went to college and who are truly working class or poor (this includes what we who came of college age in the 1970s call “affirmative action”). They often have the same SAT and GPAs of the rich or legacy kids. And again, there are superstars within there, too. Another bucket is for sports guys and a few sports gals who run the gamut in SAT and GPAs.
It’s all okay to me. The beauty of the elite universities has always been the top profs and the contacts for the elite world of business, government and in between. That’s why you go to Stanford if you can and again God bless them for it!
What has bothered me is the decline of taxpayer support of the State or public universities. What has bothered me is the decline and loss of our manufacturing base, and increasing automation, which makes getting a job after college harder than it was a generation ago. And while Stanford’s a “zero” in net inflation adjusted tuition increases, we know there has been a 500% increase in tuition in many state universities over the past generation. All of these things are where the squeeze is felt, and it is felt by working class, middle class and especially upper middle class parents such as yours truly who now has a second mortgage payment equivalent-all to keep my eldest child from ridiculous debt. We’ll make it, we hope, as long as I hold my job, I suppose. But man, the things in this last paragraph are the issues, aren’t they?
Have a look at this: http://www.collegedata.com/cs/data/college/college_pg03_tmpl.jhtml?schoolId=781
For the Stanford class admitted in 2011, about 59% applied for financial aid, and of all freshman, about 50% were found to have financial aid and were offered aid.
So that means that 41% of freshmen didn’t even apply for financial aid, which Stanford offers to families who make $200,000 or below. And of the applicants for financial aid, some were deemed not eligible. So half of Stanford freshmen were paying the full tuition.
What does that tell you about how many students at Stanford are from rich families?
If Cal, UCLA, and the rest of the UC system were still free, Stanford would be a hell of a lot cheaper. The problem lies with the priorities of the legislature.
Still waiting for CA voters to overturn Prop 13.
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