Professor Gil Skillman on the Economics of “Need-Blind” Admissions at Wesleyan

A week ago, Gil Skillman, professor of economics and former Chair of the Faculty at Wesleyan, send an email out to the need-blind activism listserv detailing his thoughts on the University’s situation. As Chair of the Faculty, he participated in Board of Trustees and administrative meetings where the policy change was considered and crafted. Skillman’s stated goal is to “summarize [his] understanding of the bases for [the University’s concerns about the effectiveness and sustainability]” of the need-blind policy. The message is reproduced in full below; it is unedited except for my inclusion of a note at the end of the text.


Greetings, all.  I’d like to thank Anwar for adding me to this list, and I’d like to contribute to the discussion by offering my take on the economic considerations driving the University’s decision to go from being “need-blind” to “need-aware.”  But first, some context:  I’ve been a supporter of the principle of need-blind admissions and financial aid policy since joining the Economics Department (and CSS) in 1993, and believe that returning to need-blind should be our long-run goal, contingent on certain financial capability conditions being met (more on that below).  But as a long-term member of the University’s Budget Priorities Committee (BPC) by virtue of being faculty representative to the Board of Trustees Finance Committee, and then Vice-Chair and Chair of the Faculty the past two years, I have shared the administration’s concerns about the effectiveness and sustainability of this policy given the University’s current financial situation. What I’d like to do here is summarize my understanding of the bases for this concern.  I should emphasize that I am representing my views on the matter, which are not necessarily the views of the administration or the Board of Trustees.

Here is the problem in a nutshell: on one hand, Wesleyan’s financial aid costs have been increasing dramatically for some time, both in absolute terms and as a percentage of the operating budget.  On the other hand, Wesleyan has a low endowment per student (which, to anticipate my reaction to Anwar’s recent post about Davidson1, is a more relevant measure of financial capability than total endowment) relative to the institutions with which we compete for students.  Taken together, these facts imply that Wesleyan has faced increasingly severe tradeoffs in attempting to maintain its commitment to need-blind admissions and financial aid, tradeoffs that have been manifested in a combination of high levels and rates of growth in tuition and fees, high rates of spending out endowment income and annual gifts compared to our peers, relatively ungenerous financial aid packages, relatively less resources available for academics and student services, and budget-driven increases in the size of the student body.  While the administration has done an admirable job of buffering the impact of increasing financial aid costs by spreading the burden across these several dimensions while implementing ongoing savings in energy use and other areas, the burden is real and significant, and it’s increasingly unclear what goals are being served by Wesleyan’s commitment to this policy.  For example, over the last 11 years, despite our commitment to need-blind and the dramatically rising financial aid expenditures it has entailed, the percentage of students coming from high-income families has rising by over 50%, while the percentage of students come from middle-income families has fallen by almost 30% (and from low-income families by around 15%).  Worse, for reasons explained below, it may be the case that these changes are at least in part *caused* by our attempt to maintain need-blind with an endowment per student that is lower than most of the schools we hope to compete with.

Here are the corresponding details:

1.  According to current budget projections, by 2013 Wesleyan’s financial aid budget will have *quadrupled* since 1997, and more importantly, will have almost *doubled* (from 15% to almost 29%) as a percentage of the university’s operating budget over this period.  No other significant component of the budget has increased at comparable rates over this period.

2. The resource that would ideally make it possible to cover these increasing costs while remaining competitive in other dimensions is Wesleyan’s endowment, and as mentioned above the relevant measure of our comparative financial capability is endowment per student.  According to a 2010 study, Wesleyan ranked 22 out of 23 top liberal arts institutions in this measure, with the median endowment per student in this group being about double that of Wesleyan.  (According to that study’s data, Davidson College’s endowment per student was 50% higher than Wesleyan’s.)  It is unlikely that our ranking has improved much if at all since then.

The consequence of these two considerations is that Wesleyan must cover the rising absolute and relative burden of need-blind-driven financial aid expenditures by some combination of cutting expenditures for educational and student services, increasing tuition and other fees, undercutting Wesleyan’s future financial capacity, increasing the size of the student body, and providing less generous financial aid packages, and doing these things to a much greater extent, on the whole, than the institutions with which we try to compete.  In its ongoing efforts to accommodate the increasing costs of financial aid without severely impacting any one aspect of Wesleyan’s budget priorities, the administration has continually sought out opportunities for cost-saving, and has tried to spread the burden across all of these dimensions.  However, the rising absolute and relative burden of financial aid has still had noticeable and primarily negative effects.

3. One way to cover the increasing costs of financial aid is through raising tuition and fees.  In fact, in direct reflection of our relatively low endowment per student, Wesleyan is strongly tuition-dependent compared to its intended peers. I doubt that I would surprise anyone here in noting that Wesleyan’s tuition and fees have been relatively high and increasing at a high rate over the past many years.  This is necessary because, despite our relative budgetary over-reliance on endowment and annual gift income (more on that in a bit), revenues from these sources haven’t come near covering the annual increase in financial aid costs, let alone the increasing costs of other budget priorities.  Recent changes in the economy and the academic market may inhibit Wesleyan’s continued ability to cover financial aid costs by increasing tuition and fees in the same rate as in the past, and current long-term budget projections correspondingly presume a much lower rate of tuition increase.  This change in the economic environment means that in the future we cannot lean as heavily on this primary source of support for financial aid costs flowing from our need-blind policy.  We could imagine continuing to raise tuition and fees faster than our peers, but economic studies of the academic market suggest that doing so would put us at a serious disadvantage in competing for students.

4. Another way that Wesleyan has tried to accommodate the rising costs of financial aid is by maintaining a significantly higher rate of spending out of annual gifts and endowment income relative to our peers.  Due especially to the cumulative effects of compounding, this practice ensures that Wesleyan’s relative financial capacity, as measured by endowment per student, will continually shrink relative to our peers, putting us in an ever-worsening financial condition relative to that of the institutions we try to compete with.  In view of this, President Roth has, I think wisely, insisted that Wesleyan reduce its annual “draw” on endowment and gift income, and Wesleyan has accomplished this over the past several years.  This reduced spending rate, while still higher than that of many of our peers, means that for the intermediate future at least we not be able to rely on this source to the same extent to underwrite the rising costs of financial aid.

5. In responding to the financial challenges caused by the 2008 economic crisis, the university increased the steady-state size of the student body by 30 students per class year.  Although this was intendedly a temporary response, past experience with similarly budget-driven increases in the number of students suggests that Wesleyan won’t be able to reverse the increase any time soon.  Of course, increasing the student body further worsens our relative standing in endowment per student, other things equal, and in order to maintain our competitiveness with other institutions, implies that other aspects of costs must increase somewhat (though not necessarily in proportion, as there may be some efficiencies from spreading overhead costs).

6. Another way Wesleyan has met the rising relative costs of financial aid is by cutting or conserving on costs in other areas, which has  meant cutting administrative and other supports for faculty and students, increasing class sizes, and the like.  As a consequence, our average class size is higher than that of most of our peers.  A recent reduction in administrative support via a voluntary separation program has meant that the faculty has had to spend more time on clerical matters rather than teaching and research.  The university’s overall support for scholarship and research has not kept up with related cost increases. Et cetera. It may be the case that no one such change is visible, but taken altogether, these cuts surely have an impact; they may help explain, for example, why Wesleyan has been gradually sinking in the US News and other college rankings over the years.

7. Finally, ever since I’ve been here (and surely for some time before that), Wesleyan has accommodated its commitment to meet the financial need of all admitted students (save for international and transfer students, of course; if the policy were extended to all students, which it should be if need-blind were a matter of categorical principle, then all the problems noted here would be correspondingly exacerbated) by offering relatively less generous financial aid packages. Since I suspect that this response has had onerous unintended consequences, I want to develop this point in more detail.

As President Roth has pointed out in a recent blog, the concept of “need-blind” is in at least one important sense a sham, in that a commitment to “need-blind” admissions and financial aid policy doesn’t tell you anything of itself about the ability of a college or university to make attendance equally financially accessible for students from families of all income levels.  What really matters (and I’m coining a term here) is whether the institution’s financial aid packages are “need-neutral,” that is, have the same true net coverage of assessed financial need, regardless of the level of need. Crucially, given the reality that Wesleyan competes with other colleges and universities for students, need-neutrality must be assessed in both an absolute sense and relative to the financial aid packages offered by competing institutions. To put the matter simply, given Wesleyan’s current financial standing as measured by endowment per student, we cannot afford to maintain “need-blind” admissions along with truly *need-neutral* financial aid packages.  In fact, we have not been able to do this for some time, and that fact has arguably had substantial consequences that I’ll discuss below.

There are two key dimensions in play regarding the competitiveness, and thus the effective need-neutrality, of our financial aid packages:  how expansively the institution defines “need” (including such considerations as what earnings expectation it has for students and how many trips home during the school year are allowed), and what percentage of assessed need is met by loans instead of grants. For over 20 years, Wesleyan has met the attendant costs of its “need-blind” policy in part by offering financial aid packages based on less generously defined need and a higher loan to grant ratio relative to many of the institutions we seek to compete with. Over this period, Wesleyan has typically been at or near the top of a list of our peers in average loan burden.  It remains to be seen how this will be affected by Roth’s decision, when he first came to Wesleyan, to eliminate loans from financial aid packages for low-income families; however, given the budget limitations noted above, students from middle-income families are likely to continue to bear above-average loan burdens.

Has the dramatic absolute and relative increase in our financial aid budget noted in point #1 ensured need-neutrality, and thus equal de facto financial accessibility of a Wesleyan education across family income levels?  Apparently not: evidence from senior surveys over the past ten or so years shows a substantial shift of the income distribution of Wesleyan’s student body, with a sharply rising percentage of students coming from the highest income levels and a sharply falling percentage of students from the broad middle range of income.  In particular, from 2001 to 2011, the percentage of students coming from families with at least $150,000 in annual income has gone from 30% to 47%.  This is worth repeating:  despite the University’s commitment to “need-blind” admissions and financial aid, and despite the fact that financial aid has almost doubled as a percentage of the university’s operating budget over the past 15 years, the percentage of students in the senior class coming from the highest income levels has gone from less than a third to almost half in roughly the same period. Most of this increase can be accounted for by a corresponding decrease over the same period in the proportion of students coming from families in the $50,000 to $150,000 range–from 51% of seniors in 2001 to 37% of seniors in 2011. (Over the same period, the percentage of students coming from families with income less than $50,000 fell slightly, from 19% to 16%.)

In assessing the above changes, keep in mind that “need-blind” financial aid is supposed to even out across family income levels economic considerations pertaining to decisions of where to attend school.  So Wesleyan hasn’t been trying specifically to attract high-income students and drive away middle-income students; quite the contrary.  Yet that’s what’s been happening.

8. So Wesleyan’s “need-blind” policy has apparently failed to ensure de facto equal financial accessibility across income levels, as judged from the changing income distribution of successive senior classes.  But what accounts for these changes?  It’s possible that they’re due in part to broader changes in our society (e.g., changes prompting more attention paid to the full net costs of college) or in the overall academic market (e.g., the increasing tendency of public sector institutions to compete for students by offering “merit-based’ scholarships), but there are also some indications that the changes have to do with the budget-driven ungenerosity of Wesleyan’s financial aid packages relative to the liberal arts institutions we compete most closely with.  In other words, there is some reason to believe that our “need-blind” policy is not only ineffective, but counterproductive, given our current financial constraints.  This question needs to be investigated more thoroughly, but here is one clue:

While Wesleyan’s ranking among 12 other peer institutions in the ratio of grant aid to total tuition revenue (i.e., our overall “tuition discount rate”) stayed the same–that is, 12th out of 13th–from 2001 to 2011, over the same period our ranking in grant aid relative to tuition *for students receiving aid* has jumped from 11th to 7th, reflecting a substantial relative increase in the average grant awarded per student receiving aid.  This plus Wesleyan’s relatively greater reliance on loans for students with family incomes over a certain level and the substantial reduction in the percentage of students coming from middle-income families suggests the possibility that our financial aid packages are actually influencing who ends up coming to Wesleyan, increasing the percentage of students with high need and correspondingly reducing the percentage of students from middle-income families who decide to come to Wesleyan. This in turn raises the possibility that freeing our financial aid policy from the inflexibility imposed by a categorical commitment to “need-blind” might make it possible to achieve a more balanced yield of students across income levels by permitting Wesleyan to offer more competitive financial aid packages to middle-income students.  Any resulting tradeoffs of high-income for middle-income students could not be one for one, of course, given Wesleyan’s current financial limitations, but it might still be more balanced than the sharply upward-sloping income distribution of students we now face, if the information gleaned from senior surveys is accurate.

9. These hypotheses about causes are necessarily tentative, pending the collection of more conclusive data.  But in any case there is evidence that our current need-blind policy increasingly fails to meet the goal of ensuring that students from families of all income levels find it equally attractive to come to Wesleyan, and fails despite commanding an ever-larger share of Wesleyan’s budget.  Fundamentally changing this situation without seriously exacerbating other problems would require a substantial increase in Wesleyan’s endowment per student, which would allow us to cover increases in the financial aid budget while providing competitive financial aid packages and maintaining our relative commitment to educational programs and services.

Perhaps a case can be made for maintaining our commitment to need-blind even without a substantial increase in our financial capacity to support it. But those who want to make that case should be aware, in light of the considerations raised here, that doing so will likely have significant negative consequences in other areas without ensuring fulfillment of the goals typically associated with the policy.

Sincerely,
Gil Skillman
Dept. of Economics


1 The post mentioned here was a link to a Businessweek article covering Davidson College’s commitment to offer all admitted students full financial aid while simultaneously eliminating loans from aid packages.



8 comments ↓

#1   Andrea on 09.28.12 at 5:03 pm

I’m not clear how the logic in this paragraph is working. Getting rid of need-blind policy might make it more possible for us to make competitive packages for middle income students by precluding the possibility that lower income students can attend?

“This in turn raises the possibility that freeing our financial aid policy from the inflexibility imposed by a categorical commitment to “need-blind” might make it possible to achieve a more balanced yield of students across income levels by permitting Wesleyan to offer more competitive financial aid packages to middle-income students.”

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#6   Mike on 10.09.12 at 4:38 pm

Without speaking to how the middle class bracket is changing at other schools, we don’t know if that drop is a nation-wide drop in the middle class attending the top, most expensive private schools, or if it is a Wesleyan-specific phenomena. While this drop has been happening, we’ve been able to award MORE aid to students in need of aid, as he pointed out. Who says the middle class isn’t coming to Wesleyan because they aren’t being offered good financial aid packages? My family is in the dwindling middle-class bracket, and Wesleyan gave me far more money than the schools Wesleyan competes with that I was also accepted to. Wouldn’t it have been easy to ASK people why they didn’t choose Wes, and see if it was the cost/financial aid? Wouldn’t a more reasonable statistic be the percentage of middle class students who are accepted but don’t matriculate? If applications from the middle class are down, of course the number of matriculated middle class students will be down.

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