One of my personal enduring mysteries was why do the top 100 private colleges charge about the same amount of money for tuition.
Given their wide variance in size, location, and endowments, you would expect to see a wide variance in price.
Except you don’t. The list price for a college education is about the same.
And then I spoke to someone who is deep in the bowels of Stanford’s budget and figured out how exactly Stanford is screwing the middle class.
Let’s begin with the following startling observation. Stanford has two sources of revenue. The first is a draw on their endowment. The second is their ability to issue bonds to borrow to build (check out http://bondholder-information.stanford.edu/home.html) Tuition, is a drop in the proverbial budget, a rounding error.
Just to make it real, the draw on endowment is about 5% a year so
21.4 billion * 5% = 1.07 billion
Student tuition = 14k * 3 quarters * 7k = 294 million
Ah you say, look! it’s 30% of the budget… except. about 4679 get some kind of tuition reduction, so let’s cut that number in half so it’s about 150 million dollars or about 15% … A drop in the proverbial bucket in a billion dollar budget.
Let me think about this for a moment. Stanford benefits from tax exemptions from gifts and simultaneously benefits from tax benefits while borrowing money while demanding money it doesn’t need from parents after tax income.
Hmm…
Let me repeat, the tuition that basically destroys a college graduate’s ability to buy a house or devastates a parents retirement is a rounding error in Stanford’s budget and comes from your taxable income.
Is this about Stanford? Certainly not, it’s about Harvard and Yale and Brown and by implication every institution of higher learning that is charging more money because they can.
Why does your college education destroy your life and your parents retirement? Because we’re stupid enough to pay for it.
As one paying tuition (and getting ready for a second payment), this topic fascinates me too.
I’m surprised you’d say Stanford uses 5% of their endowment every year. That seems high–they really get 5% ROI every year? I guess that’s plausible and I assume you double-checked that number.
What I find frustrating is that the list price bears little relation to the actual price. So many students get aid and tuition reductions that the actual cost varies wildly. My daughter is looking at UNC-Chapel Hill and that also gets into the in-state/out-of-state differences, which also makes the prices quite variable.
So, on the one hand, this is pure microeconomics. Universities are using explicit price discrimination to capture the consumer surplus (I think I’m getting those terms right). I can’t think of another product which is quite so explicit about asking “how much have you got?” when setting the price.
I don’t think I’m surprised or as outraged as you. Universities may be non-profit but they also have unbounded charters. There’s always more they can do with more money so naturally, they want all they can get.
The only solution I can see is to vote with our wallets. I really don’t want to tell my daughter she can’t go to Stanford but I’m having to have the conversation about whether paying that much really worth it.
Yes, I understand the ability-to-pay pricing of undergraduate education from institutions like Stanford who have the means to “meet all need”. The uglier situation are the choices made by institutions with less resources, to spend those resources on discounts for the upper middle class rather than on scholarships for the truly needy, to maximize revenue.
That having been said, my wife and I paid $275,000 of the cost of our son’s Stanford education out of pocket, with financial aid contributing the last 25%. (There were some extra expenses we spent to meet his individual needs, relative to the normal Stanford budget of ~5 years ago when he was there.) We are very much the upper middle class who are neither rich enough to pay full price nor poor enough to have the bill paid for us.
Our son took full advantage of his four years at Stanford. He spent his Junior and Senior years largely in graduate level seminars in his major and related areas, in small seminar rooms with people with first hand experience at the center of their fields — or who simply were the center of their fields. He graduated with a clear understanding of how the world — and our country — works, understanding that he could make a difference, he could lead, and how.
Yes, one of his classmates (who he remembers sleeping through math class) is a billionaire now. Our son chose public service, will never be rich, but we’re confident he’ll make a difference in the world. That made his Stanford education worth it.
I would observe, however, that to oversimplify there are three kinds of students, and the cost of an institution like Stanford is appropriate only to one of the three.
(1) Someone who wants an extension of high school, a place to slide through the academics, maybe explore a little bit, and definitely party. I can think of a nephew who did that quite well at Chico (noting that while appearing to be sliding by he helped start a little internet company, got screwed out of his share by an angel investor brought in by his cofounder, and ended up doing quite well in sales in a corner of Google), for much less than Stanford costs.
(2) Someone who wants to learn specific vocational skills which happen to line up with what colleges teach, such as chemical engineering, a teaching credential for K-12, computer science, or the like. Quite frankly, I think today’s university model will be replaced by online courses plus local discussion sections / labs / TA’s at a far lower cost structure than universities, in the next 50 years.
(3) Someone out to make the most of their college experience, self starter, willing to work very hard and stretch and succeed at what seems insurmountable, and not cowed by being in the room with a Nobel Laureate or ex Secretary of State or whatever. This is the right person for a Stanford, and the right person to invest that kind of money in educating.
So the real question is not so much one of price as it is what is the right investment to make in your daughter. And do you want to hold money back at the undergraduate level so it’s available for professional school, as one of my cousins has done for her children.
Not an easy choice.
The choice is easy. The pricing is criminal. My objection is not the choice, of course, the choice is easy.
Stanford creates opportunities because of how recruiting works. It creates opportunities through exposure. This is all greatness.
The problem is the cost. If you don’t have the money you can’t go. And if you have to borrow the money, then that limits your choices to professions where you can pay.
And so we have a system that takes our best brightest, saddles them with staggering debt and forces them to make professional choices that will allow them to repay that debt efficiently.
And at this point my contempt for Stanford and La Mission Civilisatrice begins. Because the mission to do something great is now constrained to those of us, like myself, who were lucky enough to have parents that could take on the debt.
And the only reason that we have to take on the debt is because the school chooses to extract a pound of flesh because Stanford can.
And that makes Stanford a for-profit company that should be treated like one…