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Paying It Back, Not Forward

February 28, 2012

An analysis of 15 years of alumni giving at one unidentified private university affirms one widely held belief of fund-raisers and casts doubt on another.

Graduates who used loans to finance their undergraduate education were less likely to donate to the college, Jonathan Meer and Harvey S. Rosen wrote in a paper published by the National Bureau of Economic Research.

That’s hardly shocking.

What surprised the researchers is that students who received scholarships -- and who campus fund-raisers have long thought would be eager to “pay it forward” to their beloved alma mater -- tended to donate less than their classmates who didn't need aid.

It stands to reason that most students writing monthly checks to pay off student loans aren’t endowing a campus’s new performing arts center (or even its bathrooms).

But well after their loans were paid off, those alumni remained hesitant to open their checkbooks. Meer and Rosen suggested that reluctance to give was rooted in a lingering “annoyance effect” over having to take out loans in the first place.

For colleges dependent on alumni giving, not getting money from loan recipients could be devastating. As tuition rises, so too does the amount of debt with which students are graduating. Public university loan recipients averaged $22,000 in debt in 2009-10, according to College Board data. That’s about $2,200 more than a decade earlier. At nonprofit private colleges, the difference is starker. Their graduates who received loans averaged $28,100 in debt, a 10-year increase of $5,500.

Rae Goldsmith, vice president for advancement resources for the Council for Advancement and Support of Education, said the reluctance of loan recipients to give provides long-term challenges for college fund-raisers. The key, she said, is keeping young alumni involved with their alma mater even if their loan debts prevent them from giving at that time.

“We hear anecdotally and frequently that people who have student debt are less likely to give because of that debt,” Goldsmith said. “And as debt continues to grow, the implication for fund-raisers is they need to find ways to keep these people engaged in the institution, whether or not they are donors.”

Meer, a Texas A&M University professor, and Rosen, a Princeton University professor, didn’t say which institution’s data they used.

They described the college as a “relatively wealthy” private research university that graduated about 14,400 students between 1993 and 2005. The institution stopped giving loans in 2001 and started meeting a student’s full financial need through scholarships. Students short on cash could still take out loans externally, though few did. The college sounds like Princeton, though the researchers can't say. Princeton's graduation numbers roughly line up with the number of students who graduated during the study's timeframe, and the university eliminated student loans in 2001.

The college in the study offered no merit or athletic scholarships, only need-based awards. About 45 percent of its students received scholarships and 43 percent received loans.  The research team looked at financial giving from the classes of 1993 through 2005, with the most recent data being from 2009.

The study also analyzed whether having an on-campus job impacted giving. Around 40 percent of students had those jobs, but it was found they had no impact on donations.

While the findings about loan recipients didn’t surprise Goldsmith, she said the fact scholarship recipients tended to give less runs contrary to much of what she hears from fund-raisers.

Colleges count on scholarship recipients for donations, and often sell alumni on the idea of paying it forward to the next generation.

The research team found that scholarship recipients made some contribution to the university at about the same rate as their peers, but their gifts tended to be smaller. Scholarship recipients did tend to give more regularly than others, and those who had received large scholarships gave more substantial gifts than their peers who had received less lucrative awards.

Though the researchers didn’t have access to the graduates’ current income, they used data to on college major, current location and other factors to estimate their earnings. They found no evidence that scholarship recipients made less money than those who weren’t awarded a scholarship.

They did find that a combined lack of discretionary income due to loans, combined with the “annoyance effect,” discouraged many loan recipients from giving. For Goldsmith, the CASE executive, that means fund-raisers have to work even harder.

“It’s not a new issue,” she said. “It’s something that fund-raisers deal with every day. The key is to find other ways to keep these individuals engaged in the hope they may give someday. You can’t walk away from students who are not in a position to give because of huge debt.”

 

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