Upping the Ante

Penn will pay full costs for students with family incomes up to $50,000 -- possibly altering aid equation at top colleges.
March 24, 2006

The University of Pennsylvania announced Thursday that it would pay for tuition, room and board for all students from families with incomes of up to $50,000. In topping similar aid commitments from wealthier universities, Penn may set off competition among leading institutions that could benefit low-income students and might attract more of them to enroll at institutions they may have considered too expensive in the past.

"This is something we've been waiting to see happen, and anticipating for a couple of years," said Gordon Winston, director of the Williams College Project on the Economics of Higher Education. "It is simply delicious. We have these enormously wealthy schools competing energetically for high ability, low-income students. They are out there slugging it out with each other to give equality of opportunity to a lot of students who richly deserve it."

Penn is increasing its aid budget by more than $6 million for next year to pay for the shift, which comes a week after Stanford University announced a plan to cover costs for families earning up to $45,000, the same level announced a year ago by Yale University (although some students there may need to do some borrowing).

Also this month, the Massachusetts Institute of Technology announced that it would match Pell Grants -- the major federal program for low-income students. Those moves in turn followed pledges to eliminate loans and parental contributions at Harvard University (announced in 2004, with a $40,000 income limit) and the elimination of loans even earlier at Princeton University (in 2001). A number of public universities -- such as the University of North Carolina at Chapel Hill -- have announced similar programs, although some of the income levels and the college price levels are lower than those of private institutions.

Aid experts said that Penn's announcement was significant for several reasons. By exceeding the levels of Harvard and Stanford, Penn may be challenging those institutions -- and others -- in the kind of bidding war low-income students would long to see. It is also notable that Penn -- while hardly poor, with an endowment of well over $4 billion -- has demonstrated the possibility of beating far wealthier institutions when it comes to aid pledges. The endowments of Harvard and Yale are more than five and three times, respectively, the size of Penn's.

Bonnie Gibson, vice president for budget and management analysis at Penn, said that about 80 percent of Penn's spending on financial aid comes from operating funds, while almost that large a share at the other institutions that have increased their aid programs has come from endowment income. "This is hard for us, and involves precious resources," she said. "But we've put it on top of the priority list."

A number of institutions may now try to expand what they are doing. "Penn is not going to be the last," said Kristine E. Dillon, president of the Consortium on Financing Higher Education, a group of 31 top private colleges and universities. "All of these schools are looking hard at the messages that they convey about the availability of financial aid."

That's a welcome change, said Robert Shireman, director of the Institute for College Access and Success. "I think we're beginning to see a lot of the more selective institutions seeing the benefit of simple messages that tell low-income students that financial aid is there," he said. While money has in fact been available at these institutions for years, Shireman said that uncertainty and complexity discouraged too many students.

"This whole complicated 'maybe you'll get aid' message made cost issues more of a barrier than they necessarily have to be," Shireman said.

Institutions do look at what others are doing in aid and build on ideas that they like. Shirley Ort, director of financial aid at Chapel Hill, where she led the development of that university's efforts, said she hoped Carolina's program encouraged others just as Princeton's program spurred her on. "I could not be more pleased in the growth of these programs," she said.

Dillon noted that there is concrete evidence now that approaches like the one Penn announced have a demonstrable impact. Researchers at the National Bureau of Economic Research recently found that Harvard's policy led quickly to increases in the percentage of students from families with incomes under $40,000 who enrolled.

Princeton's elimination of loans is in many ways the most generous aid plan out there, and it was developed following years of research suggesting that low-income students were hesitant to borrow. But Dillon said that Princeton's plan may have lacked the public impact of the other plans because it didn't have a precise income level attached to it. "Harvard managed to get attention -- simple, concise attention," she said, by putting an income level out there. "People could say 'they are talking to me,' " she said.

For many aid experts, the $64,000 question (as it were) about the various aid plans is whether they will increase the percentage of students at top colleges who come from low-income families or just benefit those students who are already making it to the Ivy League. Shireman and others noted that many of the private universities making these announcements are historically places where student bodies have been largely middle or upper class.

Winston, of Williams College, said there is evidence that the pool of high ability, low-income students is larger than those currently enrolling.

About 10 percent of the students at the colleges in the Consortium on Financing Higher Education come from the bottom 40 percent of family incomes in the United States. A recent study from his center found that 13 percent of students who earn at least a 1420 on the SAT (before the addition of the new writing test, and including equivalent ACT scores) come from the bottom 40 percent of family incomes. Slight reductions in that SAT level, which he termed "ambitious," would send that percentage even higher.

Such data suggest, Winston said, that the real benefit of announcements like Penn's may be that the pool of low-income students at top colleges can increase. "Some people are imagining that there are a gazillion students out there" who could meet Ivy admissions requirements and are scared off by high prices, and the numbers just aren't that high, Winston said. But there are significant numbers of students who are in that category.

"To me, this says very, very importantly that these places can expand their share of low-income students without watering down standards or abandoning their view that you've got to be pretty sharp to enroll," Winston said. And as long as there is such a pool to expand, he said that announcements like Penn's are great news for academe broadly.


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