Too High a Price?

October 1, 2012

Grinnell College, which this year reported the fifth-largest endowment of any liberal arts college, announced Thursday that it would spend the next few months engaged in a conversation with campus stakeholders about changing its financial aid policies – including potentially, but probably not, going as far as making changes to need-blind admission. That makes it the second high-profile liberal arts college, following Wesleyan University this summer, to broach the topic in recent months.

Grinnell's announcement stands out for two major reasons. Grinnell is one of the wealthiest liberal arts colleges in the country, so the idea that it would view its current financial aid model as unsustainable could be a bellwether that the sector as a whole is reconsidering the model. Second, the college's administrators are taking an unusually public approach to a discussion that arouses strong emotions, trying to educate all campus constituents on why they think change might be necessary and hoping that, in doing so, they can mollify potential critics. 

"I think this is a conversation we can have in a reasonable manner," said President Raynard Kington in an interview. "I think everybody realizes that something has to change or that we'll have to face even tougher choices down the road."

In a letter to alumni Thursday, Kington raised the idea of modifying the college’s financial aid policies, saying that while its current finances are not threatened, the long-term trajectory is unsustainable. “In recent years endowment growth has slowed with the global economy, while families’ need for aid has increased significantly,” Kington wrote. “These trends are cause for concern. None of us would ever want to see the day when we had to choose whether to spend our resources on excellence or access. Put more starkly: We never want our values to depend on the markets.”

By many metrics, Grinnell is thriving. Applications, the academic profile of its incoming class, and alumni engagement are all up. The endowment grew almost 19 percent last year, reaching $1.5 billion. Ratings agencies just reaffirmed the college's AAA bond rating, the highest rating available. 

But long-term trends -- which Kington and the rest of the college's administrators modeled this summer -- worry them. The college's discount rate, the amount the institutional spends on financial aid as a portion of its gross tuition revenue, is more than 60 percent, and financial models predict that it will top 70 percent within five or 10 years. The only institution with a higher discount rate he could find, Kington said, was Harvard, which has a $32 billion endowment. Grinnell relies on endowment returns for about half of its budget. 

At the same time, there is evidence that endowments likely won't grow at the same rate they grew in the 1990s and early 2000s. Families are also showing signs of reluctance to accept higher tuition prices.

"We wanted to do this from a position of stability rather than wait five years for a crisis," Kington said in the interview. 

Kington said the college has relied too heavily on its $1.5-billion endowment in recent years to fund operations and is looking to increase other sources of revenue -- notably philanthropy and tuition revenue. “Financial aid policies are a key area where we need to think about the future -- to be intentional and proactive about protecting our values,” Kington wrote.

Grinnell's discussions follow closely on the heels of an announcement this summer by Wesleyan University that it was moving away from need-blind admissions, saying that if the college could not generate enough money to cover financial aid, it would consider students' financial need in some of its decisions (possibly 10 percent of the class). The move has generated backlash among students, alumni and others at the university. Grinnell administrators said a policy like Wesleyan’s is on the table.

Moody's Investor Service applauded Wesleyan's announcement. "These actions ... are credit positive for Wesleyan, as well as other selective private colleges that could look to this model as an avenue for growing tuition revenue in an increasingly difficult market burdened by stiffening tuition price resistance and rising student loan burden," the rating agency's analysts wrote. 

Many colleges and universities are need-blind, but the pairing of need-blind admissions and a pledge to meet the full financial need of all admitted students has been regarded as something of a gold standard in college admissions. About 40 colleges, mostly elite private institutions with sizable financial endowments, pledge to do both.

Grinnell, Wesleyan and a host of other colleges adopted both need-blind admissions and meet-full-need financial aid policies in the 1980s. Since then, many have seen their discount rates rise. In recent years, Grinnell’s tuition hikes have not resulted in revenue increases, as aid has increased correspondingly.

There is some variety, however, in how colleges and universities approach being need-blind. Some are need-blind only for students in the United States, and others become need-aware for students they select off the waitlist. Kington said Grinnell is need-blind for students on the waitlist, and while the college is nominally need-aware for international students, in recent years the discount rate for those students has been roughly equal to that of domestic students. 

Grinnell administrators have said repeatedly since Thursday’s email that a complete rejection of need-blind admissions is highly unlikely. "It's out there because we want to, as an institution, decide to be need-blind," Kington said.

Instead, the college has mentioned a variety of other measures that could help lower the discount rate. Some of those measures would not affect the college’s need-blind status, such as raising the cap on student loans and efforts to encourage more full-pay students to attend. Others would modify that status slightly, such as moving away from need-blind for international students or when selecting students off the waiting list.

"They are doing what a set of institutions including my own are doing -- protecting the grant aid to the lowest-income student but marginally increasing loan levels for other grant aid recipients," said Ronald Ehrenberg, a Cornell University economist and higher education expert and member of the Board of Trustees of the State University of New York, in an e-mail. "Institutions are realizing the generosity of their grant aid programs was not sustainable and are trying to redirect funds back to operations."

"Everyone's having this discussion," Kington said. "Whether it's out in the open or not."

Kington and the rest of the administration are going to great lengths to educate the faculty, staff, students, and alumni on the financial challenges the university faces. They are hosting a series of town-hall meetings, posting presentations online, and are even developing a computer station where users can play with the university's budget models and projections. Exactly what course Grinnell takes will be hashed out over a series of meeting between administrators, students, alumni, faculty members and the university’s Board of Trustees over the next few months.

Grinnell's Timeline

Sept. 24 and Sept. 27: President Raynard Kington, chief financial officer Karen Voss and vice president for enrollment Joe Bagnoli Jr., held town hall meetings with students, faculty, and staff about the college’s finances and some of the options.

Oct. 5: Voss and Bagnoli will hold another town hall meeting for the college’s Alumni Council and other alumni officers. Following that, the university will post online an audio slideshow of the presentation.

Oct. 12 and 13: Kington will lead a discussion of the issues with the college’s Board of Trustees including issues raised in the town hall meetings.

December: The faculty will make recommendations about future financial aid policies. Kington will then make his own recommendation to trustees later that month.

February: The Board of Trustees will vote on a course of action.

 

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