Monday, December 10, 2007

Hurray for Harvard!!!!!

By Richard Vedder

For a year, we have been complaining about Harvard, noting the school has the financial wherewithal to eliminate all undergraduate tuition, which we have advocated. In a study I am writing on federal tax policy for higher ed, I am advocating eliminating tuition at Harvard-like schools for students from modestly above average income families (say up to $90,000 a year), and reducing expected payments for those earning up to double that amount ($180,000 a year).

Harvard has just announced doing something very similar to what we have advocated. News stories indicate that no Harvard student from families with an $180,000 a year income or less will have to pay more than 10 percent of his/her income to the school. Currently, a student from a family with an $180,000 income typically pays $30,000 to go to Harvard --now that will be $18,000. At $120,000 a year income, the family cost of $12,000 probably compares favorably to that at many public universities. Moreover, Harvard is no longer expecting students to take out student loans as part of the financial aid package.

The cost of this to Harvard is chump change --$22 million a year at first. This is less than seven basis points on its endowment. If Harvard is spending 3.25 percent a year from endowment principal annually, now it will have to spend 3.32 percent --big whoop. The school could have gone farther, been bolder, but this strikes me as good, and about right. People from families with $150,000 incomes should be spending something for their expensive education. On technical grounds, I see a need to slightly tweak the formula to avoid some problems, but probably Harvard has already taken care of this.

This does show political heat and public pressure matters. We at CCAP, including our adjunct colleague Lynne Munson, have been yelling at schools like Harvard to do something like this for months, and Harvard is scared out of its wits by a potential endowment spending rule that Lynne, Senator Grassley and others are advocating. This is smart politics for Harvard. But most important, it is a victory for those promoting greater affordability and access to America's premier colleges.

I am going to put crimson lights on my Christmas tree in honor of Harvard this year.


sciencedoc said...

I saw a table in the Wall St. Journal this morning of the before and after costs at Harvard for various levels of income. Even before this announcement, the costs at $60K, $100K, and higher levels of family income seemed pretty modest to me. Families that can do the planning that it takes to get junior into Harvard can do the planning that it takes to pay a modest amount for the privilege of going there. Certainly, they were paying less than what most parents in any of those income brackets would pay at the not-rich state university where I ply my trade. I'm talking about the costs for in-state students; they are far higher for out-of-staters.

The idea that people should not be willing to shell out a reasonable amount to go to Harvard, that Harvard should even be free, is not rational to me, it's even offensive. The idea that someone who can afford to pay something should get a free ride at Harvard, just because they got in and Harvard has the money. Maybe Harvard is doing what it's doing because of market pressures, then fine, but somehow I think not. More likely, they're using their wealth to buy off their critics. While those of us in less rarefied circumstances don't have that option.

TC said...

Vedder: "This is smart politics for Harvard. But most important, it is a victory for those promoting greater affordability and access to America's premier colleges.

That's what it's all about sciencedoc.

sciencedoc: "While those of us in less rarefied circumstances don't have that option." I think that is a good point and that's one of the problems with endowments.

Why do colleges charge out of state students higher tuition? Who came up with that? Is that not a legitimate question about college affordability? Hmm... I wonder.

sciencedoc said...

As I said, I think Harvard was a pretty good deal for middle class students before all of this. Cheaper than State U. If people still want to whine about that, about what a ripoff Harvard is, fine, let them go someplace elsem where they think they might get a good deal. Like State U. Which is a pretty good deal itself.

Why higher out of state tuition? For one thing, the state doesn't subsidize out-of-state students the way it does in-state students.

For another, most of the state universities are charging out-of-staters what the market will bear so as to maximize their financial advantage. aka making a profit on the out-of-staters. To make up for lagging state subsidies, and to be able to compete, sort of, with the private colleges.

TC said...

I'm not really sure I understand the Harvard thing.

I wonder if I had attended Harvard, would I have learned proportionately more in regard to tuition than I learned at the university I went to (Full disclosure: I went to OU where Richard Vedder teaches).

How much smarter would I be for going to Harvard? OU was a relatively small school - at least when I was there. It has grown since I graduated. And if I had it to do all over again, I would go to OU.

After I graduated and got my first job, I found that I could run circles around other recent grads from big name schools.

I think Harvard and the like, are to a degree brand name recognition and credentialing. Harvard doesn't really impress me.

During my career, I hired and fired people. Right or wrong, when I interviewed people for job openings, I was more interested in what subjects they studied, how well they could answer questions in their field of study and how fast they could think on their feet. Quite honestly, my hiring decision was based on the interview - not the college they went to. Going to harvard may make one smarter, but it does not guarantee success in the working world, in my opinion.

Thanks for enlightening me on the out of state question.

TC said...

I got to thinking about out of state tuition again and how out of state students are charged more and I understand the reasons s-doc cited.

From a twisted economical point of view (and a twisted mind to some extent), I think maybe we could apply the same principle elsewhere.

Let's start with fuel. Out of state drivers could be charged $0.20 more per gallon of fuel than in state drivers pay.

That would probably cut summer vacation travel by half and it would reduce demand on oil.

Of course people who drive Yugo's would not be inconvenienced by such a dubious proposition since they just wind up the rubber band every 300 miles.

We could do the same thing in professional sports. Say the Cincinnati Bengals played the the Pittsburgh Steelers in Cincinnati. Anyone from Pittsburgh would be charged an additional 20% on all purchases (Hi Bryan!).

The list is endless - and it would never flush because it's rediculous. So why not let the free market work and charge out of state students the same tuition as resident students?

I think in the beginning, the elite colleges would benefit. But there is a possibility that such a scenario might create some competition and incentive.