Cost of College

from www.nytimes.com

July 21, 2008
With No Frills or Tuition, a College Draws Notice
By TAMAR LEWIN

BEREA, Ky. — Berea College, founded 150 years ago to educate freed slaves and “poor white mountaineers,” accepts only applicants from low-income families, and it charges no tuition.
“You can literally come to Berea with nothing but what you can carry, and graduate debt free,” said Joseph P. Bagnoli Jr., the associate provost for enrollment management. “We call it the best education money can’t buy.”

Actually, what buys that education is Berea’s $1.1 billion endowment, which puts the college among the nation’s wealthiest. But unlike most well-endowed colleges, Berea has no football team, coed dorms, hot tubs or climbing walls. Instead, it has a no-frills budget, with food from the college farm, handmade furniture from the college crafts workshops, and 10-hour-a-week campus jobs for every student.

Berea’s approach provides an unusual perspective on the growing debate over whether the wealthiest universities are doing enough for the public good to warrant their tax exemption, or simply hoarding money to serve an elite few. As many elite universities scramble to recruit more low-income students, Berea’s no-tuition model has attracted increasing attention.

“Asking whether that’s where our values lead us is a powerful way to consider what our values are,” said Anthony Marx, the president of Amherst College, who considered the possibility of using Amherst’s $1 million-per-student endowment to offer free tuition but concluded that it would make no sense, given Amherst’s more affluent student body and the fact that the college already subsidizes about half the cost of each student’s education.

“We’re not Berea, much as we respect them,” Mr. Marx said, adding there would be no social justification for giving free tuition to students from wealthy families.
Although this year’s market drop is taking its toll, the growth in university endowments in recent years has been spectacular. Harvard’s $35 billion endowment, Yale’s $23 billion, Stanford’s $17 billion and Princeton’s $16 billion put them among the world’s richest institutions.
Such endowments have helped make higher education one of the nation’s crown jewels. As Harvard’s president, Drew Gilpin Faust, said in her spring commencement speech this year, endowments at Harvard and other research universities help fuel scientific advances as government support is eroding, and help drive economic growth and expansion in a difficult economy.

Although most universities have only modest endowments, the wealth of the richest has made them increasingly vulnerable to criticism from parents upset about rising tuition costs, lawmakers pushing them to spend more of their money and policy experts arguing that they should be helping more needy students.

“How much do you need to save for future generations, and at what point are you gouging today’s generation?” said Lynne Munson, of the Center for College Affordability and Productivity in Washington.

In January, the Senate Finance Committee requested detailed endowment and spending data from 136 colleges and universities with endowments of at least $500 million, with a possible eye to forcing them to spend at least 5 percent of their assets each year, as foundations are required to do. Large, tax-free endowments “should mean affordable education for more students, not just a security blanket for colleges,” said Senator Charles E. Grassley, Republican of Iowa, who is reviewing the data.

The commissioner of the Internal Revenue Service’s tax-exempt section said this spring that he wanted his agency to be more aggressive in ensuring that universities made “appropriate use” of their endowments. And officials in Massachusetts are studying a proposal for a 2.5 percent tax on the part of university endowments greater than $1 billion — a threshold exceeded by nine of the state’s universities.

“The endowments have grown to such an astonishing extent that people are asking, if the wealth and the value of the tax exemption are increasing, is the public benefit increasing, as well?” said Evelyn Brody, a tax professor at Chicago-Kent College of Law.

This year, Ms. Brody said, the debate has entered new territory. Traditionally, discussion about endowments has focused on the balance between using the money for the current generation versus saving it for the benefit of future generations.

“Endowment spending has usually been a ‘when’ question, about when the money would be used for a charitable purpose,” she said. “But now, it’s also being viewed as a ‘what’ question. What is the money for? And I think that’s new.”

In part, it is simply a question of itchy fingers. When one sector amasses great wealth, other sectors find it irresistible.

“That’s why Henry VIII dissolved the monasteries in the 16th century,” Ms. Brody said. “In those days, it was real estate, which was not easy to hide. Now it’s the disclosure, which makes the universities’ wealth impossible to hide.”

The mounting scrutiny by lawmakers has already prompted some action. Dozens of wealthy colleges have increased their aid to low- and middle-income students, many substituting grants for loans. Many have announced plans to expand their student bodies, and some are doing broader outreach and working with nearby K-12 schools to improve academic preparation.
Nonetheless, according to 2002 data, only one in 10 of the students at the nation’s most selective institutions come from the bottom 40 percent of the income scale. And the proportion of low-income undergraduates at the nation’s wealthiest colleges has been declining, as measured by the percentage receiving federal Pell Grants, for families with income under about $40,000. At most top colleges, only 8 to 15 percent of students receive Pell grants.

At Berea, more than three-quarters of the students receive Pell grants.
Overall, Berea’s statistics speak worlds about the demand for affordable higher education; this year, the college accepted only 22 percent of its applicants. Among those accepted, 85 percent attended Berea, a yield higher than Harvard’s.

Berea can be a haven for the lower-income students at high schools where expensive clothes and fancy homes demarcate the social territory.

“When I first heard about Berea, I didn’t think I wanted to come here,” said Candice Roots, who will be a junior in the fall. “But I visited in my senior year, and as soon as I got here, I knew this was what I wanted. Everybody was like me. You don’t have to have all this money to fit in.”
With its hilly campus, Georgian president’s mansion and old brick buildings, Berea looks much like any elite New England college. But its operating budget is less than half that of Amherst, which has a $1.7 billion endowment and about 100 more students. Faculty pay is much lower, and the student-faculty ratio higher. With no rich parents and no legacy admission slots, fund-raising is far more difficult at Berea.

Lacking tuition, Berea receives 80 percent of its $43 million education and general budget, and about two-thirds of its $55 million operating budget, from the endowment income.
Families bringing a student to a campus interview may stay, free, in a four-bedroom house, complete with flat-screen television and handmade sleigh bed. Students who are single parents have their own residences.

To satisfy the work requirement, some students have jobs in the academic departments, administrative offices and labs, while others are assigned to the college farm, the workshops that make and sell traditional mountain crafts (its handmade brooms, especially, are well-known treasures) or the college-owned hotel, which anchors the town square.
Mr. Marx, in homage, keeps a Berea broom in his Amherst office.

While Mr. Marx is not trying to match Berea’s student population, he is proud of Amherst’s efforts to attract top students from all income brackets. The college has increased the proportion of Pell recipients to nearly 20 percent of its student body, from about 15 percent five years ago, for example. With more than half of Amherst’s students on financial aid, the college announced last year that it would replace loans in all aid packages with grants. A full-time staff member recruits community college graduates as transfer students. Admissions are need-blind, for both American and international applicants.

Although he, like other college presidents, opposes the idea of a required 5 percent payout, Mr. Marx said the current debate over the use of endowments was healthy.
“Congress, the media, the public all have an interest in knowing whether we’re using our resources to make sure the best students have access to the best education,” he said. “They should be asking, are we really affordable? Are we offering the highest quality education? Are we directing graduates to think about their social responsibilities?”

Berea’s president, Larry D. Shinn, also opposes a required 5 percent payout but wants colleges pushed to do more for needy students.

“You see some of these selective liberal arts colleges building new physical education facilities with these huge sheets of glass and these coffee and juice bars, and charging students $40,000 a year, and you have to ask, does this contribute to the public good, or is it just a way for the college to keep up with the Joneses?” Mr. Shinn said. “We are a tax-exempt institution, so I think the public has a right to demand that our educational mission be at the heart of all of our expenditures.”

I had applied to Berea as an international student from India back in 1991. If memory serves me right, I got a nice letter back from them saying that they appreciated my credentials but their policy was to reserve spots for US Citizens ideally from Appalachia. Even back then, Berea had a solid reputation and its model is very unique and ought to be emulated.