To the last dollar

    Illustration by Alexis N. Sanchez / North by Northwestern

    “I believe that all people—regardless of race, creed or color—have the right to be saddled with crushing student debt for the rest of their lives.”

    — Stephen Colbert

    Michael Madaus doesn’t get angry. It’s just not his thing. But the Medill junior is frustrated, though he'll never claim to be a victim. Maybe the culprit is Northwestern, maybe it’s the government or maybe it’s the complex equations controlling his destiny.

    Madaus just wants to get his degree and walk across the stage with the friends who have toiled beside him for the past three years. Unfortunately for Madaus, his sister graduated from college last year, so Northwestern reacted by pulling the plug on half of his financial aid. Now he must graduate early because he can’t afford a fourth year of college.

    “My parents are not suddenly able to contribute more, because they had been hemorrhaging money for years and years,” he says.

    Madaus chose to attend Northwestern because he calculated that the private school's generous financial aid package would end up being cheaper than any in-state public school—the Illinois resident didn't even have to apply to U of I to know that.

    “They were very generous with their financial aid, and if I were to look at it from the outside, even this year, they’re still being very generous with their financial aid,” he says.

    However, their generosity was hardly unconditional. Madaus will graduate with thousands of dollars in debt, spending the money he budgeted for four years of college on three years instead. In order to graduate early, he won't study abroad or complete a second major.

    “I wish there was a way for us to know from the beginning exactly how much this investment is going to cost, so I can evaluate it against how much money I expect to benefit,” he says.

    Madaus is one of more than 20 million Americans currently enrolled in post-secondary education. As tuition prices skyrocket and family incomes remain stagnant, students across the country are asking themselves—especially in the wake of the recession—how fair the cost of education is and how the hell they’re going to afford it.

    Dissecting the tuition problem

    The root of the issue is simple. People make less, but college costs more. According to the U.S. Department of Labor, the cost of attending any type of higher education increased across the board from 2000 to 2011 (adjusted for inflation) by an average of 35 percent. In the same time frame, income dropped slightly for every part of the population, ranging from a 15 percent decrease in the poorest fifth to a 4 percent drop in the wealthiest fifth.

    David Feldman is the economics department chair at the College of William & Mary in Williamsburg, Va. and co-author of the book Why Does College Cost so Much? He argues that higher education can’t be looked at under a microscope. Instead, it needs to be put in context of global market forces because it is an industry with its own characteristics. “Higher education is a heavily subsidized industry,” he says. “If subsidy starts to fall, then the price is going to start shooting up faster than cost.”

    Graph by Alexis N. Sanchez / North by Northwestern

    Subsidizing a student’s education means that the sticker price a student faces before financial aid (about $60,000 at Northwestern) is different from the actual cost for the school to educate that student (about $85,000). The difference is automatically subsidized, and then financial aid shaves down the sticker price. For public universities, state and federal government dollars mostly subsidize the cost. For private schools a large portion comes from institutional financial aid—money the university gives directly to students.

    Up until 2005, state grants rapidly increased. Then, all levels of government struggled with rising deficits, funding directed toward education slowed. For example, the Federal Pell Grant, given to low-income students, covered 98 percent of in-state tuition for public schools a decade ago. Even though the maximum dollar amount awarded for the grant has gone up, it now only covers 64 percent of tuition. Unable to keep pace with the rate of tuition growth, it has fallen short.

    Additionally, large percentages of aid are going to merit scholarships instead of need-based ones. “If [state schools] are going to increase their sticker prices, I think they need a commitment to increasing need-based aid,” says Northwestern president and economist Morton Schapiro. “Publics, unfortunately, over the last 20 years have taken more and more of their state financial aid dollars and redirected it away from need into merit, and that’s because state legislators love to keep the valedictorians in-state.”

    This practice not only helps some public schools stay competitive with high-ranking private ones, but also makes college less affordable for most students and often results in higher prices.

    “The public universities are now faced with a bad choice," Feldman says. "They can either push to increase the rate of tuition growth to substitute for lost public money or they can watch the quality of their programming decline. And what most of them have done is a combination of both." Feldman says that because publics comprise two-thirds to three-fourths of total higher-education enrollment, they set the trend for the whole nation.

    Ronald Ehrenberg, the director of the Higher Education Research Institute at Cornell University, has chronicled one such example of the decline in quality of education. “The pressures of increases in financial aid are limiting the resources that are available to fund the rest of the university,” he says. A telling example is the decrease in hiring research and tenure-track professors because they are too expensive. Instead, universities are using more full-time or part-time faculty who may not be as qualified.

    Not confined to public universities, funding issues are affecting private institutions too. “Private universities are subject to the vagaries of the market," Feldman says. "There actually has been a big decrease in private subsidies in the past three years generated by the financial crisis. Many private universities had their endowments hit really badly in 2008 to 2009 and as a result had to choose between cutting back programming and raising tuition. Private universities were really stung by the decrease in endowment or income in the first two years of the crisis.”

    Northwestern lost about $2 billion from its endowment when the recession hit. The disastrous combination of government deficits and a weak economy made the subsidies that support students—be they government or institutional financial aid—even harder to come by, and almost no school in the country is immune to these market forces.

    The ivory tower of the ivory towers

    “Northwestern’s in a very strong financial position,” says Al Cubbage, vice president for University Relations.

    Northwestern's situation is an outlier to nearly every other school in the country. While that’s a relief, it would make sense for tuition to stop rising so quickly here of all places.

    Although the sticker price of attending Northwestern is increasing—at an average rate of 4 to 5 percent each year—it turns out the actual price that students pay is not. “We’ve been able to increase financial aid in double digit rates for the last at least three to four years even though we’re in a recession,” Cubbage says.

    According to Schapiro, the tuition price tag is rising to meet what the richest students can pay. “If you come from considerable wealth, what percentage of that $85,000 should you charge the family?" he says. "That generally has been rising faster than sticker prices with, more or less, the rate of growth of income for people who would have zero need-based aid." The sticker price is rising with the knowledge that it doesn't apply to about half of Northwestern's students.

    Northwestern’s diverse revenue streams make this high rate of financial aid possible. Last year alone, the university reaped $1.8 billion from a combination of tuition, the endowment, royalties, grants, gifts and several other, smaller sources.

    About $500 million of that came from grants that went directly to research, mainly at the medical school. Three specific sources of income help support financial aid: tuition revenue, endowment income and gifts. With money from those areas, the university handed out $296.9 million in aid 

    Because Northwestern is need-blind, it meets all demonstrated need for domestic students. This means that students' financial situation don't affect their chances of acceptance. At many schools, students on the waitlist who can pay will get preference over poorer students so the school saves money on financial aid. Also, schools engage in a practice called "gapping," in which a school offers a student enough money to incentivize coming to that school but not enough that it fills his or her demonstrated financial need.

    But there are few universities that can afford to spend as much on financial aid. There is a group of 25 schools called the 568s that receive special anti-trust exemptions because they are legally bound to be need-blind. In addition to Northwestern, the list includes competitors like the University of Chicago, Notre Dame, MIT and Vanderbilt.

    The group created a standardized formula for deciding a student’s financial need, which is more streamlined and generous than other currently used equations. Any school may use this formula. “I think that the 568 formula is a very generous, very fair formula and a lot of the things that morally that are a little difficult to deal with have been addressed over the course of the last ten years,” Schapiro says.

    Northwestern's roughly $7.5 billion endowment ranks as one of the largest in the country. “An endowment is your savings account, and the university takes about 4.5 percent each year of that investment return and uses that to operate the university. A big chunk of that is for undergraduate scholarships and financial aid,” Cubbage says.

    Northwestern's also struck gold with drug royalties. The drug Lyrica, synthesized by professor Richard Silverman, paid out around $89 million to the school—and that's in 2012 alone. “It’s like a once-in-a-lifetime deal," Cubbage says. "That has enabled the university to do things that we couldn’t have, mainly to provide more scholarships because it’s just cash money coming in.”

    Thus, Northwestern can afford expenditures such as $15 million per year in aid for student athletes. Also, Schapiro says he wants to raise $50 million to provide need-based financial aid for international students.

    So is Northwestern’s price tag worth it? Signs point to yes.

    While 45 percent of the student body gets some sort of financial aid from the university, the average debt of matriculated students is only about $25,000. A Northwestern University Career Services survey of three-quarters of last year’s graduating class showed that, following graduation, 61 percent were immediately beginning work, 16 percent were still seeking work, 16 percent were going directly back to school and 7 percent were pursuing other paths. For students entering the business world, the average starting salary was $64,000, engineering was $55,500, communications and media was $38,000, and non-profit/government/law/education was $35,500, according to the U.S. Bureau of Labor Statistics. These salaries are already close to the median for their industries, immediately following graduation.

    Thanks to Northwestern's very secure state, Schapiro says he doesn’t think the status quo will change anytime soon. “So far the Supreme Court has allowed privates to decide how we teach, who we teach, who teaches who, what we teach,” he says. “We’ve had those protections, and I think that’s one of the reasons why the private colleges and universities, not-for-profit, in this country are some of the best in the world.”

    The search for alternatives

    “You don’t have to go to expensive private institutions,” Ehrenberg says. “You can go to a well-priced public. You can start out at a two-year college and then transfer to a four-year institution. If you are strategic, college still should be accessible to most students.”

    Because of the current recession, students are becoming more and more attracted to non-traditional paths through post-secondary education. Among them, community colleges fill the needs of many students.

    Just a 45-minute drive southwest from Northwestern, Triton College in River Grove, Ill., exemplifies the role that community colleges play for students unable to pay for four-year universities. Serving local students, Triton charges around $1,500 tuition per semester or $98 per credit hour. In the end, students end up paying less than $10,000 for a full year of education. Federal grant aid given to students with financial need would be stretched thin at schools like Northwestern, but are able to cover 100 percent of their costs at Triton.

    Pat Zinga, Triton's associate dean of financial aid, explains, “Triton College serves a fair number of working class communities and for our students it is a more efficient pathway for them to begin at the community college and take two years—their gen eds—and then transfer.”

    In this “two plus two” plan, students take two years to cheaply finish entry-level classes necessary to graduate from any college, and Triton has counselors dedicated to helping them plan for the next two years at a new institution. Triton has agreements with every Illinois state school guaranteeing students who finish their associate’s degree at the community college and are accepted will enter with junior standing. 

    “Most of our students transfer very successfully to four-year senior institutions to complete their program of study, but it gives them an opportunity to save thousands of dollars while they’re taking their gen eds,” Zinga says. In addition, 75 percent of the school’s students are part-time, so they are able to work while in school.

    Fight back or shut up?

    The issue of college tuition has many stakeholders. The future of quality, prices and reach of college depends on the public, the institutions, the government and the media.

    Ehrenberg already sees these diverse groups having an effect. “A few years ago the Senate finance committee investigated what universities with large endowments were doing, and they threatened to set minimum spending requirements in the hope of generating more financial aid from endowments,” he explains. “And that threat, accompanied by the institutions’ understanding that they were not enrolling as many students from relatively modest means as they should, led to the dramatic increase in financial aid policy.”

    Legislation is not the only way to control prices, Ehrenberg says. “I think there will be extraordinary public pressure for the private universities to remain accessible to students from all income groups, so I would expect that there will be some moderation in the rate of tuition increases in the future.”

    Photo by Natalie Krebs / North by Northwestern

    With schools' endowments down and the government struggling to balance the budget, an upturn in the economy would do more than any new financial aid program.

    Since the demand for quality education won't diminish, tuition prices won't decrease on their own.

    “Demand goes away. That affects the prices. But right now, the rate of return is at record levels," Schapiro says. "The number of really qualified people who are trying to get into our kinds of schools is at record levels.” The quality of life that can be bought with a college degree is increasing. While 4.5 percent of people with a bachelor’s degree are unemployed, that number jumps to 8.3 for the section of the workforce with only a high school diploma, and those with a degree make 63 percent more than those without.

    Although there are debates and fighting over college prices, factors ranging from markets to public sentiment will dictate the future of higher education. “I can’t say where we’re going to be 10 or 20 years from now, but I can tell you it’s going to be a very different environment than we are now,” Ehrenberg says.

    The question is just how different it will be. For Madaus, college is over in one quarter and he’s preparing to climb down from the ivory tower. With that Northwestern degree, he’ll have no problem finding a job soon. But what will live longer: the memories of having too much fun with his college friends or the debt hanging over his head?

    The answer is unclear.


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