Friday, January 25, 2008

The Real Story Behind Harvard's and Yale's New Approach to Student Financial Aid

Earlier this week, we blogged about the possible impact of Harvad's and Yale's recent decision to increase financial aid to students from middle income families could hurt poor college students everywhere.  A reader of that blog post referred us to the following editorial from the Boston Globe which speculates that the real reason for the new approach to financial aid might be to avoid congressional action that would require colleges and universities to pay out at least 5% of their endowments each year.  Here is an excerpt from the editorial:

Could Harvard's announcement be a preemptive move? The numbers tell the real story. Harvard estimates that it may spend an additional $22 million to assist families earning between $60,000 and $180,000 a year. Under the plan, families with incomes of $120,000 to $180,000 will be asked to kick in 10 percent of their income toward tuition. Given that the yearly cost of Harvard is $45,620, some families will still be paying almost $20,000 per year. Even if the initiative does total $22 million, compare this with the figure Harvard could be required to pay if Congress mandated that Harvard and other universities spend 5 percent of their endowment income.

Five percent of $35 billion is $1.75 billion. Harvard's Alumni Affairs and Development Office reported that the university spent 4.3 percent of the endowment in fiscal year 2006. The difference between 4.3 percent and 5 percent might not seem significant at first glance, but the savings to Harvard was $245 million in one year alone.

For the entire editorial, see "The real story on Harvard's generosity" on Boston.com, published December 31, 2007.

DAB

http://lawprofessors.typepad.com/nonprofit/2008/01/the-real-story.html

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