How Much is Too Much?

By Elizabeth Hicks, Executive Director, Student Financial Services

How much is too much? That’s the question — a $50,000 question as that’s the price for an undergraduate to attend MIT or one of its peer institutions this fall.

Congress is concerned that college costs — not just the prices charged as tuition, but the underlying costs — are out of control. Families are concerned about their ability to afford higher education. The general public is outraged by the wealth of the richest institutions. And the colleges and universities themselves are asking if they are nearing a tipping point.

At one time higher education institutions aligned their financial aid policies and procedures through formal “overlap” groups to mitigate the impact of cost and financial aid on the college decision. When the Department of Justice put an end to that practice in the early 1990’s, the potential for bidding wars began. While there is a legislative provision allowing need-blind colleges to develop a common methodology to determine financial need, those with the highest admissions yields have exempted themselves from these discussions, preferring to act unilaterally.

And that’s exactly what Harvard did this past year when they announced a sweeping financial aid policy that built on its 2004 initiative. Named the “Zero to 10 Percent Standard”, Harvard’s new policy dramatically reduced the contributions expected of both parents and students. Families with incomes above $120,000 and below $180,000 are expected to pay on average 10 percent of their incomes. For those with incomes below $120,000 the expected parent contribution declines steadily from 10 percent, reaching zero for those with incomes at $60,000 and below. Students from all families are no longer expected to take out loans: loan funds are replaced with grants.

In no time Yale, Stanford and other institutions announced similar financial aid enhancements, temporarily appeasing the Senate Finance Committee which was threatening changes to the tax-exempt status of higher education institutions. But the media questioned whether providing aid to families earning as much as $180,000 was need or merit-based aid.

Here at MIT, where we compete head-on with Harvard, Princeton, Stanford and Yale our response was to continue addressing the issues of access for low-income students and affordability for the middle-class. Our primary enhancement was targeted at families earning less than $75,000 — making MIT tuition free and eliminating the student loan requirement. Our enhancement enabled us to maintain our trend of yielding students from the lower socio-economic levels at a higher rate. For the Class of 2012, the yield for families earning less than $75, 000 was 77% compared to the overall yield of 66% for the class.

As we prepare for the Class of 2013, MIT — as its peer institutions — will need to revisit its vision and strategy for “Who pays for undergraduate education”.  Stay tuned it promises to be another interesting year.