The folly of (trying to establish) "need-based" college aid

Based on the link immediately below, three former Loyola colleagues and I engaged in a heated exchange as to the merits of the process elite universities (seem to) use in determining the amount of need-based financial aid the university will offer a prospective student, to make their college costs more ‘affordable,’ to attract preferred candidates, and to provide some sense of equity to those with lower incomes.

The text following the link consists of the edited body of my email responses to the original prompt, citing the nature of the now-deceased ‘568 group’ that shared information on applicants for the supposed purpose of coming to an agreement as to the financial strength of the applicant’s family which would, in turn, signal to each university, the need gap between the costs of attending the school and the capacity of the family to pay those costs. In one lengthy exchange, another participant offers an explanation (in red) and I follow it with my response.

As you may infer from my collective comments, I have little to no concern as to the ‘collusion’ charge. What does concern me is the way colleges mislead students as to the true cost of borrowing money and the remunerative value of the degree that they offer. Absent clear information on both the loan and the ability to pay it off, the applicant/student and his or her family are more likely to be victims rather than beneficiaries of a financial aid offer.

Yale, Georgetown, Other Top Schools Illegally Collude to Limit Student Financial Aid, Lawsuit Alleges

Any college using full payer tuition to pay for need based aid is immoral. At least give full payers a tax break on the money they donate to others. Otherwise, it is misleading to call it tuition. Throw in predatory loans and colleges make the mafia look like choirboys.

I think everybody should be able to afford a Tesla, regardless of income or absence of charging stations. I think need based aid for cars is a concept whose time has come, especially with electric car tax credits.

Time to go back to merit aid and true cost pricing, not tuition based on a 65% discount/transfer of wealth rate. Government should not be in the loan business. If colleges want to lend money, then they might be accountable, and have to eat the bankruptcies and defaults.

Article in today's WSL Journal Report from Millennial whiner about how birth rate is a product of high college loan debt, not realizing that they were sold a bill of goods by colleges. She also pointed out the 'inequity' of those with loans versus those without loans -- another injustice that needs to be remedied in the name of equity. People ill informed enough to have $100k in college debt probably should not be getting married or having kids anyway. Which will only increase the inequity.

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I come away with the conclusion that the financial aid need system is based on punishing those who save for college and rewarding those who squander their money, regardless of income level. Having colleges decide how much need-based aid -- however it is packaged -- makes no sense at all, especially when the loans are predatory in many aspects, the mix of 'aid' often is not 'aid' at all, e.g., work-study, loans, and colleges exploit people at their most vulnerable moment when they are making the biggest decision of their children's lives, when parents are absolutely torn between their child's wants, needs and demands and balancing those with the parents' resources and willingness to sacrifice for their children. A $100,000 loan with zero collateral and a fading if not false promise of a better income in the future may be the cornerstone of Millennial entitlement, resentment and preference for Bernie Sanders, communism, equity and the multitude of 'rights' that the taxpayers owe to them.

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Loyola has joined Georgetown in its pursuit of justice for slavery, with reparations likely. Think there might be some ‘collusion’ over those decisions?

How can an aid formula be price fixing? The schools don’t collude on price, apparently, just on the criteria for offering a discount. So if all the credit card firms offer a one percent rebate on your spending — a discount — wouldn’t that be evidence of collusion?

The lawsuit is aimed at the deep pockets, not necessarily the worst offenders. If Lawrence U did this with Beloit, you would not hear a peep.

Shakespeare may have had the best thoughts on lawyers.

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Today’s WSJ Ed page features the Asian American lawsuit against TJ high school in DC, saying currently policy where race trumps merit and discriminates against meritorious Asians. Isn’t that the woke thing to do and defend, equity rather than merit? Is the end of merit an offense or a goal for academe?

The problem is that colleges are in a business they have no business doing, and that is determining such an abstract concept as ‘need’, putting that need into dollar terms, then coming up with a financial package that the people often in most need don’t understand. Forget truth in lending. True candor in lending and caution in borrowing.

As the other millennial article I mentioned reflected, this ‘funding’ system is exacerbating the very inequality or inequity it purportedly is designed to correct.

As to the wisdom of pricing based on ‘need,’ my point is that it is foolish to think that any college can collectively or individually really measure need. That’s why for example some schools consider assets of all sorts, others don’t. Some have huge endowments; many don’t. Many force lots of borrowing, others don’t. The wisdom argument falls to pieces when students start shopping deals across colleges. The foolishness is in thinking that the price haggling goes on only with one college.

What I have said before is that a college application today is like buying a lottery ticket. You need to buy a dozen or so and then let the haggling begin. Wily Applicants don’t limit themselves to 568 members, nor do they apply to just 3 or 4 schools. They buy lots of lottery tickets. And the set the schools against each other and try to squeeze any school for a better deal, like fewer loans, less work study, 568 or not.

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Assets are the least weighted variable in all need analysis formulas (federal, institutional, 568). Total income is by far the most weighted factor. Retirement assets are not a factor in any formula, and home equity is only considered in institutional/568 formulas. All other assets (stocks, bonds, mutual funds, art, precious metals, bitcoin, other real estate) are fair game. Then assets are totaled and a large portion is protected based on the age of the older parent. Bottom line, the portion of net assets considered available to pay for educational expenses ranges from 0.00-6.00 percent. Nonetheless, assets matter. Assets are one measure of family financial strength.

This still does not represent a necessarily valid measure of 'need,' it's simply one that the lenders agree upon. Why not let the customers apply the weights? Would their weights be any less valid? Applying different weights to income, assets, retirement funds and home equity -- including assigning zero weight -- is still arbitrary, even if the 568 group or the college agree on a common weight.

I admit that the aid packing process is complicated and confusing. But this is because each college's financial condition is unique. Wealthy colleges are able to be much more generous with institutionally-funded aid. Federal financial aid funding levels can be dramatically different at similar colleges. State financial aid is only available for in-state students. Loans considered financial? It depends. Subsidized student loans could be considered a form of financial aid since no interest accrues while enrolled, no payback while enrolled, generous terms during repayment. An unsubsidized loan should not be considered financial aid, it is an educational expense financing option. Work-study considered financial aid? Probably not. Ultimately, it depends on the definition and who is defining the term. The educational industrial complex colluding with the federal government has defined what resources are considered forms of financial aid.

You say potatoe, I say pa-tah-tow. It's the packaging that makes the collusion argument pointless. Sounds like what you need is a common agreement as to what each college can afford, not just what each family can afford, and that will never happen. The 'educational industrial complex' is in a state of chaos, approaching a 'tipping point,' so to speak.

Agree. But parents allow themselves to be exploited because they have not learned to say "NO" to their children. During my financial aid presentations to parents at high schools, as a first step, I encouraged them to have a direct and honest conversation with their sons and daughters (or otherwise gender confused) regarding the resources they have available to pay for a college education. If the parent feels their child has done a good job during the college search stage and there is a college on the list they are not able to afford, allow them to apply, but make it clear that if financial aid is not sufficient, they must pursue the less expensive Plan B. I think our parents where the last generation who were able to say no to their children.

I'd buy this argument if you were only recruiting selfless rich kids. I'm sure that often the problem is the parent, not just the student, who is keen on buying what the parents think is a prestigious degree. And the other part of the problem is that many colleges are recruiting entitled rich students as well as those truly poor students where the college should say 'no' rather than offer them a package that will come back to haunt them. I think it's pretty clear that perhaps the greatest regret of many of our Millennials is having taken on too much packaged debt for college (Marc Camille was absolutely blind or in denial to this problem), and the greatest threat to our economy is the entitled class that claims that taxpayers owe those foolish, exploited students forgiveness for their bad choices. And the biggest reason that black college graduates are less wealthy than white high school-only graduates is the college debt carried by young black male graduates. For them, college reduces their wealth and does not necessarily improve their wealth-creating prospects. For this we must blame the colleges, not the impoverished parents who are sold a bill of goods. I recall a minority student of mine at Loyola who had a great scholarship but had to drop out with debt and zero job prospects because he could not pay for books, housing, food, etc. With college completion rates at about 60%, this is no small problem.

Gaby carries guilt for not having any college debt, while many of her friends struggle with loans, bad degrees, lousy jobs and poor prospects. It reaffirms my complaint I regularly registered to the placement office, with their survey data about percent of grads employed or in grad school after graduation, while they pay ZERO attention to the non-respondents to the survey, and make a misleading -- if universally accepted by the profession -- claim that these stats apply to the entire graduating class rather than to an unrepresentative sample. Colleges are kidding themselves. When the Georgetown data show average starting salaries for social science and humanities grads are about an eighth of the cost of their four-year Jesuit degree, something is very wrong here.

Bottom line is that this lawsuit is not the real problem. Colleges face an existential threat over tuition, aid and curriculum. If they are colluding to their advantage, they are doing a very bad job of it. While talking about sustainability, the conversation needs to start with the sustainability of their business model, not of their carbon footprint, or their wokeness. Woke and broke. Or closed and carbon-free.

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Let the parents decide the weights? Sarcasm alert absent. Yet I will refer the good gentleman to the appropriate comparison as made by William Buckley about preferring to be governed by the first 400 names in the Cambridge directory than the faculty experts at Harvard. Or the other quip, with apologies to our own Harvard man: "You can always tell a Harvard man. You just can't tell him much."

Once you establish "financial strength," you have, by basic algebra, established 'need' for each college as it is the difference between nominal COA and financial strength. Any member of the 568 group is clearly going to be keeping that in mind as they make their inputs on strengths, as they will, by nature, want to minimize the need gap. That's why Loyola posts and boasts to financial markets about its net revenue per student, while boasting to parents about the percent of students receiving aid and keeping a very sharp eye on the discount rate. The recent exposes on grad students at Columbia, online social welfare programs at USC, and NYU film school grads buried in debt are just a few of the shocking but unsurprising stories about how even the very wealthy schools squeeze every penny they can out of government aid and tuition. They've become financial services firms that happen to have a sorely underfunded education division that they run on the side.

Calculating a payback period makes the heroic assumption that college costs are an investment, with discernible returns. Even Loyola faculty dismiss that concept, as the 'value' of college, many of them say, can not be measured in dollars. Even were one to consider it an investment -- rather than as a 'right' as it is promoted today and not only that, but an 'affordable' right -- payback can only come from earnings in excess of living expenses, taxes, and other costs of living, so a $40,000 income on a $100,000 debt leaves precious little to payback the loan. No wonder the 23-30 age group has negative wealth today, at a time when they need to be saving for marriage, a home and retirement. Again, math is the devil here. They are going backwards, not forward. There is only so much one can squeeze out of that $40,000. As evidence, look at the ever-increasing college debt and the percent of loans technically in default. The academic governmental industrial complex is glad to shovel loans when they are not really worried about those loans being repaid. And the colleges have no skin in that game.

Predictive modeling is how they have predicted climate change, and those predictions don't often come to fruition. For the last thirty years we've been hearing the modelers tell us we only have ten years left. You could fill pages with these failed doomsday predictions. No accountability. At my last Jesuit conference, one of the Fordham profs guaranteed that the world will be 'burnt to a crisp' within ten years. Right, that'll happen. Colleges have surrendered hiring and recruiting strategy to consultants even as they increase the number of administrators who should be doing this work in-house. Now they are hiring administrators and consultants to cure the institutions of institutional racism and, at Georgetwon and now Loyola, to help assuage them of their guilt over selling slaves. The only people prospering under these models are the consultants. My former Marquette student is quitting as admissions and aid director at Lawrence to....you guessed it...become a consultant. While his own predictive modeling formula was collapsing at Lawrence he found it more lucrative to sell that broken model and to earn even more money, while escaping all accountability.