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April 13, 2010 10:28 AM More Selective, Less Generous

By Daniel Luzer

The recession is hard on both people and institutions. As endowments decline, colleges struggle to continue operating while reducing expenses. It’s sort of conventional wisdom that colleges reduce financial aid in such trying times. It turns out that the truth is a little more complicated. A piece by Jacob Goldstein at NPR reveals that:

A group of economists wanted to know how schools deal with this boom-and-bust endowment economy. Among the questions they asked: What happens to financial aid after a school’s endowment goes way down?
As it turns out, the most elite schools cut aid, while less selective schools did not.
What’s more, when endowments rose, the less selective schools increased financial aid to freshmen. The most selective schools didn’t do that.

In fact, it appears America’s more selective colleges mostly adopted a policy of “generosity… when we can afford it.”

Goldstein reached this conclusion based on a paper by economists Jeffrey Brown, Stephen Dimmock, Jun-Koo Kang, and Scott Weisbenner, which looked at how colleges respond to “financial market shocks to endowments.” Among other things the paper revealed that:

Among more selective universities… [institutions with larger negative endowment shocks are relatively more likely to] reduce financial aid for students the following Fall and enroll fewer freshmen.

This is surprising information.

Daniel Luzer is the news editor at Governing Magazine and former web editor of the Washington Monthly. Find him on Twitter: @Daniel_Luzer

Comments

  • Walker on April 13, 2010 6:17 PM:

    Having worked at more and less selective places, the issue is much more complicated. What you are seeing here is standard market economics. Less selective places have less market value and should charge less for tuition. However, they cannot, as our society views cheaper colleges as vastly inferior. The way they counter this impression is by charging as much as higher quality institutions but giving it back in the backend through financial aid.

  • Reid McLean on April 13, 2010 10:14 PM:

    I work at Macalester College. We are selective; I believe described as "Highly Selective." We raised our financial aid budget by 13% last year, in advance of the acceptance process. A few other selective schools did the same