Friday, November 06, 2009

The Magic $50,000 mark - 2

A number of anonymous readers objected to my "conclusion" I reached in an earlier blog regarding choosing colleges. In that blog I proposed taking a first cut by looking at a table of the largest endowment per student and then taking a second cut by looking at the quality and suitability to the individual needs.

I clearly did not explain myself well. One commentator said Haverford was on the most expensive list but gave the best financial aids. That's good. We are really talking about two different things.

What happens to a student accepted by Haverford but is not qualified to receive financial aids? His or her parents would have to pay more to send the student to Haverford vs Princeton or Yale assuming all accept the student on identical terms -- no financial aids.

The reason why Yale or Princeton can afford to charge less is precisely their endowment per student is much higher than Haverford.

I am of course assuming the quality of Haverford is as good as that Princeton or Harvard could provide. Some would argue Haverford is better. Others would argue the other way. I am not taking sides. Choosing the "best" college is very individual.

However, on a value for money basis and assuming quality is the same, then clearly Haverford is a more expensive proposition than, say, Princeton.

Unless the potential student absolutely detests Princeton, the campus and the town, and particularly likes Haverford, the campus or the town, or for other reasons unrelated to academic excellence, then if s/he is accepted by both colleges without financial aids, I should think Princeton would be a better deal.

I also used the word "subsidized" in the early blog. That in retrospect was perhaps too ambiguous. Let me clarify.

A typical college in the US does not charge in full what it costs to educate a student. The historical ratio is 3 or 4 to 1. For every $ student pays, the university has to spend 3 or 4 times more. You can verify this by taking a look at a financial statement published by, say, Harvard or Yale or Haverford.

For those less endowed colleges they need to charge more because they don't get a large contribution from their smaller endowments. The richer ones get more income from their endowment to fund the annual budget and can afford to charge less.

It was in that context that I said richer colleges subsidize their students more than poorer ones. I did not mean poor colleges could not or would not find a way to offer a generous package to a particularly talent student.

However, taking the student body as a whole, a larger percentage of students at Haverford I suspect would have to pay more towards their cost than a student at Yale -- again I am assuming both colleges offer the same quality so as not to be side tracked by a whole different debate about who is "better".

All one has to look at is the percentage of tuition in the total college budget.

In general, those who have a larger endowment per student would be able to provide better facilities and better faculty/student counseling.

There are always exceptions.

Haverford is one. But Haverford is, in fact, not a typical small college for its students have access to 3 excellent schools: Bryn Mawr, one of the $50k+, Swathmore (not on the list but has one of the highest endowment per student) and University of Pennsylvania, one of nations' best research institutions. All credits are transferable. All these 3 are excellent schools.

So naming Haverford to knock down my argument was not a very good starting point.

Few colleges on that list over $50,000 a year have that privilege. Despite a lower endowment per student, Haverford enjoys extra benefits due to its affiliations with those other schools.

By the way faculty student ratio at Haverford is 8 to 1 versus 5 to 1 at Princeton which has the highest endowment per student among leading colleges and is not on the list of the most expensive.

The real interesting question is if Haverford, Princeton and Yale - which charge less - all accept an applicant without financial aids, which one is a "better deal" for the parents and the student who must think about how to finance those 4 years in college.

I hope this note clarifies matters.

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