One of the key points from Caroline M. Hoxby and Christopher Avery’s new paper, The Missing “One-Offs”: The Hidden Supply of High-Achieving, Low Income Students, is that there are many high-achieving, low-income students that are not currently attending selective institutions. This is all the more surprising because many private, nonprofit colleges claim that by charging high tuition to those students that can afford it, they can increase the aid offered to low-income students.
Yet, if we look at four-year, private, nonprofit universities with more than 500 students, we see just how rare it is for this “high-tuition, high-aid” model to be implemented successfully.
The first step for a college in implementing the high-tuition, high-aid model is to use the revenue from raising tuition to increase the institutional aid budget (scholarships and discounts funded by the college itself). The first chart shows the change in tuition and aid from 1999-2000 to 2010-11.
The green line shows that on average, private, four-year colleges used $0.60 out of every dollar in higher tuition to increase institutional aid. The red line is the cutoff for colleges that used all the increase in tuition revenue to increase their institutional aid. Out of the 911 private, four-year colleges with sufficient data, only 29 increased their institutional aid by as much or more than they increased tuition. Another 502 colleges used at least half of the extra tuition revenue for aid. In other words, only 58 percent of colleges use at least half the extra revenue they bring in from raising tuition to increase aid. This is already a pretty pessimistic picture for advocates of the high-tuition, high-aid model.
But even many of those colleges are not using the higher aid for needy students. The second chart shows the change in percent of students who are low-income (calculated by the percent of students receiving federal grants, mostly Pell grants, which typically go to low-income students) and the change in net tuition revenue per student.
Colleges that increased aid by more than they increased tuition are in green, colleges that increased aid by at least half of the increase in tuition are in blue, and colleges that increased aid by less than half of tuition are in red.
If the high-tuition, high-aid model was being used, then colleges that increased their aid by a lot relative to tuition (those on the left hand side of the chart) should have the biggest increase in low-income students (towards the top of the chart). In other words, the green dots should be clustered in the top left corner, the blue dots in the middle, and the red dots in the lower right corner. They are not. In fact, the average change in the percent of low-income students was greater at the colleges that used more than half the tuition revenue for aid (9.1 percentage points) than at the colleges that increased their aid by more than the increase in tuition (8.2 percentage points).
This is quite incredible. Even if a college uses all of its extra tuition revenue to increase the financial aid it awards, that money is not, on average, being used for low-income students. Instead, it’s used to attract other students the college wants.
The moral of the story is that the high-tuition, high-aid model doesn’t appear to increase the funding available to low-income students as many claim. On average, only $0.60 of every extra dollar in tuition will be used for aid, and the vast majority of that $0.60 appears to be used for “merit-based,” rather than need-based, aid. Very little of the money will ever find its way to low-income students.