Recession Response
Media Reports

NY Times
February 28, 2009
To Keep Students, Colleges Cut Anything but Aid
By KATE ZERNIKE

With the economy forcing budget cuts and layoffs in higher education, colleges and universities might be expected to be cutting financial aid. But no.

Students considering a wide range of private schools, as well as those who are already enrolled, can expect to get more aid this year, not less.

The increases highlight the hand-to-mouth existence of many of the nation’s smaller and less well-known institutions. With only tiny endowments, they need full enrollment to survive, and they are anxious to prevent top students from going elsewhere.

Falling even a few students short of expectations can mean laying off faculty, eliminating courses or shelving planned expansions.

“The last thing colleges and universities are going to cut this year is financial aid,” said Kathy Kurz, an enrollment consultant to colleges. “Most of them recognize that their discount rates are going to go up, but they’d rather have a discounted person in the seat than no one in the seat.”

So at Nichols College, a business-oriented school in Dudley, Mass., the president has asked staff members to teach classes normally handled by adjunct professors. The savings will allow the college to discount tuition for 20 prospective students and help 40 current students who could not afford to return.

Ithaca College, in upstate New York, is laying off faculty and cutting its 401(k) contributions as part of $4.2 million in budget cuts, but it is also offering increased tuition discounts that will make up the largest financial aid budget in its history. The college, which relies on tuition for more than 90 percent of its budget, saw the dangers of losing students last fall, when it had 240 fewer than anticipated, resulting in a $5 million decline in revenue.

“The good news is that we haven’t taken as much of a hit in our budget as some institutions that rely very heavily on their endowments,” said Dave Maley, a spokesman for Ithaca, which has 6,000 undergraduate students. “The alternative is, since we rely heavily on enrollment, any loss in student numbers hits us harder.”

In a survey of 372 institutions in December, the National Association of Independent Colleges and Universities found that 93 percent said they were moderately or greatly concerned about preventing enrollment declines. Only 8 percent said they would cut financial aid, compared with 50 percent that said they had stopped hiring, 49 percent that had delayed construction or renovation and 22 percent that were freezing salaries.

It is a tricky balance. “If they invest more dollars in financial aid, they may not end up with enough of an enrollment gain to offset the additional expense,” said Nathan Mueller, an enrollment consultant. “But if they don’t do something, they can expect to see enrollment decline.”

In some cases, colleges are increasing their aid budgets to cover current students who have found themselves unable to pay. But many are also increasing budgets for prospective students, anticipating that they will be needier as savings plans have suffered and home equity has declined. Northwestern University announced this week that it would require all departments to reduce their operating expenses by 5 percent, while financial aid is increased by 10 percent.

While much of the assistance will go to the neediest students, institutions are also increasing merit aid.

Albright College, in Reading, Pa., had been splitting its financial aid budget evenly between need-based aid and merit aid. But this year, it will tip the balance toward merit, with 60 percent. The college used to send offers of merit aid shortly after it mailed acceptance letters; this year, it sent them together in hopes of winning students over early.

Many colleges discount tuition an average of 30 to 40 percent. Still, by offering even a relatively small cut, colleges get students who pay a hefty price.

“The full-pays are few and far between,” said Greg Eichhorn, the vice president for enrollment management at Albright. “What we’re looking for are better-pays.”

Some schools have tried to reduce their merit-aid budgets over the last several years, arguing that an emphasis on need-based aid was more philosophically in line with their goals of getting a more diverse student body. But economic pressures may delay those aims.

At Dickinson College, in Carlisle, Pa., for example, merit aid, at its highest, made up about 22 percent of the financial-assistance pie. The share declined to 6 percent two years ago, but crept up to 7 percent last year and will increase to 8 percent for next year’s entering class.

“The families I’m concerned about are the near-misses — the $90,000 to $130,000 families, who almost qualify for aid but not quite,” said Robert J. Massa, the college’s vice president for enrollment. “Those are the families I want to target more merit-based aid to.”

The most selective colleges are also increasing or protecting financial aid: Cornell, Princeton and Vanderbilt, among others, have announced in recent weeks that they will continue plans to replace loans with grants, even as they suspend hiring searches and cut back on capital projects.

But the issue is most pressing for the smallest and less-selective schools.

“Our biggest concern is losing students,” said Tony Aretz, president of the College of Mount St. Joseph in Cincinnati. “You have to cut your costs, and then you’re in a death spiral — students don’t want to come to you because they sense you’re on the rocks.”

Dr. Aretz, like many presidents of colleges in the Midwest, sees public universities as his main competition. They have attracted a larger share of more affluent students in recent years. But with states cutting their budgets and public universities raising tuition, the private institutions also see an opportunity to win over parents now feeling economic pressure.

Some pitches are more direct than others. California Lutheran University in Thousand Oaks is advertising a public school price tag to any student accepted at the University of California, Santa Barbara, or at the University of California, Los Angeles — an average annual saving of $16,000 off the normal cost of $41,767.

Agnes Scott College in Decatur, Ga., is offering $64,200 in merit aid over four years for anyone who is eligible to receive the state’s HOPE scholarships, which were developed to attract stellar but not necessarily needy students to state colleges and universities. The discount will cut the cost of attending the private college in half. (To pay for the increase in aid, no cut is too small: the college even replaced its traditional holiday greeting card with an e-card.)

The colleges are also trying to hold down tuition increases. But increases in financial aid are not without consequence. At Ithaca, officials project that tuition discounts will result in a net revenue decline of $2.66 million and force the college to carry a $2.5 million deficit, its first since the 1950s.