From: josh@Happy-Man.com (Joshua_Putnam)
Newsgroups: soc.college,sci.econ
Subject: Re: the MIT anti-trust case
Date: 29 Sep 92 18:42:41 GMT
Article-I.D.: Happy-Ma.1992Sep29.184241.9674
Reply-To: Joshua_Putnam@happy-man.com
Organization: Happy Man Corp., Vashon Island, WA 98070-7399

In <1992Sep29.033634.17183@midway.uchicago.edu> thf2@ellis.uchicago.edu (Citecheck Hell) writes:

>There isn't a fixed amount of resources.  Colleges were wasting a lot
>of money because they could.  (As would be predicted by standard economic
>theory on monopoly: see Posner, _Antitrust Law_ at 14-15).  And, once
>again a lot of the "resources" were faux resources: if a college is
>charging $20,000 a student rather than a competitive price of $16,000
>a student, it might very well be the case that a poor student has her
>financial aid reduced from $3,000 to $0 -- but the poor student is still
>better off under the competitive system than under the monopolistic system.

From my experience working with my Alumni Fund during and
after college, I'd like to point out that, for most good
private colleges, rich students already receive almost as
much financial aid as poor students. (To avoid some of the 
name-calling and school-specific insults we've seen here, 
I'll leave out the name of my non-Overlap alma mater.) 

Tuition and fees do not come close to covering the cost of 
services provided.  I think 60% is a reasonable WAG.  The
number varies, of course, and is influenced by marketing
concerns, tax laws, and trustees' personal biases.  The
remainder comes from endowment earnings, grants, etc.

If a college charges $20,000 for an education that really
costs $33,000 to provide, that means grants and endowment
earnings are giving every student $13,000 in need-blind
financial aid.  If college trustees really cared about
targeting aid to the neediest students, would they instead
have raised tuition to the full cost of the services they
sell, so that lower-income students would have a larger aid
pool available?

No.  There's an important question not being addressed here
-- where does the endowment get its money to begin with?
Donations from wealthy alumni and their families.  The
subsidy given to an upper class student can be more than
offset by future donations, thus increasing the overall
asset pool available for financial aid.  For example, as a
Parents' Fund solicitor I talked to the very wealthy parents
of a freshman girl.  For that one year, her parents donated
$15,000 to the endowment, more than making up for her 40%
tuition & fees subsidy.  They continued to give as long as
she was in school.  Many parents continue giving long after
their students graduate, and even write the school into
their wills.  Alumni do the same.  50% of our alumni donate
every year.

By giving subsidies to students who are likely to succeed,
even if the students do not need the subsidies, a college
buys goodwill that helps the college stay in business.
The Overlap Group will no doubt continue to heavily
subsidise wealthy and poor students alike, to whatever
extent donors' generosity allows.  
-- 
 Joshua_Putnam@happy-man.com    Happy Man Corp.  206/463-9399 x102
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