Financial aid changes put Duke in heated 'alms race'

Despite the considerable buzz it created among students and administrators on campus, the University has had less success heralding its recent drastic overhaul of financial aid to a key demographic: everyone else.

Although the major changes at an elite university might have been expected to garner much attention after their Dec. 8 launch, they were drowned out in the national media by a slew of similar changes taking place at other universities.

Chief among these, Harvard University grabbed headlines just two days after the Duke announcement by committing to a complete elimination of loans from all financial aid packages and an increase in the amount of grants provided for middle- and upper-income families.

Duke's changes, which eliminate parental contributions for families earning less than $60,000 a year as well as replacing all loans with grants for families earning less than $40,000, echo ones Harvard made in 2006, which eliminated contributions from parents under the $60,000-income mark but-at the time-still included loans.

More than a half-dozen schools have announced changes to their financial aid structures recently:

Davidson College announced the replacement of all loans with grants March 19, 2007;

Amherst College eliminated loans entirely July 19;

Williams College eliminated all loans Nov. 1;

Harvard, however, was not the first top-tier school to nix loans. That distinction goes to Princeton, which did so in 2001.

Though all the schools have emphasized their commitment to making a top-tier education available to qualified students, regardless of income, pressure from Congress helped precipitate the recent flurry of announcements, said Donald Heller, director of the Center for the Study of Higher Education and a professor of education at Pennsylvania State University.

University endowments are tax-exempt, and senators such as Charles Grassley, R-Iowa, and Hillary Clinton, D-N.Y., have suggested that this status should be taken away unless prominent schools start spending 5 percent yearly, which is the requirement for tax-exempt private foundations but not universities. Heller said that recent initiatives by schools are partly in response to these outside pressures.

"It is likely that many of the institutions, particularly the ones with large endowments like Harvard, Yale and Duke, are hoping to get Sen. Grassley off of their backs by announcing these new initiatives in financial aid," he added.

Educational consultant Steven Roy Goodman suggested in a Dec. 31 editorial in the Boston Globe that Harvard is actually saving $245 million a year by visibly increasing spending on financial aid, but keeping endowment use at 4.3 percent-and not the 5 percent suggested by Grassley and Clinton.

Jim Belvin, director of Duke's Undergraduate Financial Aid Office, acknowledged that Congress has expressed worry about the cost of higher education, but also said the University's changes were the result of the school's own initiative and concerns.

"We're excited about the opportunity to implement this. We think it will make a huge difference and will allow students to matriculate who might otherwise not even be able to consider it because of the costs," he said. "It's more an effort to do the right thing than an inane competition to see who can spend the most money or outbid each other for students."

Smaller colleges have expressed concern that they will fall behind in an aid arms race or "alms race," and that not all students will benefit as schools struggle to keep up in the competition.

Robert Massa, vice president for enrollment and student life at Dickinson College in Carlisle, Pa., has been a outspoken critic of the aids oneupsmanship, and said colleges like Dickinson lacking sizable endowments are forced to increase tuition from students not receiving financial aid to provide the added benefits.

"The metaphor of a 'financial arms race' does describe well what we are seeing, but it is not new," Heller said. "Outside of those three dozen or so institutions that had not been involved in the merit-aid game, the arms race has already been well underway. But now some of those institutions are clearly jumping into the fray, which will likely lead to an increase in the spiral."

Heller questioned, however, the benefit to students, particularly those from lower-income backgrounds.

"This may be to the advantage of the wealthier students, but it will likely be to the detriment of lower- and truly middle-income students, for whom it will now be harder to get into selective institutions and for whom there may be less financial aid available."

In a competitive paradigm, however, some in the Duke administration point out that differences in endowment size make comparisons difficult.

"[Harvard, Princeton and Yale's] resources so exceed those at other schools, [that] it's really hard to discuss what their options are," Belvin said.

According to the U.S. Department of Education, at the end of 2005, the schools with the two largest endowments, Harvard and Yale, had more than $25 billion and $15 billion, respectively.

Duke, ranked 16th with almost $4 billion, was limited in its options for revamping the financial aid system.

"We took the steps we thought were the best approach and distributed the benefits between current families and students once they graduated," Provost Peter Lange said.

He added that fairly and evenly spreading the additional funding between adding grants and replacing loans was a main priority as the administration deliberated on how best to appropriate additional funding for financial aid.

Yearly reviews will analyze how the University's changes are affecting enrollment, including the percentage of lower-income students matriculating.

"Impact isn't instantaneous," Lange said. "Impact occurs over time... probably three or four years. There are so many schools, so many variables, it's going to be very hard to determine how people are going to make decisions. It's a fabulous sort of natural experiment."