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The Milk Trout

“Some circumstantial evidence is very strong, as when you find a trout in the milk.” - Henry David Thoreau

The debate over the practice of granting so-called merit or non-need-based aid (“selective discounting” or “strategic pricing” might be better terms) to shape a college’s incoming class has descended into a kind of blind moralizing. (One critic of the practice accuses such institutions of being "merit-aid addicts" that "should enter a 12-step program to get morally clean and sober.")

As it happens, most colleges find themselves forced into deploying non-need-based aid whether they would like to or not. Why? Not because they want to give rich kids a free ride, but because of the inherent unfairness of a system that rewards the Haves at the expense of the Have-Nots.  And here we come to the crux of the problem. The Haves and Have-Nots at issue are not families, but institutions.

Well-intentioned diatribes against the supposed overuse of merit aid don't tend to mention that the Ivies and other institutions with huge endowments are already heavily discounting their tuitions by infusing their budgets with tens of thousands of endowment dollars. That allows them to set their sticker prices well below the true cost of the education they provide their students -- who have access to better faculties (attracted by higher salaries), a wider array of courses, better libraries, and other amenities than less well-to-do colleges, with similar base sticker prices, can offer. Thus those wealthier institutions attract a disproportionate share of smart, rich kids -- who later, as rich and powerful alumni, further feed those already bloated endowments by "bringing more sand to the beach."

Looking for the “trout in the milk?”  Well, here is some pretty powerful, circumstantial evidence.  Compile a list of the 20 private colleges and universities with the largest endowments. Then take a look at the US News ranking of the 20 Top National Universities. You guessed it.  The same schools appear on both lists.

Not surprisingly, these highly endowed institutions are also the same ones that lead the pack in average faculty salaries. What they don’t lead in, however, is the percent of enrolled students who, because of family economic need, qualify for federal grant support.

In an article soon to be published in The Chronicle of Higher Education, Maguire Associates Senior Consultant, Larry Butler and I argue that the massive endowments of elite universities confer on them an unassailable competitive advantage in the form of a hidden discount that forces the less-well-endowed institutions to deploy merit aid in a mad scramble for a diminished pool of the best and most-diverse students. They are simply taking on the highly endowed institutions at their own game and reducing elitist stratification in the process.

Unless those who decry the use of merit aid as "immoral" are willing to factor into their thinking such hidden discounts, they will continue to target the wrong folks in making charges about poor moral choices.

We think there are ways to redress this imbalance between Have and Have-Not institutions – ranging from offering donors larger tax breaks for gifts to institutions with smaller endowments to encouraging universities with huge endowments to share the wealth by enabling less-well-endowed institutions to increase their financial aid budgets (the subject of this issue’s Net-Poll). Admittedly, these are radical solutions. But there is mounting evidence that well-heeled alumni are beginning to realize that perhaps the time has come for the Haves to deliver some of their abundant sand to the rapidly eroding beaches of the Have-Nots.

Jack Maguire
Chairman and Founder of Maguire Associates

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