A recent article in The Wall Street Journal by Douglas Belkin exposes a shady element of college finance that, while long- and well-known by insiders, seems finally to be raising a fair amount of pushback from those families and students who are in many cases borrowing money to finance the scheme.
I have reference to the long-standing practice of using a percentage of the tuition of those middle and upper middle class students whose families can afford it to subsidize scholarships for those students who can’t. In a survey conducted by The Wall Street Journal, these subsidies have increased by 174% in the past eight years and amounted to over $512 million in the 2012-13 academic year.
This practice is not new to me, having had a daughter who attended one of the better private (and more expensive) universities a number of years ago and learn, quite by accident, that approximately 20% of her tuition was allocated to a fund for such subsidies. I was incensed at the time and protested vigorously, particularly since we had saved for her education since her birth, were denied financial support because of our income level and the size of her college fund, and we felt that the practice was unfair to her, not to mention the perverse incentives it promotes for students and their families. Over 20 years later, I still feel the same way, even more so because of the growth of this practice.
Of course, much of the response to the Belkin article from the higher education community has been of the nature of “what else is new” or worse, “you simply don’t understand how college accounting works”, the latter of which was the primary response I received at the time. Or they blame the reduced support from state governments. But the people who don’t get it, don’t understand the outrage here, are the ones who are in for a rude awakening when the tsunami of the coming creative destruction descends on their institutions and misguided practices such as this one.
