Beyond
price: College costs and value
When
the Elkhart Institute moved southeast and opened as Goshen College in 1903,
tuition for the school year was $15 per term if paid in advance. Rooms in the
brand-new East Hall for women were available for the modest sum of 75 cents
a week, which included heat and the laundering of up to 12 pieces of clothing
every seven days. Men had no dorms, but furnished rooms were available for 50
cents a week, and heat was extra for men at an additional quarter a week. Board
was $22 per term for everyone, bringing the total cost to $138 for three 12-week
terms.
By 1998-99, tuition, room and board and a technology fee had grown to $16,310. Laundry access, by the way, was now unlimited, at $1 per load for the washer and 50 cents for the dryer.
The number crunchers among us will calculate the average annual percentage increase at 5.15 percent for the 95-year period. Others think of current costs and compare them to the cost of a car or house. But like the weather - where many see the outcome, but few think about where it comes from - not all of us under-stand the business aspects of how a college budget is developed and implemented. On the following pages, several GC experts take the oppor-tunity to answer some commonly asked questions about the financial side of running a college. Here's a sample of what they have to say:
Why does college, particularly a private college, cost so much?
Understanding the relationship between "cost" and "price" is crucial in a discussion of college finances. "Cost," the amount of money needed to run all aspects of the college, is calculated by dividing the total operating budget in a given year by the number of students attending; the "cost" is nearly always larger than the posted "sticker price."
At nearly any college, all students receive a subsidy covering the difference between cost and price, which is largely generated by contributions from alumni and other friends as well as income from funds invested in the college's endowment. At GC, this subsidy totaled nearly $3,000 per student in 1997-98, more than 15 percent of the total operating budget.
Likely because of the quoted prices, many people assume the cost of a private college is more than at a public school, but they're generally about the same. The difference is that public schools typically also benefit from large state subsidies which can lower their price. For example, according to figures from the Indiana Commission for Higher Education, the state of Indiana appropriated $7,438 per student for students at Indiana University's Bloomington campus during 1996-97. Without that subsidy, an IU student would have paid $15,505 for tuition, room and board that year, about $725 more than GC's sticker price of $14,780 in the same year.
"Publics" and "privates" do have some differences in their revenue and expense sources. Many schools, especially those with an emphasis on research, are able to generate large sums in grants from private and public sources. The tradeoff is higher salaries for some professors at state schools, particularly in certain fields. One way many, if not most, publics have countered this is through the use of lower-paid teaching assistants - typically graduate students - as instructors in lower-level and general education courses.
While students and families at all colleges still must face the realities of higher education expenses, students at private colleges are more likely to receive financial aid because of the higher price. In addition to federal and state assistance programs which may be available at both types of schools, for example, Indiana students attending a private school within the state may be eligible for significant state grants not available to students attending public colleges. Other states have similar programs for students attending in-state private colleges, and a few states - notably Pennsylvania - allow the money to be taken across state lines. In addition, most private colleges have typically offered more institutional money in the form of grants for student aid than publics have. For example, according to U.S. News & World Report, only 41 percent of IU students were determined to have financial need in 1997-98. Only 23 percent of all IU undergraduates received need-based grants, with an average grant package of $3,347. At GC, 64 percent of students had financial need, and 58 percent received grants averaging $6,935.
Thus, the net difference between a public and private college is often much smaller than difference in sticker prices makes it appear. In addition, students at private colleges are 35 percent more likely to graduate within five years than their public school contemporaries. As a result, the short-term savings generated by attending a public school can be eaten up by a combination of additional years of tuition, tuition inflation in the additional years, part-time study in which financial aid eligibility is restricted and a delay in entering the workforce.
How are prices set at colleges?
Colleges make pricing decisions in different ways: peer pricing through comparisons to other colleges; setting a price that will cover budget needs; pricing based on perceptions of quality; or some combination of these.
At GC the provost and vice presidents of enrollment and finance use a team approach, working to balance revenue projections based on enrollment estimates with overall program costs and institutional costs necessary at the expected volume of students.
The
group also notes pricing patterns of other colleges similar to GC (Council of
Mennonite Colleges, private colleges in Indiana, national liberal arts colleges,
members of the Coalition for Christian Colleges and Universities and others),
and a decision is made to set a price that appropriately fits the competitive
environment. This price must also support a level of quality to which the college
is committed, so tuition, along with other income sources, must generate enough
income to balance the necessary costs. New educational programs must have funding
sources established before they are added to the overall college curriculum.
One of the particularly challenging parts of this equation involves financial aid. An increase or decrease in the sticker price will create a corresponding increase or decrease in the amount of financial need students have. Thus, a particular concern is not increasing the price to a point which also increases the aid budget exponentially.
Following these steps, the provost and vice presidents of enrollment and finance make a recommendation to the president's council. After pro-cessing by this group, the GC board of overseers makes a final decision based on the recommendation from the president's council.
Do you compare GC's tuition with other schools when setting prices?
As described above, the college is certainly aware of tuition levels at similar schools, but the emphasis remains on the college going its own way based on the program needs which will best fulfill the its mission. In addition, while GC does not directly pattern its tuition after other schools, it has intentionally aimed to be on the "value" side of its competitive colleges. That is, GC takes seriously the goal of remaining more affordable than comparison colleges while equaling or exceeding them in educational quality.
Overall tuition trends at GC have been lower in both absolute dollars and in percentage terms than most of the schools with which it most directly competes. In three years, for example, GC has moved from a sticker price that is 7 percent less than other Indiana private colleges to a sticker price that is 10 percent less, despite being one of only a handful classified as a National Liberal Arts College by the Carnegie Foundation. With a 3.5 percent increase slated for 1999-2000, that difference is likely to increase. Similar changes have occurred within other comparison groups.
Why has tuition increased faster than the Consumer Price Index?
It's true that tuition has increased at a rate faster than the Consumer Price Index, but to compare these rates side by side is not particularly helpful.
CPI measures inflation as experienced by urban consumers in their day-to-day living experiences, providing a way of measuring what a fixed basket of goods costs from month to month.
Colleges, on the other hand, have a very different "basket of goods." For example, food and energy prices have stayed very low the last few years, while things like technology costs, textbook costs, building and facilities costs have generally outpaced the CPI. For an enterprise like a college, whose largest single expense is salaries and benefits, the budget is affected dramatically by increases in providing health care to employees.
Should tuition prices matter when choosing a college?
Tuition should certainly be one factor. But just as cost is only one factor in buying a car or house, cost is only one component in a list of elements that includes personal, social and spiritual goals, major offerings and academic reputation, geography and any number of other items. Put another way, tuition and other fees are only one of the measurable and unmeasurable costs that must be weighed against the benefits of each college's fit for a particular student.
In addition, while most schools believe the primary responsibility for paying for college belongs to students and their families, financial aid exists to help minimize the difference cost should make in choosing a college. At GC, for example, about 90 percent of full-time students receive some sort of assistance, with an average package of scholarships, grants, work and loans totaling more than $13,000.
College financial aid and admissions counselors and high school guidance counselors are just a few sources with knowledge of available resources. On the other hand, while numerous individuals and businesses tout guarantees of providing a certain number of sources of information about financial aid, experts say most are scams, and the information they provide is typically readily accessible through other sources.
Where is tuition headed? Is college a good investment?
Gross tuition costs extrapolated into the future are often sensationalized; prices quoted run well into six figures, but the net cost of tuition (after aid) should be the figure that is used. At most schools, including GC, this figure is much lower than the sticker price and is increasing more slowly. At GC in 1997-98, the average net price for students was $5674, an increase of 2.6 percent over the previous year.
To call college an "investment" is an accurate phrase; figures quoted often neglect to consider the benefits of a college education. Looking at the value of the output - not the input - is the way to truly value a college decision. If a college education is evaluated based on its cost only rather than on its "value" at the end of the experience, it is not being evaluated appropriately.
According
to 1996 information from the U.S. Bureau of Census, a person with a bachelor's
degree will make $648,000 more over the course of a lifetime than a person with
a high school diploma. In addition, society benefits from people with a college
education. College graduates are less likely to depend on government services,
half as likely to be unemployed and more likely to vote and do volunteer work.
In addition, students at schools such as GC are able to take part in Study-Service Term and other life-changing events. Whether or not they go on SST, students are exposed to a larger world view than would likely be the case if they did not attend college. Opportunities in cocurricular activities help students develop leadership and other skills.
Last, and certainly not least in the case of schools like GC, is the role a college can play in shaping the future of a church denomination. A disproportionate number of Mennonite pastors and other church leaders have attended college, Mennonite colleges in particular.
How are expenditures set?
At GC, top level administration sets overall institutional priorities, and information on campus needs is gathered; these are molded into overall resource allocations informed by benchmark guidelines monitored on an ongoing basis. For example, about 36 percent of GC's operating budget goes to direct and indirect instructional expenses. Another 12 percent goes for student services such as residence life, athletics; student activities and career services, 14 percent goes to direct financial aid to students; and another 10 percent goes to support institutional administrative functions such as the accounting, financial aid, registrar, executive and admissions offices. About 9 percent goes to facilities maintenance and 7 percent for auxiliaries such as dining services and residence halls. Finally, about 5 percent goes for institutional advancement activities such as development and public and constituency relations and 7 percent for other miscellaneous areas, including debt service. By far the biggest single line item across the college is in wages and benefits.
Couldn't colleges save money by being more like a business?
A college institution is actually a collage of many small, individual business-like entities. For example, revenues and expenses are tracked separately for our degree completion program; financial goals are set and monitored for that program. Teaching and administrative departments are accountable as individual budget entities. Some departments are responsible for both revenues and expenses, while others operate as cost centers responsible to stay within prescribed budgets.
Colleges
are in a very competitive business, and like other businesses, must attract
customers (students) to its product. Competition forces schools to constantly
work at cost efficiencies while maintaining and improving quality.
Schools also negotiate contracts with outside vendors to supply us with services if the vendor can do so more efficiently than the college. GC has contracted for food, bookstore and security services and healthcare administration, to name a few. It also has hired expert consultants to help invest its endowment most effectively, and other consultants are obtained in different areas of organizational management.
In other areas, however, a college has fewer options than other types of businesses. Unlike some businesses, colleges can't move in search of a lower-paid workforce or lower utilities. Technology is also a difficult area for a college to control. Educational institutions are responsible to learn, use and teach using new technology, but this can be extremely expensive, especially with rapid advances in technology. Funding technology needs for instructional purposes is, and will continue to be, a major challenge for colleges. A year ago GC implemented a $250 technology fee to help fund technology use in its educational programs, but this fee pays for only a small portion of the college's total annual commitment to technology replacement and upgrades.
Colleges can balance a budget by either increasing revenues or cutting expenses. How have they done this?
Increasing revenues can happen in several ways. Aside from the obvious answer of trying to attract more students at higher net tuition levels, many colleges today also rely on very significant donations and endowment earnings. At GC, the income generated for our unrestricted operating budget from our endowment fund has grown from $1.56 million in 1994-95 to $2.21 million in 1997-98. This 42 percent increase over three years has helped to offset costs and keep tuition increases well under those at comparable colleges.
On the expense side, many colleges have learned to assess programs regularly and sometimes have to cut out programs that can no longer be supported financially. Decisions such as the number of hours the library is open help keep the 60 percent of GC's operating budget which is used for wages and benefits at a manageable level. GC has also developed "key performance indicators" which allow it to track effectiveness in achieving financial and educational objectives. Some examples include measurements such as class standing and GPA of incoming first-year students, cost per credit hour for the institution and for various disciplines, and cost of technology per student.
As a matter of stewardship, GC also works very hard at overall cost control. Like at most other private colleges, it has sometimes compensated for tight budgets by deferring costs into the future. Thus there can be significant deferred maintenance items as a result of directing resources away from noncritical physical plant needs and towards educational program needs. The balancing act of spending enough resources to maintain a safe and effective learning atmosphere while not wasting money on non-critical areas is a challenging one which may mean that parking lots are not resurfaced as regularly as some would like or noncritical equipment is not replaced as soon as faculty or staff would like.
An extreme example of significant cost control efforts is reflected in the comparative salary levels of GC faculty and staff. As a cost control measure in the past, salaries have been allowed to lag while resources were directed to maintaining program levels. To date, GC has been able to attract top quality, highly qualified teaching faculty despite salaries that are 10 to 20 percent below the average of other similar colleges. Similar patterns exist in many administrative positions. In response, and in an effort to maintain a competitive high quality faculty, last year GC established a goal of improving its faculty salaries to the average of a benchmark group of 51 other similar church-related colleges within five years. This will be a challenging cost item to include in GC's future budgets.
How does financial aid work?
The purpose of financial aid is to help make sure cost isn't the sole factor in determining whether a student can attend the college of his or her choice. While the primary responsibility of paying for college remains that of the family, financial aid is available to help.
Eligibility
for most types of financial aid, including state and federal grants and loans
and some college programs, is determined by a process called "need analysis."
Other types of aid, including academic and other scholarships, are available
to all students, regardless of "financial need."
Need analysis determines the amount of money that a family can be expected to contribute toward college costs. This "expected family contribution," which should be the same at any college, is calculated using information about family size, income and assets provided on the Free Application for Federal Student Aid.
The expected family contribution is subtracted from the total cost of education (including an allowance for books, transportation and personal expenses) to determine the amount of assistance for which a student is eligible. Financial aid packages typically consist of a combination of "gift" aid (scholarships and grants) and "self-help" (loans and employment).
How can I find out more about financial aid?
The best sources for information are college financial aid and high school guidance offices and public libraries. Many financial aid officers present workshops on financial aid, typically for the parents of juniors and seniors.
There is also a large number of "scholarship services" in operation. For a fee, these services will "guarantee" to find you a given number of financial aid sources. The vast majority of these are scams, and the information they provide is typically available from free sources. GC's Web site has a significant amount of information, links to federal tax and other forms and descriptions of both governmental and GC programs. The site is at www.goshen.edu/financialaid/ gcfinaid.html.
Will saving money for college hurt my chances of receiving aid?
In a sense, maybe; but that's not the right question. It's true that the federal formulas assume that a certain percentage of money in savings will be used to pay for college. This may increase your "expected family contribution," and thus lower your financial need.
However, the better question to ask is "what is the most efficient way of paying for college?" In not saving, a person may receive more financial aid, but a significant portion of the additional aid will likely be in the form of student loans that must be repaid. In addition, the formulas include only 12 to 35 percent of nonretirement assets in the student's expected family contribution, depending on whose name the assets are in and the age of the parents.
The net effect, then, is that after combining the amount of savings left after four years and the decreased loan amounts, for every $100 of savings a family has, the student would likely leave college with the family somewhere from $65-$100 ahead of the family which didn't save. The vast majority of families would be money ahead after graduation by choosing to save for college.
How does GC's church aid program work?
When a church or related organization commits by May 1 to providing funds for a full-time student's education, GC matches up to $500 per year ($1,000 to students from Indiana, thanks to a grant from Lilly Endowment Inc.) in a matching grant.
During 1998-99, more than half of GC students benefited from funds contributed on their behalf by congregations, conferences and camps. GC provided nearly $250,000 of matching grants.
With its many variables, describing a college's finances can perhaps best be called a series of artistic decisions informed by scientific information. The combination of tuition, financial aid, net tuition revenue, endowment, discount rates, depreciation and arbitrage, requires a balancing act that sometimes requires the wisdom of Solomon and the patience of Job. At GC, the financial emphasis is on stewardship as the college continues its pursuit of providing affordable academic excellence in a Christian liberal arts context.
By Lyle Miller
Beyond price: College costs and value - Lyle Miller
What is endowment - Lyle Miller
How much do we need - Lyle Miller
Student profiles - Rachel Lapp
XXXThomas Bona
XXXLaura Kanagy
Endowment is money donated by friends of the college for a restricted purpose or to fund future - as opposed to current - college expenses. These funds are invested, and only the income portion of the investment is used to offset expenses for designated purposes.
Why do colleges need an endowment?
Without an endowment, a college must pass a larger portion of its costs on to students in the form of tuition and fee increases. Endowment funds also help support many special programs that otherwise would not be financially feasible. Finally, endowments help finance the operating costs of new buildings so these expenses do not burden the operating fund.
How does endowment work?
GC invests its endowment money in a diversified portfolio designed to generate a long-term average rate of return of approximately 10 percent. The college spends 5 percent on current educational program expenses and returns the other 5 percent to the endowment fund to offset any loss of purchasing power due to inflation. Over time this means the endowment should gradually grow from its own reinvestment in addition to new gifts. In those years the endowment earns more than the expected 10 percent, the endowment grows more rapidly. The converse is also a possibility, but in the long run, the endowment should continue to provide a permanent and growing source of funds to help offset college expenses.
In the last several years, the stock market has done very well. Is GC doing something wrong to only take in 5 percent?
We have earned more than 16 percent in each of the last three years, but for budgeting purposes it is helpful to take out a consistent amount each year; taking 5 percent is actually GC's spending policy - how much it takes out of the endowment each year regardless of how much it earns. Maintaining a constant withdrawal rate and withdrawing less than is earned are two ways in which GC is a faithful steward of its resources.
What does GC do with its endowment income?
Last year $2.2 million was distributed to the operating fund to offset expenses. After tuition, this was our largest source of revenue for the unrestricted operating fund. Another very significant portion, about $16 million in more than 100 separate funds, goes toward funding special scholarships. Other restricted activities also benefit from endowment funds.
How much is needed to establish an endowed scholarship?
The establishment and maintenance of each endowed scholarship involves a set of expenses. While donors can give any amount toward an existing endowed scholarship, $50,000 is needed to establish a new named scholarship. This amount would generate $2,500 in scholarship funds for students, which may be divided among more than one student.
How does GC invest its endowment?
GC's endowment is invested in a widely diversified, professionally managed portfolio of stocks, bonds, real estate and cash designed to be less volatile than the overall stock market. The long term goal of the endowment is growth, as opposed to current income generation. The majority of the endowment is invested with the Mennonite Board of Education in a pool that includes our sister colleges Eastern Mennonite University and Hesston College.
Is GC "socially conscious" in investing its endowment?
GC uses an ethical investment policy to avoid investments in the most recent list of the Department of Defense's 50 largest contractors or any company with more than 5 percent of its gross sales in defense contracts. The policy also avoids investing in businesses involved with alcoholic beverages, tobacco and the gambling industry. On the contrary, GC gives priority to companies which provide products or services that promote a better quality of life, such as in health care, housing, food and education. The college uses its proxy votes in a way that is consistent with Anabaptist principles.
By Lyle Miller
How much will we need to save for our children's college? It's a question many people ask, and the answer in magazines and from financial planners is typically one of the following: 1) gazillions; or 2) more than you already are.
But many of these articles and advisors play on fear in an effort to please advertisers or sell investments. They use worst case scenarios of current "sticker" prices and percentage increases and few allowances for financial aid, despite the fact that the majority of students at most colleges qualify for some form of financial aid. At GC, for example, only about 1 in 10 students pays the quoted price, and some students receive more than $18,000 in total financial aid.
The truth, however, is that most families would benefit by increasing the amount they save for future expenses. So just how much will it take, and how much do you need to save? Predicting is indeed an inexact science at best, thanks to the number of variables involved. Discussing the particulars of your situation with someone familiar with your personal finances will be helpful. Like in other financial planning scenarios, experts would encourage you to err on the side of being conservative - if there is money left over after children complete college, you can always add it to your retirement planning or other investments.
For a copy of this worksheet, e-mail LyleGM@goshen.edu.
By Lyle Miller
Thomas
Bona, a senior from the Bronx, knew that student loans would be a part of the
menu when he decided a Mennonite college best matched his goals. The icing on
the cake was receiving the best financial aid package from GC - his first choice.
It was important that scholarships, grants, loans and work study cover completely
the costs of a GC education; his mother, a single parent, contributes toward
his daily living expenses. He will leave GC with around $25,000 in federal loans.
"I'd rather have debt and have the opportunity to do something I enjoy, with the skills and experiences to back it up," says Thomas. "I've appreciated the scholarships like the Kay Gorsline and Phil Smith Scholarships for communication, and grants from the Ministry Inquiry Program, that encourage you to further your knowledge and help you pay for college."
A communication and Bible and religion double major, Thomas also qualifies for academic achievement-based scholarships from GC, and a church matching grant provides several hundred dollars of assistance each year. He also has on-campus work-study jobs; served as a student leader for All-Campus Worship through campus ministries; and has on-air shifts at WGCS, the campus radio station.
"In terms of educational value, my world view is irrevocably changed because of coming to GC, through programs like SST and campus ministries, and in terms of classes, hands-on experience and the way faculty deal with students as individuals," says Thomas. "I am willing to take the risk of getting the best education, and trusting that God will provide in the future."
Finances
and atmosphere were high on junior Laura Kanagy's list when it came to choosing
a college; GC came out on top when she added in the value of SST and her impressions
of the campus and its people. Kanagy's financial aid includes a half-tuition
President's Leadership Award (PLA) worth $5,950 this year, and a church matching
grant that pays $1,400 a year with a $500 match from the college. Laura and
her parents cover the rest, with Laura contributing around $3,000 from her personal
savings each year. She also works on campus.
As a first-year student, the Leola, Pa., native received locally sponsored scholar-ships. She will be eligible for the PLA for four years, but has decided to take an extra semester for which she says she might need a student loan.
"Finances were a bigger part of my decisions about college right after high school, but coming here has taken my mind from looking at things like money in narrow ways, and helped me look at the big picture in term of what's best for me as a person. I can look at the extra semester and know it's money I don't have, but it's for the best in the long run," says Laura, whose own long-term plans include voluntary service.
A soccer player, Laura also participated in small groups through campus ministries and has served on the newspaper staff and Pinchpenny Press board. An education at GC extends beyond the classroom, she says. "You get a lot more than just a degree program - in my case, a major in English education with minors in peace studies and Teaching English to Speakers of Other Languages; the learning continues all the time."
In
his home country, Gaurav Khandelwal (center), of Calcutta, India, couldn't have
majored in both science and business in college; several of his high school
friends were headed to Goshen, so he applied as well. Of all the colleges on
his list, GC's price tag was the most appealing.
International students face multiple challenges when enrolling in American colleges and universities. They must secure a visa based on financial guidelines, and face fluctuating global currency markets. There are also travel expenses but, perhaps most stressful is the pressure to succeed, Gaurav says. "Most international students are very focused because it's a never-ending race to reach the top."
Gaurav paid the $7,500 balance of this year's GC tuition himself, with a little help from a short-term loan. He wants to pay for college himself as much as possible. So far, he's been able to do that with a combination of GC's international student discount and grant; Honors and Viola Good scholarships; and by working on campus as a tutor, a residential assistant and an assistant in the library and computer lab.
His family, who is in the tea business could pay for his education. Gaurav says that he gets "a kick out of being independent."
Even with a double major in computer science and business information systems, he has gotten very involved here and enjoys the variety of campus. Gaurav, who is Hindi and speaks five languages, is vice president of GC's Student Senate and is a member of the International Students Club and the Business Club.
Jayne
Fought Weigel started college the same day that her daughter started kindergarten.
Now her daughter is in third grade, and Jane is finishing her sociology/anthropology
degree with a secondary education endorsement.
When the Topeka, Ind., resident graduated from high school in 1984, continuing her education "wasn't part of (my) world view." About a decade later, she became the first member of her family to attend college by enrolling at Indiana University-Purdue University (Fort Wayne, Ind.) The following summer, her mother urged her to check out GC for the shorter commute. "I hope I am setting a good example for my children," says Jane, who also has a son in fifth grade.
Jane talked to Director of Student Financial Aid Galen Graber and her aid package included Menno Simons and Keasey scholarships; GC and church matching grants; and loans. Registrar Stan Miller worked transferring her IPFW credits. "The people I came in contact with not only helped me see attending GC as a possibility, they made it happen," Jane says.
Pursuing financial aid options tenaciously and keeping a close eye on personal finances to pay out-of-pocket expenses is worth the effort. She will also have $10,000 of student loan debt when she graduates this spring.
"It's worth it, and then some, because of the personal relationships with professors," Jane. "They treat students like people, not as just academic containers."
She has also appreciated GC's efforts in working to meet the needs of nontraditional and commuter students.
By Rachel Lapp