Merit vs. Need-blind marketing

interesteddad
Sun, 17 Apr 2005 13:13:18 +0000

Pattyk:

I’ve been reading some of “Morty’s Boys” economist papers on college finanicial models at Williams. The profs in the Economics department there are do a lot of modelling of colleges as businesses.

Grinnell and Swarthmore make a very interesting comparison because they are so similar:

“Marty’s Boys” Universal Rule #1: per student endowment is the whole ball of wax for private schools. The size of the endowment determines the size of the subsidy each student receives above and beyond net tuition and fees and the size of that subsidy determines the quality of the product.

“Marty’s Boys” Corollary: Increasing enrollment is always a bad financial decision for a private school because the incremental income from tuition is such a small fraction of the cost per student. It is literally like losing money on every widget sold and trying to make it up on volume! Enrollment increases without a corresponding rise in per student endowment will always mean lower quality through reduced per student spending or jeopardizing the future health of the school by spending endowment revenues at a higher rate.

Grinnell and Swarthmore are twins: They both have huge endowments and among the highest per student endowments in the United States. Grinnel is actually a little higher – the 6th largest per student endowment in the country, Swat is hovering somwhere around #10. And, both have refused the false tempation to grow, with almost identical student bodies of 1500 students.

Based on this, “Marty’s Boys” would put both Grinnell and Swarthmore at the top of heap – in fact, when Marty’s Boys did a financial comparison of Williams, Amherst, Swarthmore, and Wellesley a few years back, Swarthmore had highest per student spending and the strongest financial performance of the four. Grinnell and Swarthmore are two unbelievable strong colleges from an economic standpoint (which “Marty’s Boy” maintain is what we really should be looking at, i.e. follow the money).

Looking at the budgets of the two schools, two somewhat intuitive things jump out:

Swarthmore charges more:

Their net per student revenue from tuition and fees (non inc. room and board) is $17,200. Grinnell’s per student revenue is $12,500. Swarthmore actually “gives” slightly more financial aid discounts, but their sticker price is $6,000 a year higher.

Swarthmore spends more:

Their per student operating budget is $56,300 versus $42,700 at Grinnell.

In both cases, students are receiving a huge subsidy thanks to the monster endowments and small enrollments. Swarthmore can charge more because of location and prestige, and more of what high-end shoppers look for in a luxury car (higher SAT scores, more diversity, country club campus, etc.). I mean, I’d expect to pay more for a granite house with a slate roof surrounded by gardens. I would guess that the difference in spending largely reflects the cost of doing business in Philadelphia versus Iowa and a difference in class size. Swat has 389 class sections versus 307 at Grinnell.

Classes from 2-9: Swat 38% Grinnell 13%
Classes from 10-19: Swat 37% Grinnell 49%
Classes from 20-29: Swat 20% Grinnell 32%
Classes from 30-39: Swat 6% Grinnell 3%
Classes above 40: Swat 3% Grinnell 1%

Quite honestly, you are going to get your money’s worth and then a whole bunch more at either Swarthmore or Grinnell. Purely from a economic/academic spending standpoint, Chicago wouldn’t even be in the running, due to its larger size (although that discounts things about a larger school that may be attractive). I do think a case can be made that Swarthmore should cost more since it are spends $13,000+ more per year on each and every student, but that ignores the reality that any college will charge as much as it can and still get the student body it feels it needs.

You have to compare your net difference in cost and determine if the things it buys are worth it or not. It’s no different than deciding to get the leather seat package in the new car or not. Of course, you want the leather seats, but that doesn’t mean they are worth the cost of the luxury option package, particularly if the package includes the power moonroof that you don’t care about.

I envy your decision because you have great choices. On the other hand, I’m glad I don’t have to make it! I can say this: a whole lot more people should be applying to Grinnell.