Will Non-Merit Giving Selective LACs Need to Change to Attract High-Income Students?

Parents Forum
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Depends on career and major. For engineering and CS, there is probably little to no difference in job prospects between a “prestigious” private vs a decent public. Other industries, consulting and finance come to mind, there is a significant difference in opportunities.

We had paid full boat for a private even though the kids had merit in our state’s highly regarded flagship. For our family, the educational experience was something we were willing to pay for, made easier by the fact that I had put $400/month in each kid’s 529 from the time they were born.

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The 3x overrepresentation at 95th percentile does not represent 95th to 100th percent. There is a separate point on the graph for 99th percentile, which is far higher than 95th percentile. Elsewhere Chetty shows distribution for 99.9th percentile, which is far more overrepresented than 99th percentile. Some more specific numbers for Dartmouth are below. 95th percentile is between 2.6x and 6x overrepresented.

99.9th+ percentile – 45x overrepresented ($3M+ income)
99.0 to 99.9th percentile – 18x overrepresented ($630k to $3M income)
95th to 99th percentile – 6x overrepresented ($320k to $630k income)
90th to 95th percentile – 2.6x overrepresented ($230k to $320k income)
80th to 90th percentile – Balance representation ($165k to $230k income)
Below 80th percentile – Underrepresented (Under $165k income)

Again, based on anecdotal evidence , the majority in that group are sending their kids to publics or to schools providing merit, not paying full cost at privates.

Chetty has done extensive research using tax reported earnings of attending families – a tremendously larger sample size than your anecdotes. This review found that as parental income increased to the discussed range, students were increasingly likely to attend high sticker price, selective private colleges. There seem to be almost no high sticker price, selective colleges that are exceptions to this generalization, regardless of the college’s cost or FA policies.

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Although the obvious way to improve ROI is to make the I smaller (choose a less expensive college), regardless of what (financial or otherwise) R ends up being and how (un)predictable it is beforehand. If I=0, then ROI is positively infinite for any positive R.

But the $300k income family complaining about college costs probably has expensive tastes, so the kid that has acquired those expensive tastes might not go for an automatic full ride at a less selective college, or even a public flagship at in-state price.

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Yeah, “screwed” was too strong a word for sure. I fully accept that criticism.

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Are those calculations defining “overrepresentation” vis-a-vis the population as a whole or vis-a-vis applicants? A significantly higher percentage of people from the top 20% apply to college. So the relevant applicant pools themselves are going to be skewed. Do they account for that in the final calculation of whether a segment is “overrepresented”?

If not, it seems like that data isn’t really answering the specific question. I.e. determining whether there is a drop off in enrollment by families in that grouping - are they enrolling at merit-providing or public colleges at a higher percentage than at full pay colleges. Overall percentages can’t show that if it doesn’t take into account what percentage of the overall college applicant pool they are.

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It’s not a strawman nor am I ignoring the actual argument. It’s just another point that came up in the thread.

I think your upper limit is too far in “seven figures” and that there are many people out there making more than 300 and less than a million who will pay for their kids to attend a selective non-merit school.

And as I said, the line seems to be moving all the time.

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"The problem for higher ed, however, is that over the last decade full-pay students have become a rarer commodity—the result of declining household incomes in the U.S., increasing sticker prices at colleges, and more families simply saying No to paying full price even when they can.

How bad is it for the bottom line of colleges?

Recently, the CFO at a small private college shared data with me that show the percentage of full-pay students at the top 150 liberal-arts colleges has fallen overall from 22% to 16% since 2012. (Full-pay students in this case are defined as those who receive no institutional aid, so they still might access outside dollars, including loans, to pay for tuition.)

"

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But this treats all colleges the same and we all know they are not. The demand curve for Hofstra or Adelphi or Quinnipiac looks nothing like the demand curve for Harvard or Cal Tech-- all private institutions. So the claims that the number of full pay students is in decline and therefore XYZ is going to happen- no. University of New Haven is going to react differently than Yale, just down the street. But that’s where all this talk about the donut hole families, affordability, etc. gets creepy for some people. “What, you’d pay full freight for Harvard but not for Wake- the Harvard of the South?” or “you’ll figure out the finances for Barnard but not Northeastern- don’t you know that Northeastern is even harder to get into than Barnard?”.

It’s a lot more complicated than these analyses are willing to admit. For every 20 colleges out there frantically discounting under the guise of “The Chancellor’s award”, there is a college that could pretty much raise their price again and again without it impacting enrollment. Would they get the class they wanted? No. They’d get the class of 1914 but with women, and the dorms have already been renovated to eliminate the “servant’s quarters”. But that’s a different story. They’d be able to fill the class with full payers regardless.

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I actually haven’t read whole thing in awhile - but my recall is that the deep dive analysis (vs. that quote) only calls out the barbell issue being a real problem for slacs in the 50-150 rank range. The top ones there is no issue (or shortage of full-pay) and bottom already do merit.

“The rapid deterioration of full-payers has been most acute in the middle—those institutions that rank between 51-100 among the the U.S. News top liberal-arts colleges.”

I think there is a long version of this post somewhere (in Times maybe?)

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Colleges will close- we’re seeing that in real time. But the “high earner” family problem is only one of many causes.

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I don’t disagree! lots of factors going on…and definitely many schools will close in next 10 years even if nothing much changes.

with strong potential of real AGI coming very soon, who the heck knows what will happen with anything :grimacing:

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I don’t pretend that I can predict the future.

I can’t predict the labor markets, I can’t predict the stock market, I can’t predict what a 17 year old kid is going to do professionally and whether it will yield a positive ROI or not.

All I can predict is that anyone who thinks they can accurately predict the above- should get the heck off CC, engage in some arbitrage, and then move onto their boat off Tahiti.

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Good point, i shouldn’t have said “definitely” above! Though I think it is pretty likely schools will close if trends don’t change…whether they change or not is the hard part:)

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One can compare the enrollment between whatever colleges you think are most appropriate. For example, the graph below was previously posted, which shows attendance at lower cost in-state public flagships shows a very different pattern at higher incomes. Wealthy kids seem to be dramatically overrepresented at out-of-state public flagships, but far less overrepresented at the relatively lower cost in-state public flagships. Unfortunately this graph controls for test scores, which can be misleading.

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A more apples to apples comparison might be a selective private that offers good merit aid to upper income students vs a selective private that offers no merit aid, or selective colleges that are relatively lower sticker price vs selective colleges that are high sticker price.

For example, Cooper Union had no tuition until 2014. In 2013, it’s admit rate was 7%. I’ll compare to MIT in 2013, which had an admit rate of 11% that year. For a wealthy kid, Cooper Union was typically far less expensive than MIT in 2013. However, the wealthy kids full pay kids were more likely to attend MIT.

Top 1% – MIT = 6%, Cooper Union = 3%
95th to 99th – MIT = 23%, Cooper Union = 19%
90th to 95th — MIT = 14%, Cooper Union = 16%
80th to 90th – MIT = 18%, Cooper Union = 17%
60th to 80th – MIT = 15%, Cooper Union = 21%
Bottom 60% – MIT = 24%, Cooper Union = 24%

Perhaps MIT is not applicable due to having a better reputation than Cooper Union. If I compare to RPI which had a far higher 59% admit rate, then it’s still a similar pattern. The full pay kids are more likely to attend, the more expensive RPI, while students not in top 20% income were relatively more likely to attend the tuition free Cooper Union.

Top 1% – RPI = 4%, Cooper Union = 3%
95th to 99th – RPI = 20%, Cooper Union = 19%
90th to 95th — RPI = 20%, Cooper Union = 16%
80th to 90th – RPI = 18%, Cooper Union = 17%
60th to 80th – RPI = 18%, Cooper Union = 21%
Bottom 60% – RPI = 16%, Cooper Union = 24%

It doesn’t really matter which colleges you compare. Nearly all selective private colleges show the same pattern, regardless of the college’s sticker price, FA policy, and merit aid policy. If when comparing private colleges, cost differences between those colleges seem to have little impact on representation among $300k/year type income kids, that is telling.

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I wouldn’t exactly put it that way, but it is a logical consequence of a couple things that I think are understandable.

The first thing is that it takes a certain amount of money for a family to just cover basic needs like food, shelter, clothing, necessary work expenses, health care, and so on. A basic education could even be considered on this list, but I would suggest that only applies to community college, or maybe an in-state residential college at whatever your state will charge you.

When it comes to paying more for a private college because it is seen as superior to such a basic public college education, that is properly seen as a type of luxury spending (not pejoratively, just definitionally). And luxury spending typically comes out of whatever you have in addition to the basic financial resources. And the details differ, but at a high level these colleges are basically looking for you to pay a certain percentage of your available luxury money on college.

OK, so suppose you only have what they see as the basic financial resources (or less). Then they will more or less not look for you to pay anything. Suppose you have a little luxury money, but not too much (as they see it). They might look for you to pay a percentage of that, but since you don’t have much total luxury money, it won’t be much, either gross or (likely) as a percentage of total income. Suppose, though, you have a decent amount of luxury money, but not so much you can afford the whole thing. Then you will have to pay more, but not full pay.

This continues up to the point you have enough luxury money, as they see it, to be full pay. At that point the percentage of your total income that is luxury income as they see it is likely to be relatively high (although it depends on your assets, but we can hold that aside for the purposes of this conversation). So their assessment of your luxury income will also be relatively high as a percentage of your total income.

OK, so that’s the first thing. The farther above what they see as an unassessable basic level of financial resources you get, likely the higher that assessment of your luxury financial resources will be as a percentage of your total income (assuming typical assets at least).

OK, so why doesn’t it keep increasing? Because of the second thing–eventually they cap it at full pay. And then if you keep assuming more and more total income past the point you would be full pay, the percentage of full pay versus total income will be going back down again.

Long story short, I again don’t think of this as a policy position per se, but it is the necessary mathematical consequence of these two policies, only assessing a portion of what they see as luxury money, and then stopping once you hit full pay.

As a final thought, my two cents is the part of this which may be harder to defend is actually stopping at full pay, at least as currently defined. As we discussed, the actual cost per student is likely more than that at these colleges, so why wouldn’t they keep charging at least up to that level?

I think the basic answer is there is a limited supply of students they actually want from these much-more-than-full-pay wealthy families, their presence at these colleges is desirable for reasons that go beyond mere tuition, and so they are competing on price to get them. Given this interpretation, the cynical take would be that once you get to the merely upper-middle-class (85th to 98th types), there are simply too many well-qualified kids from those families to have the same sort of pricing leverage as the wealthiest families, whose well-qualified kids are relatively scarce.

But in any event, whatever the reason for it, the fact they cap full pay at the relevant level contributes to these very wealthy families typically paying a lower and lower percentage of their total income (although once again, assets can blur that picture a bit).

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College in the United States runs on a different model than in most other rich countries. Other governments invest more in their students, making excellent education available at heavily subsidized prices. If you are a top student in Germany, Scandinavia, the Netherlands, Spain etc. you will be admitted to the top universities and pay almost nothing. But you need to be a top student, and these universities have no frills-- typically no dorms, no meal plans, no gyms, no sports, no clubs, no disability services. A typical top student lives at home and commutes. It’s about the government investing in the education of its citizens and nothing else.

In contrast, the top colleges in the US run on the Sleep Away Camp model. Sure, the education is excellent, but that’s only one of the goals. An equally large goal is forming social networks. That’s why students are sent away to live at the school. These are private schools, so it’s not about the government investing; it’s about rich people investing.

So all else being equal, top private schools in the US would rather admit the fabulously wealthy (99%+) than the merely wealthy (85-99%). The fabulously wealthy have better elbows for rubbing. If (for some reason I have not thought of) rich selective LACs feel they are lacking in regular wealthy students, they will lower the price as an incentive. But I don’t think “fairness” will be the reason.

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This is true in pretty much every country I’m familiar with in Europe and Asia - not just in the rich ones.

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I don’t think the most elite (and expensive) privates will discount their rates any time soon. They already reject so many applicants that even a modest decrease in the numbers applying is going to leave them with more than enough great candidates. Maybe admission rates will tick up from 5-8/9/10% but that isn’t going to materially change the way they do business.

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If we took the fairness argument to its extreme, the so-called, sticker price of these colleges would have to increase so considerably in order to accurately inflict the same pain across the board, including the highest 99th percentile, that it would effectively scare away all other customers. That already happens to some extent .

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