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Taking a bold step to make Penn more affordable for families across a wide swath of the income spectrum, University officials announced in December a substantial expansion of undergraduate financial aid.  Starting this September, Penn will replace loans with grants for students of families with annual incomes up to $100,000—up from the $60,000 threshold set last spring.  The initiative will continue to grow over the subsequent year, so that by Fall 2009, all undergraduates eligible for financial aid will receive loan-free packages, regardless of family income level. 

“The decision that we made to eliminate loans is going to cost, when fully implemented, about $12.5 million a year,” says Bill Schilling C’66 L’69, director of student financial aid.  Currently some 2,600 Penn undergraduates—about a quarter of the total—have aid packages that include a loan.  When the initiative is fully implemented, the University’s total spending on undergraduate financial aid will top $110 million per year, up from about $90 million now.

The average American college graduate now leaves school with $20,000 in debt, a figure that has risen 50 percent in the last decade—partly because federal financial aid has gradually shifted away from grants and toward loans.  Meanwhile, the average starting salary for someone with a liberal-arts degree is roughly $30,000, according to a survey by the National Association of Colleges and Employers.  Penn graduates tend to earn more, with average starting salaries ranging from about $47,000 for College alumni to $60,000 for graduates of Wharton and the School of Engineering and Applied Science. 

Since the University began replacing financial-aid loans with grants in 2006—at which time the qualifying threshold was an annual family income lower than $50,000—the average debt for Penn students at graduation has decreased 10 percent, from $20,927 to $18,800.

The combination of escalating tuition costs and stagnating middle-class incomes has stoked anxiety across the country, among parents and educators alike.  Penn President Amy Gutmann has made the expansion of financial aid a central part of the University’s current capital campaign [“Seizing the Moment,” Nov|Dec 2007].  “Our nation’s young scholars should not be deterred from pursuing their dreams for fear of being a financial burden to their families,” she said when announcing the new initiative in December.

“The problem that we sense,” says Schilling, “is that there are lots of low, lower-middle, and middle-income students who don’t even apply, because they’re fixated on the sticker price.” 

Penn is not the only top-tier university racing to sweeten financial-aid offerings for middle-income families.  Princeton eliminated loans from all of its undergraduate aid packages in 2001.  That trend accelerated last year as colleges including Swarthmore, Amherst, and Williams followed suit.  But what really shook up the financial-aid landscape was a December announcement from Harvard.

Starting this fall, Harvard, whose $35 billion endowment is the biggest in the country, will offer substantial tuition discounts to all but the richest three or four percent of households in America.  For families earning between $120,000 and $180,000, Harvard’s full $45,600 sticker price won’t even come into play.  Instead they will generally be charged 10 percent of their income.  That percentage will taper down to zero as family income reaches the $60,000 level.  Harvard estimates that the annual cost of this initiative will be $22 million.  (In January, Yale announced a virtually identical overhaul of its own financial-aid formula, also specifying that the “contribution of aided families earning above $120,000 will average 10 percent of income.”)

“They have made a major, major change in what they would be expecting families to contribute,” Schilling says.  He estimates that a family earning $150,000 a year would be expected to pay between $20,000 and $25,000 annually to educate a child at Penn.  Discounting that price still further to keep up with Harvard and Yale is a step Schilling says the University does not plan to take at the present time.

Nor should it, says Donald Heller, director of the Center for the Study of Higher Education at Pennsylvania State University.  He worries that since Harvard isn’t planning to expand its enrollment, its new policy may have the perverse effect of making poorer students an even rarer sight on campus.

“What’s going to happen in the attempts of Harvard, Penn, and other institutions to go after more of these students of families making $120,000 or $150,000—or in Harvard’s case even $180,000 a year—is that if they’re successful, they’re going to crowd out students from families making more moderate incomes,” Heller argues.  After all, in the zero-sum game of college admissions, every spot that goes to one applicant comes at the expense of another.    

In part, the push to spread financial aid up the income ladder is borne of the intense competition among elite universities to attract the best and brightest students—who emerge most commonly from wealthy backgrounds.  Many colleges currently use “merit aid” to entice top students away from rivals, discounting tuition even for families with ample means to pay full fare.  The Ivy League does not engage in this practice, which critics condemn as a way of “buying” a better class with money that could be more nobly spent assisting poorer students.  (A 2003 study of America’s 146 most selective colleges and universities found that only 3 percent of their students come from the poorest quarter of the population.)

“Places in the Ivy League and other institutions have maintained their commitment to need-based aid,” Heller observes, “but what they’ve obviously done is to greatly expand their definition of financial need well beyond what it ever had been historically.”

Yet the skyward climb of tuition prices has placed a daunting burden on families that would hardly describe themselves as needy in any other way.  Of the roughly 900 freshmen in Penn’s Class of 2011 who receive financial aid, 10 percent come from households with annual incomes above $150,000—a figure the U.S. Census places at about the 92nd percentile. 

While the University seeks to ease the burden for these upper-income families, it remains committed to attracting students of more modest means as well.  Last spring, President Gutmann commissioned a multimedia campaign in which web video and direct mail will be used to promote the University’s expansion of financial aid. 

“The idea is to get the word out to low- and middle-income families that Penn is an option for them,” says Lori Doyle, vice president for University communications.  The outreach effort will target high-performing students with the message that grant aid may be as high as $49,000 per year for those with the greatest need—slightly more than the full cost of tuition, room, and board.  A pilot program operated by The College Board will help the University identify low-income students with high levels of academic achievement. 

“We’re eager to expand the [applicant] pool at income levels below $100,000,” says Eric Kaplan, interim dean of admissions.  “That’s who we want to draw in and respond to.”

Over the long term, University officials hope to grow the endowment substantially in order to underwrite its expansion of financial aid.  The current capital campaign includes a $350 million goal for funds dedicated to that purpose.  Though Penn’s endowment is among the largest in America, it ranks far below many of its peers when measured in per-student terms.  For instance, Princeton’s endowment per student is nearly 10 times bigger than Penn’s.  Consequently, while Princeton is able to fund its financial-aid costs almost entirely through endowment income, Penn’s endowment covers less than 20 percent. 

Currently more than 80 percent of the University’s financial-aid budget comes from unrestricted sources, with tuition representing the single largest source of unrestricted income.  According to Bonnie Gibson, vice president of the budget office, that puts Penn at a competitive disadvantage to richer Ivy League schools, who can use a much larger slice of their tuition income to recruit faculty, build new facilities, and the like. 

But in the competition for students, Penn sees financial-aid as an integral part of its core educational mission.

“We began our commitment to increasing access by addressing the needs of low-income and lower-middle-income families,” says President Gutmann.  “We are now responding to the needs of middle- and upper-middle-income families, who have carried the greatest debt burden. We are sending a clear message to them that Penn is committed to supporting them as they seek to provide the best educational opportunities for their children.”


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