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March 23, 2017

GUEST ROOM | Don’t Cut Financial Aid Based on Bad Accounting

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The Cornell Board of Trustees meets in Ithaca today. If recent Sun reporting is correct, one of the topics discussed will be whether to reduce undergraduate financial aid. A similar decision was made by the administration in 2012 when I was the undergraduate student trustee — I implore my friends and former colleagues to avoid repeating that mistake.

First, some definitions. “Need aware” schools consider an applicant’s ability to pay as part of the admission process; they may accept a rich “A-“ student over a poor “A+” pupil. By contrast, “need blind” universities pursue a meritocracy in the admission process, considering only the quality of each application. Cornell is currently need blind and used to proclaim so proudly; in fact, the news article announcing the 2012 cut in financial aid was entitled “Cornell Affirms Commitment to Need-Blind Admissions.” Yet the university plans to become need-aware this year for the 10% of undergraduate students that are international. According to the aforementioned Sun article, the administration is considering extending this discrimination to transfer students as well. (Caveat: while I was once a trustee, I no longer have access to internal documents such as current financial projections or trustee agendas, and am basing this column entirely on publicly available figures.)

Why would a university sporting the motto of “Any person, any study” turn its back on transfer or international persons in need? In this case, largely because of bad accounting.

The stated justification for scaling back financial aid is that the costs are increasing exponentially and will quickly become unsustainable. Yet the main driver of financial aid “cost” is tuition. If tuition increases, more new applicants end up needing aid, and those already on campus need more help. Because 50 percent of Cornell undergraduates receive financial aid, Cornell has to raise tuition two dollars to increase revenue by one.

Thus, the claimed massive growth in financial aid “costs” is instead a combination of a growth in revenue and an expansion of financial aid to more students — two positive aspects somehow pitched as a negative.

The important number for the university’s financial stability is actually net tuition revenue: undergraduate tuition minus financial aid. In other words, how much money does Cornell get from tuition after it pays out financial aid. If net tuition revenue is not growing as fast as costs, the university will eventually have to make some cuts to spending or find ways to increase revenue.

However, it turns out that undergraduate net tuition revenue is actually growing more rapidly than costs are; the budget projected a roughly six percent growth this year; faster than the university’s expenses as a whole (4.8 percent) and similar to one of its largest expenses, faculty wages (5.7 percent). In short, there is no financial aid crisis, and no reason to scale back our commitment to “Any person, any study.”

Of course, even without a financial need, one could still argue that Cornell should spend less on financial aid; there are other priorities the university could fund instead. Yet, imagine how that proposal would be received if the university were instead discriminating against any other group? Picture the headline: “Cornell will start discriminating against black students to save money.” Or “Cornell will start discriminating against LGBTQ students to save money.” If we cannot fathom those scenarios, then why are we considering discriminating against students from working-class backgrounds?

Further, those hypothetical cases might mirror reality. Cornell financial aid includes a program called “preferential packages;” targeted aid meant to boost enrollment for underrepresented groups. Cuts in these programs could devastate the yield from certain underrepresented minorities, meaning Cornell would be literally reducing its racial diversity in order to save money.

If the Board ends up discussing cuts to financial aid today, I implore the trustees to ask three questions:

  1. What is the five-year projection for net tuition revenue, and how does this compare to the projection for faculty salaries and wages?
  2. What is the yield rate for URM applicants who receive preferential packages, and how does it compare to the yield rate for URM who do not receive them?
  3. Of all the ways to reduce costs, why make another cut to financial aid, when it has already been reduced twice in the past five years? In other words, when will we have cut financial aid “enough?”

Having been a trustee, I know how difficult some of these tradeoffs can be, and I have no doubt that those working on these proposals have the best interests of Cornell in mind. Nevertheless our commitment to financial aid, and the diversity which it enables, is one of the reasons Cornell is such a special university. Cornell’s 12th president, David Skorton, once said, “Cornell is the original opportunity university, and we still carry forward our founder’s vision of inclusion. We are proud of this commitment to access and to the diversity within our student body it fosters.” Misleading accounting is not a good enough reason to deviate from that vision.

 

Alex Bores ’13 served as undergraduate student-elected trustee from 2011 to 2013. He can be reached at abores@palantir.com. Guest Room runs periodically throughout the semester. 

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