On Endowment, Financial Aid, and Perceived Prestige
I normally come to MGoBlog to avoid “College Confidential” type discussions, but the thread the other day about Michigan versus Harvard got me thinking about a few topics that might be of interest to some people here, as Michigan alumni (and maybe some people as non-alumni). In a previous lifetime, I had serious interest in university development and fundraising, and so I actually know a decent amount about some Michigan-specific issues.
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People don’t really think about this, but Michigan’s endowment is actually relatively small, despite being big in absolute terms. For example, people see we have an endowment of somewhere around $8 billion these days, which is certainly huge, and better than pretty much every public school in the country save UVA on a per student basis. However, consider that a fairly comparable institution such as Northwestern has an endowment of roughly $7 billion, and only half the total students as Michigan. So, the endowment per student is basically twice as much at a place like Northwestern. Endowment pays for all kinds of things, such as professors’ salaries and financial aid. However, the returns on this diminish at a certain point. For example, a place like Princeton has something like $10 million in endowment per student, but at a certain point there just isn’t anything new to spend that on that they don’t already have. There are only so many professors they will hire, so many buildings to build, etc. Also, endowment funds are earmarked for specific things generally, and it’s hard to reallocate them. This leads me to my second point.
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Financial aid: A school like Stanford gets about 20% of their operating budget from tuition. Michigan gets roughly 70%. We all know that the state has been cutting back on their funding for the school, and as a result Michigan has been jacking up tuition for both in-state and OOS students, with OOS students paying roughly 150% of their educational costs (as an aside, from what I hear, OOS students are now pushing 45% of incoming classes, mostly for reasons of tuition). This isn’t a knock on either student group, but it also disincentivizes generous aid, as tuition is so crucial to our budget. However, this also brings me to my next point.
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Yield - the number of admitted students who then choose to attend the school. In general, Michigan gets about 40%, which is similar to Chicago, for example. However, due to the fairly low financial aid offered, a student accepted to Michigan might be considering a couple of fairly similar schools (say NYU and USC) and then due to personal preference, pick one of the other schools as the prices are fairly comparable. Or, they might be accepted to Michigan and a slightly lower-rated school (say Pitt), and want to go to Michigan, but get merit aid from Pitt but not Michigan. Basically, less aid decreases yield, and in turn increases:
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Acceptance rate - This year, Michigan accepted roughly 15,000 people out of an applicant pool of 47,000, for an acceptance rate of roughly 33%. This has gone down a ton in recent years, as when I applied it was 50%. The lower the rate gets, the more perceived prestige an acceptance has. However, due to fairly low yield, acceptance rates stay fairly high relative to peers to fill spots. If yield even bumped up to say 50% due to better aid, we’d only have to accept 12,000 students to fill a class of 6,000 (ideally class size would go down due to the financial model changing from filling spots to get money to having cost of attendance and tuition being more equal, and therefore less incentive to fill more spots as it’s a financial wash). Even so, if within the next couple years applications bump up to 60,000, which is not unreasonable given the rise in recent years, acceptance rates would go down to 20%, which is just slightly lower than Berkeley now, and pretty dang competitive. In theory, this could be another “momentum” situation where lower acceptance rates and higher yields begets even lower acceptance rates and higher yields.
- So, this is wonderful and shiny and nice in theory, but you are saying “Hey, maizonblueaction, how would be go about increasing available financial aid, as that seems to be the premise behind your entire argument?” I’m glad you asked. First, let me premise this by saying that I am really and truly not affiliated with Michigan in any other capacity than that of a concerned alumnus. In her last move as president, MSC and co. are actually starting a rumored $5 billion capital campaign that will probably go mostly towards endowed funds that will increase financial aid, especially for undergrads, and I would imagine the success or failure of that will largely determine the fate of both need-based, and merit-based (someone gets accepted to HYPSM) and is given money to come here instead, and to some extent, perceived Michigan prestige. There is a football analogy here, for anyone interested in finding it.
And how do you think all of this plays into Hand's pending decision?
Where do you think Professor Needs A Raise is going to get his raise from?
Sorry man I reallllly wanted to read what you wrote, but for the first time in my internet life I just have to say tl/dr
So then you didn't REALLY want to read it... ;)
...is a good one. If you look at the admit rate / yields you see that the main reason why Michigan has to admit so many students is due to the low yields for OOS students. The numbers I saw was something like 70% for in-state and 25% for OOS.
While there is are number of OOS students who probably wouldn't go to Michigan either - there is still a large number of students who simply cannot afford Michigan's tuition rates. If Michigan can fix that the yield can probably get closer to 50% pretty quickly and will help push the overall admit numbers even lower.
I read somewhere that it was at least 40% in one of the most recent classes. I understand they're not flashy and shiny like buildings, but what exactly is the reasoning behind not pushing for undergrad scholarships?
It doesn't do enough for our U.S. News rating?
I understand the desire to bring in top-notch faculty but honestly, given the basic lecture format of most classes, I think a lot of college professors are probably pretty interchangeable. I had plenty of professors here that basically just restated what was in the textbook. If we paid a premium to bring in some of them, I don't know if we got our money's worth. I think I would have rather had us have bring in some less-experienced faculty for less money and use the savings to help with scholarships.
Is something professors do because they have to, not because most of them want to. The get big name professors to do research that generates money for the university through research grants and to teach graduate students (who then do most of the teaching for many undergraduate classes).
Do we offer lower compensation to professors in less research-oriented fields, like the arts and humanities?
Yes.
Science/engineering faculty are generally expected to pay for themselves through research grants at schools like Michigan. Even at universities where that's not true, though, faculty are paid more if there's an outside industry that would offer high-paying jobs. As a CS prof. at a teaching-oriented university, probably 15-25% of my salary is 'bonus' that I get because I could land a higher paying job in industry with no effort (one that I wouldn't love as much, but the option is there).
As a sidenote, something that many people don't understand is exactly why research money is so lucrative for a university--the university gets roughly a third of the research money from a lot of grants.
Let's say that I apply for a grant to fund some equipment, a grad student, conference travel, and summer pay for myself (most schools offer a 9-month salary, so you can get grants for 2-3 more months of pay). This wouldn't actually cover much of that, but for simplicity, let's say the grant is $100,000. I then add to that an "indirect cost" portion that goes to the university. At Michigan, that's a relatively high 55% (whether there is indirect cost, and the rate of it can depend on the type of grant, but 55% is the most common). You ignore that when budgeting your grant, so I just think about what I want to do with my $100,000, but when I submit my grant it's actually for $155,000. If it's funded, I get $100,000 and the university gets $55,000, in theory to cover the "indirect costs" of my doing research: physical and technical infrastructure, keeping the lights on, etc. The university doesn't actually keep all that money--a little goes back to the professor for general use (so you can fund things that aren't explicitly covered by a grant), and there certainly are increased costs for supporting research, but you can see why it's such a big deal for the university to pull in research money.
but this article from the Daily put out today says the in-state student percentage for undergrads is going to be 60.9% in the Fall (has a lot to do with the number of in-state students applying to the university, v. OOS): http://www.michigandaily.com/article/regents-approve-lowest-tuition-increase-29-years
Hmm, Michigan gave me the best financial aid package by far. It was mostly a result of need-based stuff, but what Michigan offered me was much better than what MSU did. I was never actually interested in going to MSU in the first place, but still.
Probably both, but one of those (financial aid) is almost entirely endogenous to UMich, while the other (the nationwide higher education bubble) is exogenous and thus much more difficult to tackle from a single institution's perspective.
There will be a titanic shift in everything related to paying for higher education in the next 15 years. As students and families see the disaster wrought on the current generation of students by Sallie Mae, the next generation will make college choices based on finances more then other driving factors, we are already seeing this. Colleges in this environment that cannot get the best students aid are going to be at a compeditive disadvantage.
First of all, awesome post, maizeonblueaction. I love pieces on here that focus on the academic/institutional side of the university in the off-season.
Second, a question - do you have any sense (intuitive or empirical) of how Michigan's belated accession to the Common Application has affected raw application numbers, acceptance rate, and yield rate? The 40% yield seems somewhat lower than it was when I started, and I'm wondering how much of that can be attributed to the ease of just checking one more box on the Common App when you're applying to schools, as opposed to the selection bias introduced when people have to proactively search out and separately apply for admission to Michigan.
Of course, none of that is to say that financial aid wouldn't meaningfully affect our yield of admitted students. But it might make the low yield a little bit "stickier" just because you're engaging with a pool of applicants who are applying to UMich out of convenience but may not have applied without Common App accessibility.
I think the 40% yield figure has held steady for awhile. I think we've been admitting around 15K students per year for a long time. The admissions rate has dropped precipitously, though. With the Common App we're evidently seeing more borderline (or worse) candidates now applying.
that's the thing. The way Chicago used to work, for example, was they would discourage many applicants from bothering, so their applicant numbers would be low, and they would have an artificially high acceptance rate (it was about 80% about 15 years ago). When I applied to Michigan, it was still a specific app, and thus more of a hurdle. Also, it's like in football where we always say how hard it is to get a five star, because everyone wants them. To raise certain stats a little bit isn't that hard, such as getting the average ACT score to range from 30-35 instead of 29-34, but kids with really high ACT scores usually have their pick of schools largely, and are harder to land (for example, even Harvard only has about a 75% yield, meaning 25% of admitted students still go elsewhere).
Endowment pays for all kinds of things, such as professors’ salaries and financial aid. However, the returns on this diminish at a certain point. For example, a place like Princeton has something like $10 million in endowment per student, but at a certain point there just isn’t anything new to spend that on that they don’t already have.If their endowment is that rich per student, why do they need to charge so much in tuition? According to the link below, the estimated cost of attending Princeton next year will be $56,750. http://www.princeton.edu/admission/financialaid/cost/
Princeton should talk to a big time athletic department (ours included). Seems like athletics has no problems finding new things to spend money on.
is not to spend anything but a portion of the income it generates each year.
You only invade principal in the direst of emergencies.
the principle kicked off say 3% per year in interest, that is still $300,000 per year per student, without invading the principle. I don't understand why Princeton would cost so much, given its endowment.
Great topic. My children will be attending (hopefully) college within the next 5 - 10 years and the projected costs are daunting. I will help them out to the extent I can but will not gut my retirement plan to do so. They need to look carefully at the debt they will take on to pay for tuition, and what that will mean for their hopes of obtaining financial security in their lives.
If they really have $10 million per student, covering the cost of attendance ($53K, not counting "miscellaneous expenses") is a drop in the bucket. Surely their investment generates more than 0.53% of an annual return, right?
They actually do cover the cost of attendance for most students. At Princeton and most other Ivies and elite liberal arts schools (like Bowdoin), if your famiy income is under $150,000 you get pretty much your entire tuition covered. They still have plenty of students whose parents could easily afford the full cost, so they may as well take their money.
Because some people will pay it. In fact, in a world where some handbags cost $20k, there's actually a small group of people who want to pay a premium for a luxury brand name.
an article a few months ago was that, actually, tuition is too low. For example, if tuition were $250,000 a year, then the people who made millions a year would pay that, and then people who couldn't afford anything could go for free. At a certain point, endowment is just an arms race, and the only advantage to getting more of one is not falling behind.
I understand that compared to small elite private schools the per student endowment for Michigan suffers in comparison but I think this paints a little too rosey of a picture for michigan. We have a reputation for not giving out aide, while it is unfair to compare our aide to schools like harvard or princeton or norhtwesterrn it would be fair to compare us to other peer public universities and even in that comparison michigan is seen as lacking when it comes to student aide, it just isn't, or wasn't at least a priority of the university.
Is there a plan to curb the increasingly huge class sizes? When I started at UM in 2004, we were the largest freshmen class in history at about 5,000 students. Five years later we had another record class at over 6,000 students.
Dorms were overcrowded (lounges turned into rooms), classes increasingly larger, endowment per student decreases, and admission rates could be much more competitive. Michigan's aim should be to reclaim the throne as #1 ranked public university in the nation.
While I'm not in favor of overcrowded dorm rooms (which hopefully is a thing of the past with North Quad around), we should keep in mind that the U.S. population is growing. If we freeze our class sizes, OK, we become more and more selective, but are we really fulfilling our educational mission as a public institution? I think a public school kind of owes it to its prospective students not to become too difficult to get into, especially if they live in-state and contribute to it in taxes.
North Quad opened, it's true, but that only added about 400 beds; its a relatively small dorm despite its size (lot of academic space in that building.
In addition, Baits I closed down for good due to problems with the infrastructure, removing 571 beds.
IN ADDITION, the University is going through a series of dorm renovations right now, meaning that for the near future at least one dorm will be closed per year. Last year it was East Quad, next year it will be South Quad, year after that West Quad, and I think they are doing Markley after that.
The university is so squeezed for dorm space that they actually flipped housing priority; whereas in the past Seniors chose before Juniors, who chose before sophomores, ect, now the freshman are assigned first, then the sophomores pick, THEN the juniors and seniors. It is almost impossible now to get housing as an upperclassmen. This isn't THAT bad, as most upperclassmen didn't live in dorms anyway, but it still sorta sucks that the current upperclassmen get hit with both reversed housing priority AND general admission to football, hockey, and basketball.
one could also argue that we are subverting our public mission by taking tons of out of staters and international students, and charging one metric butt-ton in tuition (not saying it's a bad thing, just not obviously fulfilling a public mission), so in a sense the point could be moot.
Actually, I think that reinforces my point. I think we've already long since strayed from our old status as "the uncommon school for the common man." But now that our admissions rate is plunging far below 50% and we're openly courting more out-of-state students just to increase revenue, it's getting pretty extreme. We seem to no longer want to function like a public school, except when it happens to benefit us - like the use of eminent domain (goodbye, Blimpy Burger).
Great content here, and great feedback on the thread. I've got three children ready to hit high school... This is invaluable.
As a Alumni parent with children who have applied to (and one currently enrolled as a transfer) Michigan I can tell you alumni are given zero advantage when it comes to admission. In fact I think Michigan prides itself in having blinders on when it comes to legacy status. They claim there is some advantages to alumni children in admissions but I can't see it.
I no longer give to Michigan other than the athletic department.
Michigan make little effort to to try to assess, gauge or take into consideration passion for the university when it comes to admissions. I understand about the common app and the increased difficulty of gaining acceptance but Michigan makes zero effort to even make it appear like they give a shit about alumni when it comes to admission.
That said they can do whatever they like, just don't expect me to send more donation money to help pad the endowment.
My kids got into Case Western (engineering) Univ or Illinois and others but could not get into the school my father, wife and I attended?
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