On Endowment, Financial Aid, and Perceived Prestige

Submitted by maizeonblueaction on June 17th, 2013 at 7:20 PM

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.


  1. 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.

  2. 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.

  3. 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:

  4. 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.

  5. 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.


James Burrill Angell

June 17th, 2013 at 9:24 PM ^

Per your last point about the upcoming university wide campaign (of which I am involved as an alumni) that is correct:
1) official kickoff is this November with it to likely end at the bicentennial (2017)
2) still no name yet though I know some derivation of The Michigan Difference is under consideration.
3) The goal is in fact $5 billion
4) MSC has stated that $1 billion is the stated goal for student support (scholarships and other financial aid)
5) Towards the big picture (not the financial aid end) they've more or less already secured one billion of that led by the large gifts of Charles Munger (over $100 million alone), the Zell family and Penny Stamps (whom the Art School is now named after)
6) Stephen Ross will be the campaign chair (Richard Rogel of the awesome airplane was the chair of the last campaign).

We DESPERATELY need more scholarship help. Truth be told, undergrad scholarships just aren't a high priority of the Deans. They want the nice buildings, endowed professorships to bring in the best faculty and grants to aid research. When you see a chance to support an undergrad scholarship, particularly an alumni driven one, make it a point to support because more often than not the alums are the only ones looking out for the students.

[ED: one last thing...I also do Alumni Student Recruiting and as of this the kids admitted to start in the fall at least as far as undergrads are concerned, we're still at 65% in staters / 35% out-of-staters give or take about 1% variance any given year. ]


June 17th, 2013 at 9:30 PM ^

...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.

snarling wolverine

June 18th, 2013 at 8:43 AM ^

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.




June 18th, 2013 at 2:44 PM ^

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.


June 17th, 2013 at 11:50 PM ^

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.


June 18th, 2013 at 8:10 AM ^

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. 

Coastal Elite

June 18th, 2013 at 8:14 AM ^

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.


June 18th, 2013 at 12:32 PM ^

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). 

snarling wolverine

June 18th, 2013 at 8:27 AM ^

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.



June 18th, 2013 at 10:34 AM ^

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.


June 20th, 2013 at 3:16 AM ^

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. 


June 18th, 2013 at 1:28 PM ^

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.


June 18th, 2013 at 10:35 AM ^

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.


June 18th, 2013 at 10:39 AM ^

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.

snarling wolverine

June 18th, 2013 at 1:12 PM ^

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.   


June 18th, 2013 at 1:46 PM ^

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.


snarling wolverine

June 20th, 2013 at 1:29 AM ^

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).








June 21st, 2013 at 11:49 AM ^

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?