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Student Loans and Socioeconomic Diversity

I was having a conversation earlier today with a fellow classmate about socioeconomic diversity. The central question was, “Is Williams’ student body really diverse?” Doesn’t seem like it, my friend suggested. He pointed out the three (!) Tesla cars on campus that he saw in a couple of the student parking lots earlier this morning. “Mom’s Volvos,” as professors like to say.

Was my friend right? One way I thought of answering this question is by looking at the amount of loans Williams issues to students. Claim: Since Williams ended its no loan policy a decade ago and likes to say it has a more socioeconomically diverse student body, then the amount of loans owed to it by students increased over time (reasonable?).

According to the college’s financial statements (which I irritatingly spent quite a bit of time munging, since it’s only available as PDFs and (gasp) scans of printed paper) and assuming I am looking at the correct figure, it did not. Consider this plot of student loan receivables (the total amount owed to the college by students who take out loans) of every year since 2004:


It is decreasing! Does this mean that Williams students have been taking on fewer loans despite the repeal of the no loan policy a decade ago? If so, why would students in an increasingly socioeconomically diverse campus take on fewer loans when tuition increases far faster than the rate of inflation? If the student body is really becoming more socioeconomically diverse, then maybe the terms of the Williams loan are worse than outside loans so my classmates just borrow externally (I have a number of friends who do!). OR, maybe the number is declining because most of the student body don’t need to take on debt. Why would they, if they had the money? But that would imply the college, contrary to some official claims, is not more socioeconomically diverse. What do readers think?

Also, the student loan number comes with this footnote:

Under Statement of Financial Accounting Standards No. 107, Disclosure about Fair Value of Financial Instruments, the College is required to disclose fair value of student loans. Management believes that it is not practicable to determine the fair value of loans receivable because they are primarily federally sponsored student loans with U.S. government mandated interest rates and repayment terms subject to significant restrictions as to their transfer or disposition. College sponsored and donor provided loans are similarly restricted as to interest rate and disposition

I don’t know what this means (informed commentary please!). Perhaps the summers I spent in banking haven’t really prepared me to plow through the college’s financial statements just yet. As with the rest of the filings and my latest problem sets, I find this quite befuddling. On top of this there are also so many accounting changes and new categories year to year that are almost never properly explained/defined and are frequently shuffled around, so much so that a skeptic would think someone somewhere is obfuscating. Maybe only PWC (who audits these for the college) understands them. Any useful pointers/corrections/whatnot welcome, especially from those who are familiar with higher education financing!

Should we spend more time on the college’s financial statements?

Don’t forget to send tips/comments/whatever to!

UPDATE: I also looked at Bowdoin’s financial statements. Unfortunately it’s only available from 2011, but the trend is the same. Student loan receivables are also decreasing. Perhaps I am missing something? Informed commentary always welcome! Education doesn’t just end in the classroom!


Other schools not planning to follow Williams

Few schools backing off “no loan” pledges

When both Williams and Dartmouth colleges announced over winter that they would retreat from from pledges to fund full student need through grant aid alone, it seemed more than possible that other schools would follow.

A new survey, however, suggests that most colleges with “full-need” pledges do not plan to abandon or even weaken them.

The Institute for College Access & Success surveyed 52 schools with pledges to meet the full demonstrated financial need and to either limit or eliminate loans from those packages. They found no other school planning major changes in their policies in the next two years.

Here is a list of the schools and their pledges.

Continue reading


A question about finances

Roughly how much has Williams spent on major construction projects replacing or massively renovating existing buildings in the last decade?

Since we’re now at a point where the cuts are starting to hurt, with raises on hold for faculty, a hiring freeze on staff (along with headcount-reduction-by-attrition?), a couple million saved by going back to loans, another million by getting rid of need blind admissions, etc., I would like to get a sense of how much cash Williams sank into replacing Baxter, replacing the Adams Memorial Theater, semi-replacing Stetson-Sawyer, and major renovations to buildings like Mission and Morgan. What, at the end of the day, was the cost of all that construction during the bubble years?

Any ballpark estimates or educated guesses would be much appreciated.

If, for any reason, you don’t feel comfortable commenting in the thread below, please email me at ronitb at gmail dot com. Your anonymity will be protected.


Dartmouth Goes Loans Again

Is Dartmouth Following Williams’ lead?

We will continue to provide free tuition and no loan expectations for students with family incomes of $75,000 a year or less. For financial-aid recipients from families with incomes above $75,000, we will be re-instituting a loan requirement of approximately $2,500-$5,500 a year beginning with the Class of 2015, whose members will enter in fall 2011.

1) Exercise for the reader: Calculate the marginal tax rate of a family making $74,000. Will there really be a bright-shining line at $75,000 exactly?

2) $2,500-$5,500 is a huge range. Just how is that calculated? I thought (corrections welcome) that Williams, back when it required loans, just set a maximum. If you needed $1,000 — after accounting for your savings, EFC and so on — then that is what you borrowed. If you needed $10,000, then Williams gave you a grant of X to bring the loan down to the maximum, which was at around $3,000 (?) a few years ago.

So, describing a range rather than a maximum is interesting. Comments? It certainly provides Dartmouth with a lot “flexibility” in matching offers from other schools.

3) How do you think Williams will structure its program? How do you think it should? The more faculty members that I talk to (and I have communicated with almost 10 on the topic), the more responsive I become to their concerns about “rich” families getting a deal from Williams, about families “scamming” the system. The current mechanism is awful imprecise and suspect, as we have documented in great detail.

Up till now, I have been a big defender of the system purely on competitive grounds. I want the best students to choose Williams. If Harvard/Yale/Princeton/Stanford/Dartmouth/Amherst offer a better deal to student X, she is likely to take it. In that world, Williams would only win the yield battle among rich kids. Every non-rich student would turn us down for one of those schools.

Solution? Cut the Gordian Knot of need-blind admissions, which is a Big Lie anyway. No elite school is truly need-blind since all feature development admits. The whole scheme is sleazy and ripe for abuse. Instead, admit that Williams is family-income aware, but then match any financial aid offer from an elite school. This would focus our financial aid spending on precisely the students who deserve it. Students not talented/desirable enough to get an admissions offer from another elite school would still be offered a financial aid package, but it would feature 1990-levels of generosity: tens of thousands in loans.

What say our readers to such a plan?


Separately, I [Dartmouth President Kim] have joined Carol Folt, Acting Provost and Dean of the Faculty of Arts & Sciences, and Steven Kadish, Senior Vice President, in donating 10 percent of our salaries to be split between the Dartmouth College Fund and a hardship fund. The hardship fund will assist those with financial difficulties not met through our other programs such as layoff packages or our staff loan program.

Morty was never the sort of guy who would donate 10% of his salary. Is Bill Wagner?


Bowdoin Reaffirms No Loans

If Bowdoin can afford to be No Loans, then Williams can too.

Williams College announced plans to revoke its no-loan financial aid policy on Sunday, citing a $500 million drop in its endowment over the past three years, increasing financial aid expenditures, and unstable economic conditions.

In response, President Barry Mills said that Bowdoin has no immediate plans to eliminate its own no-loan policy. Speaking at Monday’s faculty meeting, he affirmed his commitment to the policy, stating that any changes would only be considered in light of economic conditions rather than peer schools’ decisions.

“The no-loan program is certainly among the things to look at if we decided we needed to make adjustments based on the economy,” he said in an interview with the Orient.

“But…we wouldn’t move back just because the competitors allowed us to move back, merely to save money,” he added.

Perhaps Williams is using this policy change as an excuse to solicit a major gift? Surely, there must be an alum willing to write a $50 million dollar check to guarantee no-loans forever . . .


New York Times on Loans Again

The New York Times reports:

Williams College, which two years ago replaced all loans in its student financial aid packages with direct scholarships that did not have to be repaid, is rescinding the policy amid the fallout of the economic downturn.

Say it like that and it sounds pretty sleazy. We can afford to spend almost $100 million on new construction (Stetson/Sawyer and Weston) but we can’t scrape up $2 million a year to keep our No Loans promise? Pathetic.

Williams is one of several dozen colleges and universities, most of them private, that have removed loans from aid packages within the last three years in favor of scholarships. Such policies, similar to one announced by Princeton in the late 1990s, were a response to the steep loan debt accumulated by some students. Colleges often embarked on no-loan policies as a result of financial windfalls.

Jacques Steinberg, author of The Gate Keepers, is a smart guy. Why must he write so stupidly? Read more


This is just going to encourage him…

From BusinessWeek:

‘It’s a Shame’

The Williams cut drew criticism from David Kane, an alumnus.

“It’s a shame,” said Kane, a 1988 graduate who runs hedge fund based in Cambridge, Massachusetts, and writes a blog about his alma mater. “Williams ought to be cutting money elsewhere and financial aid ought to be the last cut it makes.”

The policy change will save families with the lowest incomes from taking loans as Williams adds to the debt faced by middle-class families, said Michael McPherson, an economist and president of the Chicago-based Spencer Foundation, which funds education research.

Williams, in Williamstown, Massachusetts, was among more than 30 top-ranked private colleges to adopt policies in 2007 and 2008 that replaced loans in aid packages with grants that students don’t have to repay.

Thanks to John Wesley for the link

And more from Inside Higher Ed:

David Kane, an alumnus and the founder of EphBlog, which is devoted to Williams issues, wrote Monday that he wasn’t surprised to learn that the college was being praised in some circles, given that “the people making these decisions and the people commenting on them travel in the same circles.” Kane also rejected the idea that taking out loans can have a positive impact by increasing the engagement of students who borrow.

“If you believe that X is a good idea for non-rich students, you ought to believe that it is a good idea for rich students. If taking out loans is good for Sue, coming from a family of school teachers, then it is good from Sarah, coming from a family of investment bankers. Do the rich trustees of Williams make their children take out loans? Hah!” he wrote. He added that “making students take on debt causes them to make choices that are different, and generally less desirable, then the choices that would have otherwise made. By re-instituting loans, the Williams administration has demonstrated its priorities.”

Despite that criticism, just about everyone who is part of the circle Kane criticizes thinks that the question has now shifted from “who will be first” to eliminate no loans to “who will be next?”

(thanks to Yet another P’12)


Skin in the Game

In the coming days/weeks, expect the following:

1) Other colleges will follow Williams’ lead and add back loans for financial aid. Look for Amherst, Bowdoin, Dartmouth and Haverford in the first wave.

2) No meaningful criticism of this move from the constellation of “aid experts.” Why? First, the people making these decisions and the people commenting on them travel in the same circles. Why criticize your friends when you can praise them instead? Indeed, in many cases, they are the same people (Morty, Cappy Hill, Mike McPherson)!

3) Unjustified claims that instituting loans might have positive effects by causing students to take their Williams education more seriously. Poppycock! Recall Wick Sloane’s ’76 story from three years ago:

True story, from when Princeton eliminated loans. I called a Williams trustee I’d known for 25 years. Why did Princeton beat Williams to this? Williams can afford it.

“Oh, we talked about this,” said Trustee. “We think it’s wrong to give something away that’s worth $50,000 a year (cost, not price, of Williams back then) without any obligation, without ’skin in the game.’”

I sought clarification. I’m paraphrasing, but the answer was that it’s wrong to give anyone a Williams education for nothing. Students need to feel the investment, hence ’skin in the game.’ Trustee agree that whether Williams could eliminate loans was not a financial problem, given the endowment. The issue the board debated was whether “giving” a Williams education was the right move from a moral, not a financial, perspective. Several others at this trustee discussion, verified the use of the term ’skin in the game’ and the substance of the decision not to follow Princeton.

“Wait a minute, Trustee,” I said. “Your entire education, Williams and all, was a gift outright from your parents, as was mine. No one required us to have ’skin in the game.’ You mean that wealthy students don’t need skin in the game but poor students do?”

Thus was a friendship incinerated. Trustee had no answer.

Because there is no good answer. If you believe that X is a good idea for non-rich students, you ought to believe that it is a good idea for rich students. If taking out loans is good for Sue, coming from a family of school teachers, then it is good from Sarah, coming from a family of investment bankers. Do the rich Trustees of Williams make their children take out loans? Hah!

It will be especially annoying if “aid experts” suggest that this will have any good effects. There is, obviously, no scholarly evidence that increasing a student’s loan burden will cause him to take his education more seriously. If anything, the main effects would be problematic.

n the early 2000s, a highly selective university introduced a “no-loans” policy under which the loan component of financial aid awards was replaced with grants. We use this natural experiment to identify the causal effect of student debt on employment outcomes. In the standard life-cycle model, young people make optimal educational investment decisions if they are able to finance these investments by borrowing against future earnings; the presence of debt has only income effects on future decisions. We find that debt causes graduates to choose substantially higher-salary jobs and reduces the probability that students choose low-paid “public interest” jobs. We also find some evidence that debt affects students’ academic decisions during college.

Making students take on debt causes them to make choices that are different, and generally less desirable, then the choices that would have otherwise made. By reinstituting loans, the Williams Administration has demonstrated its priorities.

Perhaps Adam Falk will revisit this decision once he takes office in April . . .


Williams Ends No-Loans Financial Aid Policy

As predicted here, interim President Bill Wagner sent out a letter about decisions made at last week’s trustee meeting. The entire letter is below the break. Biggest news:

Williams is ending its no-loan policy.

It now seems prudent to reintroduce modest loans for some aided students, beginning with the class that enters in the fall of 2011. No current students will be affected; neither will those who enter this fall. As before, families below a certain income, and with typical assets, will not be expected to borrow at all. Others will be offered loans on a sliding scale up to a maximum size that will again be among the lowest in the country. After four classes have entered through this program, it will make available about $2 million per year.

Shocking and depressing news. Comments:

1) Note how the College buys off current students. If there really are any students interested in demonstrating some leadership when it comes to economic equality, they should fight this issue hard. Contact me if you want advice on how to challenge the powers-that-be. Williams could/should still cut millions of dollars from its budget. Why not make those cuts first before making this change?

2) If there are about 1,000 Williams students on financial aid, then this would suggest that each of them is taking out a loan of $2,000 each year, for $8,000 total over the course of their education. But some (many?) students will not be expected to take out loans. So, I expect the number to be closer to $2,500. Before Williams went no-loans, I think that the maximum expected amount over four years was around $12,000. So, this represents an improvement.

3) Now that Williams has made this change, you can bet that Amherst (and other schools?) will follow. Indeed, do you think that there were any discussions across schools ahead of time? Overlap anyone . . .

4) I am shocked that Williams would make such a change for such a (relatively) small dollar payback. $2 million per year is not a lot, in the context of the College’s total budget. And it sure seems that reversing this policy sends an unfortunate signal about what Williams really cares about. It would not be hard to gather stories from the graduates of 5 or 10 years ago about how having thousands of dollars of debt after Williams shaped, in unfortunate ways, their career choices.

5) Who is to blame? The faculty. When push comes to shove, they would rather maintain their various boondoggles like the Bolin Fellowships instead of allowing all Williams students to graduate debt free. On the good side: At least the rich kids will still graduate without any debt!

6) Sending this letter out in the middle of Dead Week, and a week after the Trustee meeting ended, is interesting. Had the Trustees not really decided everything as of last Sunday? I doubt it took a skilled writer like Bill Wagner a week to write this. I also doubt that it was specifically released while most students were away.

7) Running against this change would provide an interesting platform a two College Council co-president candidates, especially ones campaigning as outsiders.

Entire letter below. Full commentary later.
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