Meet the real gatekeepers of higher education, an unseen army of data-crunching salesmen who dazzle college administrators and perpetuate the arms race that sends tuition prices ever higher
Despite the windowless, bunker-like atmosphere inside the Erie conference room of the Sheraton in downtown Chicago, Galen Graber has to be impressed by his audience: A swath of the 1,500 top admissions and financial aid officials from 635 different schools who have gathered to set policies that determine which kids get into which college and how much money they’ll receive.
Cutting to the chase, Graber, a consultant, launches by taking a poll: “How many of you would say that the primary motivation for offering students merit scholarships is to reward academic achievement?”
Not a single person raises his or her hand.
That response goes a long way to explain college tuition rates that have risen 12 percent in the last decade while median household income has declined 6 percent over the same period. And why student debt levels have hit $1.2 trillion, a burden that surpasses even US household credit card debt.
Elite universities like Harvard, Stanford and others on the top of the Forbes list exist in their own orbit—they admit students without factoring in need, their multibillion-dollar endowments providing generous grants for the middle-class and poor.
Then there’s the rest of American higher education: The 95 percent of schools that have puny endowments and thus almost complete dependence on tuition, admitting virtually any high school senior able to fill out an application. It’s not a stable model. So, those not raising their hands at Graber’s seminar do so knowing that one of their core missions is to ensure that revenue—aka tuition—keeps flowing and growing, ever higher. Especially when so few constituencies—Sallie Mae and other guaranteed lenders, the GI Bill and other federal programmes, parents—pay attention to what’s driving the price that 22 million American college students pay.
As a result, the tuition pricing at America’s universities has evolved into something akin to a discount mattress retailer, though Graber’s employer, a consultancy named Noel-Levitz, has come up with a more august name for it: “Financial aid leveraging”. Noel-Levitz might be the most influential force in higher education pricing that you’ve never heard of, empowering what’s become a three-stage, market-distorting game for college administrators. First, conjure as high a sticker price as possible for tuition. Second, schools plow a lot of that extra money into student amenities, including country-club perks that outwardly justify it—and help with college rankings that reward such largesse. Finally, use your financial aid pile not necessarily to help needier students but rather to offer discounts to lure richer kids who might pay the rest of that inflated tuition price in full. The average yearly cost for a four-year, private, not-for-profit college is now $41,000— compared with $33,000 a decade ago—but the average discount rate for incoming freshman is 46 percent.
Poorer kids, meanwhile, are finding a growing chasm between Pell Grants and other aid and the bloated tuition prices. Their options to fill in the gap? Years of debt burden, courtesy of giant government-backed loans. Or they can choose not to matriculate.
“We have $2.4 billion in need that we are not filling, and there’s $3.3 billion we’re spending for students who could afford to attend college,” says Tori Haring-Smith, president of Washington & Jefferson College in western Pennsylvania. “That statistic should make us all stand up, take notice and be ashamed.”
Watching Galen Graber run his seminar, it doesn’t appear he’s ashamed at all. And it’s not clear he should be. Noel-Levitz is simply doing what consultants do: Helping their clients survive and thrive. It’s the system that’s broken. Understand how Noel-Levitz operates and you’ll understand why we can at once be putting more money into higher education than ever, indebting students more than ever and getting outcomes no better than they were decades ago.
America’s tuition pricing mess has a start date: 1992. In July of that year the reauthorisation of the Higher Education Act changed the way that the expected family contribution was calculated and made it easier for students to take out loans.
Noel-Levitz has 220 employees and consults with 1,100 schools each year. Industry insiders estimate that its revenues top $35 million annually, but its influence over higher-education finance is several zeroes larger. “We don’t have any of those service areas where we’re working with just five schools, 10 schools,” says Crockett, referring to their eight specialties, ranging from student retention and digital strategy to direct marketing. In every area, he says, “we’re wor-king with 50 or more schools”.
Maguire, of all people, says he has a solution, with a model used by another multibillion all-American cartel: Professional sports. Specifically, the revenue-sharing policies that have rescued the smaller market teams. To that end Maguire has suggested that the schools with the 50 largest endowments, a pool of $284 billion, should essentially tithe, donating a portion of their annual returns to a fund that could provide scholarships for students at less exclusive colleges. “One-third of an assumed average 10 percent yield would be $9.5 billion a year,” he says. “That would be enough to support full scholarships, at $30,000 on average, for 315,000 students or $10,000 in annual scholarships for nearly 1 million students.”
(This story appears in the 05 September, 2014 issue of Forbes India. To visit our Archives, click here.)