As a university president, I am sometimes struck by the difference in the way various publics regard higher education and the way higher education regards itself. This was made evident in January 1998 by the report of the National Commission on the Cost of Higher Education, and six months later by publication of the American Council on Education study titled "Too Little Knowledge is a Dangerous Thing: What the Public Thinks and Knows About Paying for College."
These two national reports reflect heightened anxiety about paying for college among many parents and students. This anxiety, fueled by media stories, has reached a level disproportionate to the reality of the American system—which offers $60 billion in education-related financial assistance annually. Nonetheless, this anxiety is of great concern to Stanford. This university, and all colleges and universities, need to do a better job of communicating clearly the basic facts of tuition and financial aid.
Stanford has always made information on tuition and financial aid available. In this annual report, we will attempt to further lift what the National Commission on the Cost of Higher Education described as “a veil of obscurity” from the complexity of financing a major American research-intensive university. I will answer as directly as possible questions on the minds of prospective students, Stanford alumni, donors, and other supporters of the university.
As the National Commission noted, concerns about affordability are often based on misperceptions about the cost and price of a college education. The report defined cost as “the expense an institution of higher education bears to deliver education to a student" and price as "the portion of those costs students and families are asked to pay.” Beneath this clear distinction lie financial intricacies that often have defied simple explanations.
First, let me offer some basic facts concerning Stanford's approach to such practical matters as admitting students, setting tuition, and providing financial aid:
The dialectical relationship between research and teaching at Stanford depends as much on the caliber of our undergraduates as it does on the caliber of our faculty. Recognizing this, the university admits students on the basis of their academic and personal qualifications, without regard to their families' ability to pay. This is known as need-blind admissions—admissions officers do not know whether an applicant needs financial assistance. Perhaps only a handful of private American colleges and universities are still able to practice true need-blind admissions, and Stanford is one of these.
No student who is admitted to Stanford should go elsewhere for financial reasons. Stanford is committed to a scholarship program that, in the words of Jane Stanford, keeps “open an avenue whereby the deserving and exceptional may rise through their own efforts.” Seventy-two percent of Stanford undergraduate students receive some type of financial assistance. Stanford's comprehensive financial aid programs ensure that students have access to the necessary resources. As described in the piece “How Is Financial Aid Need Determined?” the university determines the level of need and offers an individualized aid package for each admitted student who applies for financial assistance.
Tuition covers only a portion of the cost Stanford incurs to educate an undergraduate; therefore, all students receive a subsidy from the university. Stanford undergraduates benefit directly from the extensive resources of a research-intensive university, yet the price for their education covers only about 60 percent of the actual cost. Even students paying the full “sticker price” are subsidized by donors and by income from the university's endowment.
The university flourishes because each successive generation ensures that those who follow can obtain the benefits that come from the pursuit of knowledge. A private university, which does not directly receive state funding, must rely on donations from alumni, friends, students, trustees, faculty, and parents to help fill the gap between cost and price, and to make need-blind admissions possible. Yet even with the generous support Stanford receives through gifts to The Stanford Fund and endowed scholarships, the university must still provide more than $14 million from its general funds for the more than $40 million it gives annually in undergraduate financial aid.
Tuition is an important, but not the primary, contributor to the educational enterprise at Stanford. Student income (including tuition, room and board, net of student aid) represents only about 17 percent of the university's budget for 1998-99. However, it is a critical source of unrestricted funds that pays for the day-to-day expenses of running the university, including faculty salaries and other people-related expenditures. About half of the university's annual operating revenue is restricted by law or by donors in how it may be used. Unrestricted funds offer a vital flexibility in what the university can undertake.
Stanford promotes the public welfare by educating first-rate students who, having been engaged in the search to know, are better able to assume leadership roles in industry, business, government, and in universities themselves. This benefit to society is rarely mentioned in public discourse about the costs of higher education, which is increasingly viewed as a commodity with a purchase price, like a car or refrigerator. Legitimate concerns about access and affordability must not cause us to lose sight of the role universities play in society and their contributions to the great stream of blessings that have flowed to the United States and the world from our system of higher education.
How these facts affect Stanford's daily work of attracting the finest students, making it possible for them to attend, and keeping the institution financially sound often is not clear to those outside the university. With that in mind, I would like to answer as directly as possible questions frequently raised on these important issues.
Is Stanford making any effort to limit tuition increases?
Yes. Increases in the last four years have been restrained, a reflection of our concern about financial pressure on families. The increase for 1998-99 was 3.8 percent (not adjusted for inflation), with a room and board increase of 2.8 percent. The overall increase was 3.5 percent, about .5 percent less than the annual rate of increase in U.S. median family income from 1995-97. Perhaps more pertinent, it was below the 1997 Bay Area inflation rate of 4.2 percent. We have fought to keep tuition increases as low as possible by containing costs to operate the university. Education's labor-intensive nature makes this particularly difficult in a high-cost region such as the Bay Area. Despite such pressures, we have cut expenses in the budget supported by unrestricted funds by about $60 million since 1989. Gifts also have played a critical role in keeping tuition down.
Does Stanford cost more for undergraduates because it is a research-intensive university?
No. Among 112 private schools whose annual tuitions were compared in the 1997-98 Cambridge Associates survey, Stanford was 43rd, with a price $2,400 lower than the highest in the group. Among the schools more costly than Stanford are many small, private liberal arts colleges whose educational range cannot compare with that found here. The mix of revenues that support a research-intensive university make it possible to offer our undergraduates an incredible range of opportunities, including working with faculty who themselves work at the forefront of their fields. Students who seek out these opportunities are rewarded in ways that cannot be matched in other settings.
Is Stanford becoming a place for students from high-income families (who can afford to pay) and for students from low-income families (who receive financial assistance), but not for students from middle-income families?
No. The distribution of family incomes among students who have been accepted to Stanford and who receive financial aid has not changed significantly over the last 10 years. Stanford's commitment to meeting the demonstrated financial need of admitted students has kept the door open to middle-income families. Nonetheless, we are concerned about the pressures they are experiencing and recently took action to provide $1.8 million in additional assistance for about one-third of families in our financial aid program. In February 1998, the Board of Trustees voted to limit the impact of home equity in Stanford's financial aid eligibility calculations. Home value is now capped at three times annual parent income before the amount of home equity is determined. This standard acknowledges that, although home equity can often be accessed through loans, many middle-income families do not have enough income to support the additional borrowing. We are continuing to monitor such issues and may take further action in the future to assure that our aid programs address the needs of middle-income, as well as low-income, families.
Are families who pay full tuition subsidizing other students?
Since no one is paying the full cost, no student is subsidizing another. Rather, it is a question of degree: All students receive a subsidy; those who also receive financial aid receive a greater subsidy. Tuition revenue is included in the university's unrestricted funds. In total, unrestricted funds from all sources contribute about one-third of the $40 million in need-based aid Stanford provides annually.
Is Stanford concerned about student debt?
Yes. Like a home, education is an investment yielding major lifetime benefits, so borrowing to obtain that benefit is often appropriate. However, we also are committed to keeping borrowing to a minimum. The average per-student cumulative undergraduate indebtedness for 1997 Stanford graduates receiving financial aid was $14,371, less than half of a single year's total expenses. Included in this figure are personal choices, such as students' accepting greater responsibility for financing their education, and families' taking advantage of favorable interest rates and deferred payments for student loans.
Average indebtedness of Stanford students is expected to drop in the future because of a 1998 change in Stanford financial aid policies. Previously, outside scholarships mostly replaced scholarships from Stanford. Now, most outside scholarships will count as part of the student's self-help, reducing or even eliminating loan and work requirements. While the change will cost the university about $2 million per year in additional financial aid, it will reward such scholarship winners—about 900 each year—by reducing their need to borrow.
Do families that have saved for their children's education get shortchanged on financial aid?
Families that have saved are not only carrying out their responsibility to their children, they almost always come out ahead. The first components of Stanford's financial aid packages are loans and work. So, families that have not saved will have to rely more on current income, taking out loans, and student jobs. Even if a student also qualifies for grants and scholarships, these seldom fully make up for lack of savings. If a family simply has been unable to save—because of a financial emergency, such as illness or unemployment, or because its income is so low that living expenses take all of it—increased aid is possible.
Is there anything the federal government should do to help contain growth in tuition?
Yes, there are two important things: First, it should stop shifting legitimate research expenses from the government to universities. The reluctance of the federal government to pay the full costs of research that it sponsors at universities forces those costs back on the schools. This absorbs funds that otherwise might further relieve pressure on tuition. Second, government should reduce excessive—and at times, irrational—regulation, which at Stanford alone imposes a conservative estimate of $20 million annually in ongoing costs related to compliance. This equals about 7.5 cents of every tuition dollars, not counting the time we spend filling out paperwork.
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In closing, I return to the intent of Leland and Jane Stanford. Today, as at its founding, Stanford University remains dedicated to other people's children, including “keeping open an avenue whereby the deserving and exceptional may rise through their own efforts.”
Tuition and financial aid facts
How is financial aid "need" determined?
What does a Stanford undergraduate education cost?
Essay by Stanford Board of Trustees Chairman Robert Bass