The affordability of higher education and the transparency from colleges and universities about the actual cost of an education have come under scrutiny in the last decade, as many institutions have continued to increase their sticker prices to absurdly high levels. They have been offering more and more institutional aid to students to maintain a student body that can afford the cost of attendance. Wabash is no different, according to President Scott Feller, who delivered a talk to students on October 29 about the College’s current financial state and where Wabash is headed financially as it approaches its third century.
Feller’s talk focused heavily on the discount rate, which is the percentage of tuition and fees covered by institutional aid. The discount rate sat around 50% in 2012 and has increased to nearly 80% today. That increase in the discount rate means Wabash’s net tuition revenue, which is part of the revenue used to operate the College, has decreased substantially. The loss in net tuition revenue as an avenue to fund operations means Wabash has to draw more heavily from other means to operate the College.
“When we see that tuition is discounted by, for example, 80%, that means that about 80% of the cost of the College comes from outside of tuition,” said Feller. “One way of thinking about it is that Fall midterms are basically 25% of the year. That means a week or so before midterms, the portion of the cost that was paid for by tuition has already passed. So, after about week six, all of the College’s budget is being covered by non-tuition dollars.”
Wabash is not alone in this trend. Great Lakes Colleges Association (GLCA) schools, Wabash’s academic conference, have experienced a 5.25% average annual decrease in net tuition revenue in the last decade. In Wabash terms, that’s about $630,000 in purchasing power lost in net tuition revenue per year. The causes of this trend, Feller says, are a “perfect storm” of concerns about the cost and value of an education and incurring overwhelming student debt that are amplified by decreasing government support. Moreover, there isn’t much hope for any exogenous improvements to support for colleges and universities.
“We are seeing an increasing number of news stories about private liberal arts colleges in financial distress,” said Feller. “We don’t have a $10 or $15 million annual structural deficit the way some of those schools are, and we certainly aren’t risking closing. You can be financially stressed without being financially distressed.”
That leaves Wabash in a position where we must take on the burden of improving our financial situation. With the discount rate projected to continue increasing, Wabash cannot grow other means of revenue faster than tuition revenue falls, and there comes a tipping point where recruiting students becomes more difficult. Other institutions, both large public universities and small private liberal arts colleges, are beginning to offer various “free tuition” programs based on family income.
However, an interesting avenue Wabash is exploring is gifting tuition to all students in a pay-it-forward style model. Hope College is currently experimenting with this style of program, called Hope Forward, that currently gifts full tuition to 5% of the incoming freshman class. Students still pay for room and board, but the overall fees are only around $16,000 per academic year, which is similar to room and board costs at Wabash. The ultimate idea is that, through the gift of tuition costs, students will forge a lifelong relationship with Wabash, and an increase in alumni philanthropic giving can fund, in part, the same gift for future generations of Wabash men.
“We’re starting from a big place,” said Feller. “40% of our alumni are giving. The question becomes, ‘can we move that number to 50% or 60%?’ That’s the kind of number we need to move it to to sustain this in the long run. There’s no guarantee that that will happen, but I don’t think it’s crazy.”
The benefits of a gifted tuition program are already visible from the Hope Forward cohorts. Hope Forward students have higher GPAs and higher retention rates than Hope’s college-wide average. Furthermore, while Hope has only recently started graduating Hope Forward students, 100% of Hope Forward graduates have given back to the College. But for this model to be implemented for all Wabash students, the startup cost is immense and would require significant growth to the endowment.
“To cover our current tuition payments with the endowment probably requires something close to $200 million in new endowment,” said Feller.
Students in attendance were concerned about a pay-it-forward model’s sustainability, but were optimistic that it could work at a place like Wabash.
“I am very interested in learning more about a pay-it-forward model,” said Mason Gilliam ’28. “My biggest concern was the large amount of trust that is put into the students in order for this model to be successful. I think that at a school like Wabash, which is so rooted in tradition and brotherhood, it is one of the few environments where it may be beneficial.”
President Feller’s address to students was the same as the presentation he gave to the Board of Trustees. This means that students are given the opportunity to be looped into the College’s financial well-being in the same manner as Wabash’s governing body, an opportunity that opens students’ eyes to why they may see changes to their costs.
“It’s incredibly important that the students understand the financial state of the College,” said Mark Berger ’28. “Often students wonder why they have an increase in tuition or where the money we pay to the school is going. Understanding how the college is calculating its discount rate puts the real cost of our education in perspective.”
“I think that overall, the students should be more cognizant before they complain and make judgments about how the school handles the tuition model,” said Gilliam. “I will admit that I personally used to have frustrations with the College regarding financial aid. But after hearing a lot more about the situation, I am definitely more forgiving.”
Now just six years from entering its third century, Wabash is navigating a tricky landscape in the affordability and transparency of higher education in America. While we are not in the best of times today, administration and students alike are confident the College is setting itself up well for a prosperous future.