Debt and Demographics: How Are Donors Navigating a Changing Higher Ed Landscape?

wake forest university. photo: Bryan Pollard/shutterstock

In a recent piece looking at St. John’s College’s plan to reduce tuition thanks to philanthropy, I noted how donors are becoming increasingly receptive to the idea of liberating students from a lifetime of debt. 

News out of Winston-Salem, North Carolina provides another example of this trend. A $10 million endowed gift from an anonymous donor will provide an additional $4,000 to current and future Magnolia Scholars at Wake Forest University (WFU), supplementing existing scholarships and thereby reducing or eliminating the amount of the students’ need-based debt.

The gift builds on a four-year pilot program funded by the same anonymous donor. Each of the 30 Magnolia Scholars in the class of 2018 had their four years of undergraduate debt reduced by $16,000.

WFU’s announcement comes a couple of months after the New York University (NYU) School of Medicine announced it would cover the tuition of all of its students. As of late August, it had raised more than $450 million of the $600 million it will need to finance the plan.

Beyond seeking to reduce or eliminate student debt, the WFU and NYC plans share an additional—and striking—similarity. Both accompanying press releases, albeit indirectly, speak to the degree to which each school’s soaring tuition costs are exacerbating the student loan crisis.

A Subtle Change in Messaging

Commenting on NYU’s plan, Robert I. Grossman, dean of the medical school and chief executive officer of NYU Langone Health, said, “This decision recognizes a moral imperative that must be addressed, as institutions”—like, presumably, his employer—“place an increasing debt burden on young people who aspire to become physicians.”

WFU, meanwhile, noted that reducing debt for Magnolia Scholars allowed students to “weigh opportunities and make decisions they might once have considered out of their financial reach—decisions that affected not only their college experience but also their lives for years to come.”

For example, two-thirds of Magnolia Scholars, liberated from the specter of student debt, chose to study abroad. One scholar in particular, Zachary Triplett, said that thanks to the extra financial support, he was “able to take on summer work that helped propel me into the career I always wanted.”

Both schools’ messaging is interesting for a few reasons.

First, each feels compelled to tell us something we already know: Student debt is bad. Believe it or not, this is progress. 

Universities have traditionally been reluctant to call attention to the fact that their product saddles graduates with—to quote NYU—“overwhelming financial debt.” I can’t blame them. The schools, after all, set the tuition prices. Admitting its deleterious effect on graduates diminishes the product and incriminates their financial model.

In the case of Wake Forest, last year, its board of trustees announced a 3.65 percent increase from the 2016-2017 tuition for the 2017-2018 academic year. With adjustments for room, board and other fees, the total cost of attendance rose to an estimated $69,192.

Meanwhile, approximately 70 percent of college students graduate with a “significant amount” of loans. Over 44 million Americans collectively hold nearly $1.5 trillion in debt, owing an average of $37,172.

With more and more students and parents questioning the value of a four-year $280,000 education–even with student aid factored into the equation—it makes sense for universities to adopt a more empathetic (and arguably defensive) messaging strategy.

That said, the tenor of NYU and WFU’s messaging also emanates a kind of resignation and powerlessness, as if neither school has any direct control over soaring tuition. Critics of universities’ profligacy beg to disagree on this point.

“The unfortunate truth is that while most college presidents care deeply about their institution’s success, an important part of their job is to shake free more resources. They seldom initiate serious campaigns to contain costs,” said James V. Koch, a member of the board of Partners for College Affordability and Public Trust.

This is why the St. John’s College announcement was so unique. It admitted that its long-held devotion to “prestige pricing” needlessly and artificially drove up tuition. What’s more, its plan to cut tuition called for no new pricey capital projects.

Short-Term Solutions

St. John’s College’s plan is predicated on the idea that the idea of reigning in costs will resonate with donors. To date, the college has raised more than $183 million towards its $300 million goal.

But the donor community is a diverse constituency. Scan Inside Philanthropy’s higher ed vertical, and it quickly becomes evident that donors also have no qualms with funding a gold-plated college education or ambitious capital projects that drive up costs and tuition.

On the other hand, most donors prefer to sidestep the cost side of the equation entirely. 

Since guaranteed student loans ensure that universities will get paid no matter what, any donor-led efforts to encourage administrators to reign in costs will likely fall on deaf ears. There’s simply no financial incentive to tighten the purse strings. (Moral incentives are another issue entirely.)

As a result, many donors have concluded the most effective way to reduce the student loan burden, particularly in the short-term, is to cut a check rather than pressure administrators to reign in costs. 

Case in point: Including the Magnolia Scholars gift, the amount of money raised for scholarships and student financial support through WFU’s Wake Will Lead capital campaign is more than $300 million. More than a third of the $850 million raised to date supports student scholarships. 

Changing Demographics

Zooming out further, data gleaned from the 2018 Trends in Higher Education Report suggests that philanthropy, coupled with federal aid, has frozen—and in some cases reduced—the real cost attending of public and private colleges, despite the fact that tuition continues to rise.

Why? The answer, in part, involves demographics. “As falling U.S. fertility rates lead to shrinking numbers of college-ready children for most of the next two decades,” the Wall Street Journal reports, “private colleges are increasing financial aid as they compete harder to attract students from a diminishing pool of high school graduates.”

This, quite naturally, is good news for college applicants. Nor should wealthy private schools like NYU and WFU start worrying any time soon. With an endowment of $1.1 billion, Wake Forest enjoys an acceptance rate of 29 percent. Meanwhile, its Wake Will Lead capital campaign aims to have $1 billion in the bank by 2020.

The institutions most affected by this demographic shift are small private colleges with small endowments that depend almost entirely on student tuition.

If these trends hold, Moody’s Investors Service predicts that annual private college closures will jump from about 11 a year to an average of 15 in coming years, further exacerbating the gap between the haves and have-nots across the higher ed space.

And so the big question moving forward isn’t whether donors will continue to cut checks to reduce student debt. The ongoing higher ed fundraising boom, coupled with the metastasizing student loan epidemic, suggests they most certainly will try.

Perhaps the more telling question regarding higher ed philanthropy involves the extent to which donors will attempt to save embattled small private colleges from oblivion.

There are some intriguing models out there. Check out our take on how the Kresge Foundation rescued Detroit’s Marygrove College from bankruptcy and its plans to position it as the fulcrum for its larger neighborhood revitalization efforts.