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The Scarlet & Black

No Limits? Understanding the Financial Aid Debate

In a few short weeks, the Grinnell College Board of Trustees will assemble on campus for its winter meeting. Among the many items of business to be resolved, none is more pressing than decisions regarding the College’s financial future and need-blind admission practices. The Trustees are confronted with a difficult question that President Kington raised in 2012: does Grinnell College have the financial resources to maintain need-blind admissions?

The issue is undeniably complex. Like all other institutions of higher education in the U.S., Grinnell is forecasting that cost increases will lead to budgetary deficits in the near future. The College draws funding from three sources to enhance stability: student tuition, the endowment and institutional gifts. The college currently devotes 35% of its approximately $98 million budget to financial aid. But with low fundraising levels and the endowment already supporting a whopping 53% of the annual budget, the administration has targeted an increase in net student revenues (tuition minus financial aid) as a strategy for closing the deficit.

The administration has proposed various strategies the Office of Admission can implement to increase the number of tuition-paying students at Grinnell. Many in the Grinnell community have expressed concern that such strategies contradict the spirit of need-blind admission and violate the College’s core values. However, what some Grinnellians fail to appreciate is that these proposals are not only consistent with the College’s need-blind admission policy, but are in fact necessary for its survival.

The College website defines its need-blind policy as follows: “The practice of considering each applicant’s qualifications for admission without regard to the family’s financial resources or ability to pay.” Grinnell also meets 100% of demonstrated financial need for all students it admits. Yet this definition of need-blind is incomplete: Grinnell naturally does not expect that every student it admits will require full financial aid—after all, if all 1625 students at the College received full scholarships, it would cost upward of $80 million per year!

The missing piece of the definition reads something like “…given the College’s expectation that the need-profiles of its admitted students will follow a predictable distribution.” This means that when Grinnell admits a group of students without considering financial need, it expects that students in the class will have different need-profiles: some will not need any financial assistance, others will require a significant amount, and most will fall somewhere in between. There are two key takeaways from this: (1) While the College will admit students without consideration of financial background and pledges to meet the demonstrated need of all students, it makes this promise expecting that not all students will need financial assistance; (2) The College uses the tuition it collects to fund financial aid. This implies that collecting tuition revenue is directly related to need-blind financial aid.

Why does this matter? What this reveals is that for a college to offer need-blind financial aid, it must collect a significant amount of tuition revenue. Unfortunately, Grinnell only funds 36% of its annual budget with net student revenues. Most other need-blind institutions use tuition to fund a much higher percentage of their budgets: for example, Amherst funds approximately 43% of its annual budget through net student revenues. To make up for the difference, Grinnell would have to either increase its endowment payout or annual donations. But the endowment already supports over half the budget, leaving Grinnell dangerously exposed to market fluctuations. And donations comprise a negligible 6% of the budget. Fundraising will hopefully experience substantial long-term improvement, but only increasing net student revenues can resolve the structural deficits in the present.

In summary, maintaining a need-blind admission policy necessitates collecting more tuition revenue, increasing endowment payout, or successfully fundraising. With the endowment massively overcommitted and donations too small to make a sizable difference, Grinnell has no choice but to explore options for increasing net student revenues in order to preserve need-blind admission! Broadening the tuition base is an action that strengthens the need-blind admission policy by ensuring that Grinnell has the resources to both support those who need financial assistance and maintain an elite academic institution. If the Trustees accept these realities, they will vote to adopt the proposed changes.

Ishan Bhadkamkar ’13 is an intern with the Grinnell College Investment Office.

-Ishan Bhadkamkar ’13

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  • B

    Billionaire BobFeb 5, 2013 at 12:15 pm

    A massively over-committed endowment is a specious argument.

    The ratio of endowment to student is massively out-sized compared to just about every other institution.

    One part of the problem is that the college has never been willing to consider a budget model that is based on Grinnell’s situation. If you have more dollars per student in endowment, doesn’t it make sense that you should be spending more pennies per student in your budget? Ignoring this premise makes derivative analysis of the college’s budget data suspect.

    Far from transparent, this reads more like a puff-piece intended to impress the supervisor under whom Mr. Bhadkamkar works in the endowment office.

  • C

    Craig HendersonFeb 4, 2013 at 8:30 pm

    Thanks for a thoughtful and insightful analysis of the situation and your very intelligent/insightful comments. One aspect of this issue that pleases me enormously is the transparency of the discussion, which has involved students, faculty, administration, and alumni. The process has not been rushed. In the end, I believe the way this has been approached by everyone, and especially the leadership of the college, reflects unique aspects of Grinnell’s culture about which we can feel some pride.

    Craig Henderson, ’63 and a trustee.