Letters to MIT Community
Letter to the Community on Financial Aid and the Endowment
With this semester's letter, I want to try something a bit different from my previous messages. Instead of offering a round-up of recent campus news, I want to share my thinking on a very important national conversation currently gathering steam: the complex debate around tuition, financial aid, endowments and the cost of higher education.
Next week, following the March meeting of the MIT Corporation, we will announce our financial aid plan for next year. My aim with this letter is to provide background and context for that announcement, and to offer some perspective on the national picture as well.
Today, especially for low- and middle-income families, paying for college can represent a daunting challenge. At the same time, a college education has never been more important; a college degree opens wide a universe of career possibilities and adds significantly to an individual's earning potential. From a national perspective, college graduation rates obviously affect the quality of our workforce, so financial obstacles that limit access to higher education could eventually threaten U.S. competitiveness on the global stage.
So, what's to be done about this broad national challenge?
MIT's Commitment to Need-Blind Admissions and Need-Based Aid
At MIT, we have recognized and responded steadily to the challenge for a long time, by opening our doors to talented students from every background. Specifically, for more than four decades MIT has steadfastly practiced "need-blind" admissions. That means we admit all undergraduates on the basis of academic merit alone, without considering their ability to pay; we also meet their full demonstrated financial need, determining need by the same methodology that we and most of our peer schools have used for many years. Unlike most other schools, an important part of MIT's educational philosophy is that all MIT student aid is need-based; we don't award any academic, athletic or other forms of merit scholarships.
In the Last Decade, We Have Sharply Increased Financial Aid
Given our commitment to meeting our students' full need, when tuition goes up, we make sure that the aid we offer rises even faster. Between 1998 and 2008, we more than doubled our undergraduate financial aid budget, from $27 million to $66 million. During that same period, while our tuition and fees increased at an average annual growth rate of 4.2%, our financial aid budget rose 9.1%. This rapid rise in aid means that MIT's students and families today pay net tuition – i.e. tuition after financial aid – that is, on average, almost 15% less than ten years ago, after adjusting for inflation.
MIT has taken this aggressive position on aid in part because our students demonstrate a much higher level of need than students at most of our peer schools. According to U.S. News & World Report's "America's Best Colleges 2008," the percentage of MIT undergraduates with demonstrated need is more than 15 points higher than at other top schools. In fact, 17% of our undergraduates come from families earning less than $45,000 a year, and 22% come from families earning less than $60,000. (MIT also educates a high proportion of first-generation college students, including 16% of current freshmen.)
We offer direct, MIT-funded grants to roughly 60% of our undergraduates, and fully 90% of them receive financial aid of some kind, from a range of sources. While we focus our aid on those with the fewest resources, we do provide aid to some families with incomes well above $100,000 who have demonstrated need – for example, because they have more than one child in college at a time.
Relieving the Financial Strain on Students
In shaping our aid policies, our goal is to make MIT a realistic choice for talented young people, no matter what their families' financial background might be. For a growing number of our students, MIT tuition and fees are completely covered by a grant or scholarship. In this academic year, 20% of current undergraduates receive an MIT grant that is actually greater than their tuition and fees, to help with the many associated costs of going to college. The average financial aid package this year provides a student with $33,040; this level of aid brings average tuition for aid recipients to $8,100, a figure close to the in-state price of many public universities.
Lowering the Burden of Debt
Despite our efforts, however, some students and their families still find that the only way they can pay for college is to borrow. Up to a point, this strategy works just fine. But for a young person embarking on a career, debt can quickly become unmanageable. An overload of debt can even distort a student's choice of career or decision whether to pursue further education. Fortunately, over the last ten years, our increases in financial aid have reduced student borrowing by more than half. Median debt for MIT students at graduation fell 51%, from $23,640 in 1998 to $11,500 in 2007. The number of undergraduates in the senior class with debt at graduation has also dropped sharply, from 702 (67%) in 1998 to 477 (49%) in 2007, so that last year, more than half the class graduated from MIT with no financial aid debt at all.
MIT's Distinctive Mission: A Costly Proposition
Why do we have to work so hard to help our students pay for their education? In large part it's because of MIT's passionate commitment to an intensive model of education that emphasizes hands-on learning and incorporates frontline research as part of the way we teach. Eighty-five percent of our undergraduates major in science or engineering, with course work that requires state-of-the-art laboratories. Most also engage in hands-on research, side-by-side with our faculty: 85% of undergraduates participated directly in research at the frontiers of knowledge through the Undergraduate Research Opportunities Program (UROP). Needless to say, this is a labor-intensive, equipment-rich and inherently expensive proposition, so expensive that our full "sticker price" tuition actually represents less than half of what it costs to educate an undergraduate at MIT.
It's also worth noting – though it goes without saying for those who really know MIT – that while our work in teaching and research is very expensive, it has reaped enormous returns for the nation, both in the leaders we have helped shape and the breakthroughs we have pioneered. Yet while we grapple continually with the rising costs of engineering and science infrastructure, MIT's finances have been further stretched by stagnating Federal investments in research, and because an increasing number of research sponsors do not cover our full costs for the research they support.
The Value of an Endowment
Given these financial realities, our ability to offer the scale of student aid that we do depends largely on generous support we've received from generations of alumni and donors – magnified by our ability to steward those endowment funds carefully over time. It also depends on our ongoing commitment to spend unrestricted endowment earnings on student aid.
To support our education and research mission, MIT spends significantly from its endowment; every year since 1999 we have spent more than 5% of the three-year average market value of our endowment. Why can't we simply unlock the endowment and let every student attend for free? There are two reasons. First, the use of endowment funds is highly constrained. The endowment is not a single undifferentiated pile of cash; it actually consists of more than 2,800 separate funds, 82% of which are restricted to meet specific donor requirements; if the donor intended the earnings on a gift to be spent on a professorship, we are not free to spend them on financial aid, no matter how acute the need. Roughly 13% of our endowed funds are restricted specifically for undergraduate financial aid. Over the last ten years, these funds covered an average of 71% of MIT's undergraduate financial aid expenditures, and we paid for the remaining 29% by using unrestricted MIT budget sources. To increase the funds dedicated for financial aid, we are focusing our current fundraising campaign on support for undergraduate and graduate students.
The second reason we can't spend more lavishly from endowment earnings is that we are charged with a very important long-term mission – to keep MIT flourishing and able to seize new opportunities through good times and bad, in perpetuity. Our endowment spending policy balances the needs of current faculty and students against our duty to preserve the endowment's purchasing power to serve many, many future generations. While investments have performed admirably for much of the last two decades, the experience of several long troughs during the previous 50 years dictates prudence and cautions against favoring short-term needs.
The National Challenge of Access
If I have made clear MIT's aggressive record on increasing financial aid, I may in the process have made something else more cloudy. If MIT and other prominent schools have raised financial aid faster than tuition, why is there still so much concern about the cost of college? In part, it comes down to a very important but, in the current debate, almost invisible fact: the declining investment in public institutions over the last few decades, due to increasingly tight state budgets. America's public universities have served the nation extraordinarily well, educating many times the number of students that private research universities will ever be able to. Built on the premise of state funding, however, many of these institutions have not been able to knit for themselves the safety net of a major endowment. When state funding shrinks, they have had little choice but to raise tuition. The result is that some of these schools are no longer within the financial reach of all academically qualified in-state students. Without access to this once-universal ladder of opportunity, students and families understandably feel shut out of a chance for a better future.
I recognize that frustration with college costs extends well up the income scale, and I appreciate the financial pressures families are feeling. The question is whether the wisest and fairest course for the country is to mandate that institutions increase the amount of aid offered to families in the top few percentage points of American earners. It seems eminently reasonable that families with significant resources should contribute significantly to a college education – an investment that will improve their child's earnings an average of $1 million over a lifetime.
Financial Aid: The Future
MIT will maintain the principled, steady course of aggressive and consistent increases in financial aid that brings to our campus extraordinary students from a full range of economic backgrounds. We will, in fact, continue to accelerate the aid we offer undergraduates. In the process, however, we will not erode our fundamental principles: that we are need-blind in admissions, that we base all financial aid on the financial need of families, and that we meet the full demonstrated need of all admitted students.
The public conversation on these questions will likely simmer for some time to come. I hope I have given you the information you need to engage in that debate and to feel confident in MIT's position. If you're interested in knowing more, I urge you to consult the MIT website next week, when we will post our response to the Senate Finance Committee's request for information about MIT's financial aid, tuition and endowment. I also discussed some of these themes two weeks ago on the Charlie Rose Show. In addition, as I said, next week we will release our financial aid plans for next year. In the end, everyone associated with this community can feel proud of our record in helping talented students of every background find a place at MIT.
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