Schools try radical ways to help students pay for college

Amid the climate of skyrocketing college tuitions and convoluted aid programs, a handful of universities are introducing simple and transparent financial aid programs. Among them: across-the-board tuition cuts, loan caps, and completely eliminating tuition for some.

Tuition cuts of up to 50 percent are the simplest form of financial aid to understand – and the hardest to believe. Yet in the last 10 years, at least 19 schools have cut tuition dramatically. Among them: the University of South Dakota (USD) slashed out-of-state tuition by 50 percent in 2006; North Park University in Chicago lowered tuition by 30 percent in 2005; and Bethany College in West Virginia dropped tuition by 42 percent in 2002.

"They're really changing their pricing model," says Melanie Corrigan associate director of national initiatives for the American Council of Education. "In many cases, they've cut their published tuitions, but it's important to remember that a smaller percentage of students actually pay that published tuition." In other words, few students pay full price.

Applying for college financial aid has become more complicated than filing a tax return, says Cornell University professor Ronald Ehrenberg, director of the Cornell Higher Education Research Institute.

To make matters worse, students may need financial aid now more than ever. Tuition increases at nearly double the rate of inflation, and "sticker prices" in excess of $50,000 can discourage prospective students before they even apply.

Adding yet another layer of confusion, Sallie Mae and several other major banks responsible for providing student loans have been accused of bribing universities to enlist their services instead of lower-interest federal loan programs.

On average, students at private universities get $9,000 a year in grants and tax breaks, while students at their public counterparts receive $3,100 a year, according to a 2006 College Board report.

By lowering the "sticker" price, schools can give needy students smaller grants. And because part of the grant money comes from other students' tuition, giving needy students smaller grants allows the school to cut other students' tuitions, too. Thus the financial burden on those paying full price eases substantially, while those who need aid still get the level of assistance they require.

"We elected to do this in the view that our discount would not have to be as heavy," says G.T. "Buck" Smith, president of Bethany College, explaining the college's choice to cut tuition. "Not only would we be doing the students and the families a service, but it would actually benefit the college."

Five years after the cut, it's proven invaluable to Bethany College.

The student body has almost doubled in size, from 500 students to more than 900. And even though students pay less, Dr. Smith says they still receive the same level of service. The added expense of accommodating more students was offset by a larger number of students paying less tuition per pupil. The university neither made nor lost money from the increased volume, according to Smith.

With South Dakota experiencing a population decline, the USD decided to use tuition reduction as a means of attracting more students. "In order to maintain our current enrollment, in order to grow," says Cecil Foster, assistant vice president of enrollment services at USD, "we needed a way to remain competitive in recruiting students."

So far, the program has helped USD expand its ranks. Mr. Foster says several parents have even called in tears to thank him.

While university communities have met the cuts largely with enthusiasm, when Bethany College's tuition reduction was announced, some parents worried that it was the harbinger of declining standards. "There are those who would argue that price is seen as a reflection of quality, and, therefore, if you are not as expensive, you are not as distinguished," explains Smith.

High prices put off many students

With or without a tuition cut, deciding on a fair tuition price without alienating students and their families is often a difficult task.

"I think there is a certain amount of skepticism about a university that costs about $45,000 as even being a remote possibility, so [prospective students] never even get to the point of reading about the financial aid program," says Sally Donahue, director of financial aid at Harvard College in Cambridge, Mass.

Despite whopping tuition bills, "colleges and universities are not profiteering at the expense of students and their families," says Ms. Corrigan at the American Council of Education. In fact, universities subsidize a portion of every student's education. Full tuition at most universities represents only two-thirds the cost of educating a student. Income from the universities' endowments covers the rest, explains Corrigan.

Harvard hasn't cut its tuition. But given its $30 billion endowment, virtually all undergraduate students who are accepted receive the aid they need. Harvard anticipates awarding $103 million in need-based grants for the 2007-08 academic year.

"I don't know of anyone ... who ever mentioned debt, coming out of Harvard," says Bryce Caswell, a senior at Harvard who pays nothing to attend the school. Among the graduating class of 2006, the median education debt was $6,850.

The challenge is communicating this to prospective students.

Instead of potentially distancing potential applicants with complicated financial aid jargon, Harvard decided to "come right out with a very clear, simple statement," says Mrs. Donahue. So the school designed a program stating that students from families with an annual household income below $60,000 pay nothing to attend Harvard.

But simplifying aid, Harvard-style, or discounting tuition across the board is not a formula every school can follow.

"Could other institutions do it? Yes. Could all institutions do it? I'm not sure that I could say that," says Corrigan.

For example, a hearty endowment played a big role in helping USD drop costs for out-of-state students. "USD has an unbelievable foundation that will provide economic and scholarship opportunities for all students," says USD's Foster.

Still, a small group of colleges has begun offering improved aid programs that benefit a large socioeconomic cross section of students.

Another approach: capping student loans

Looking to curb student debts after graduation, several universities have capped student loans. The University of Richmond in Virginia created a program that ensures students won't have to take out more than $4,000 a year in need-based loans. Princeton University no longer includes loans as part of their initial student aid packages (however, students can request them for expenditures beyond the standard student budget).

Even the nation's most expensive college, George Washington University in Washington, D.C. – tuition alone for 2007-2008 is $39,210 – has tried to help students by guaranteeing fixed tuition and aid packages for a student's four years at the university.

Administrators hope that stabilized fees will help students and their families better plan for the cost of college.

Daniel Small, director of student financial assistance at GWU, also reminds students that despite the high cost of tuition, the average student's aid package is $19,000.

"Make sure that you're looking at a variety of schools," says Mr. Small. "And wait until you hear about us from the point of view of financial aid to see if that makes it possible."