Harvard's Altruism = Less I-Bankers?

First, let me negate the left side of the equation: Even though Harvard's announcement yesterday to increase financial aid to students from middle-income families can be viewed as an act of goodwill, it's also a competitive play.

"It's a bold move that makes a lot of sense," Jesse Rothstein, an economist at Princeton told me. "A lot of these schools are competing really hard to attract a set of students that are not conventionally poor but are at the lower range of their pools and cost is a big factor for them."

While Harvard is the preeminent school in the country, before the move, if Student A was accepted to Harvard, Princeton, and M.I.T. and the two latter schools were offering better financial aid packages, it was no guarantee that Student A would choose Harvard. But now it's a nearly no-brainer for others like Student A and that means Harvard attracts even more top students.

But on to the main point: what could Harvard's altruistic/competitive move mean for students that have fewer loans to pay off?

Rothstein, along with Cecilia E. Rouse also of Princeton, investigated a similar situation where students' debt burdens were reduced. Using data obtained from a highly selective unnamed university that earlier this decade replaced loans with grants in its financial aid pacakges, Rothstein and Rouse found some surprising results.

Students who had lower debt burdens were more likely to take less well-paying paying jobs, predominately in education. Specifically, Rothstein and Rouse found that an extra $10,000 in debt reduced the likelihood that a student would take a job in the non-profit, government or education sectors by 5 to 6 percent. There was also some evidence, though not as robust, that recent graduates with higher debt burdens donated less money to the alma mater.

So if we do a quick-and-dirty calculation: a Harvard student whose family earns $180,000 (the maximum value for which he or she would be qualified for the tuition breaks without other extenuating circumstances) would pay at most $18,000 in tuition or about $13,000 less than the normal tuition. Over four years that's $52,000 that didn't need to be borrowed -- assuming the student would have to borrow all of it -- which would mean a 25 to 30 percent less likelihood of entering a high-paying, but potentially less rewarding, job.

Add Your Comment

Report Abuse

Archive

Categories

Links