Meritocracy, Altruism and Economic Opportunity

There has been too much partisan prattle and blaming about income inequality.  While there might be some agreement that reducing inequality is good for society, there is little agreement on how best to reduce inequality.   One extreme sees government-centered redistribution as the preferred way, others think self-help is the only enduring prescription.  While it addresses just a small corner of income inequality, some “selective” colleges are making progress that should appeal to both extremes.

College graduation is a stairway into higher income, especially for graduates from selective schools.  In the past, selective colleges have offered free tuition to some academically qualified low-income students. The Scholastic Aptitude Test (SAT) is a requirement application to enter college.  Of students scoring in the SATs top 10% and whose families were low income, only 20% applied to these selective schools.  Instead, these low income, high performers usually applied to their local community college where many of their classmates will struggle academically and will tend to reduce the amount of challenging material the high performers will encounter.

To improve matters, the selective schools did the hard work of updating and aggressively promoting their offer.  A “full free ride” offer is extended to students with top 10% SAT scores and whose families are in the lowest income quintile.  That “lowest quintile” qualifier was difficult to achieve due to privacy laws, but data mining makes it possible to identify and reach out to these potential students with a packet of applications and vouchers to defray any application costs.

Financial aid is a strong propellant for moving students into college.  Two studies on the effect of student loans each reveal a 20% jump in enrolment due to the availability of student loans.  It is too early to score the effects of the selective colleges’ free ride offer, but it should make a big impact on enrollment.

Ninety-five percent of other colleges have puny endowments and many resort to tuition “discount” tactics as a way to prime the enrollment and tuition-paying pump.  Consultants’ experience show that wealthy students treat the award of 10% off tuition as sufficient inducement to enroll and pay the full tuition for the 4 years.  Provided the school’s tuition is set high enough, discounts are affordable.  The tactic is the same as that used in automobile sales promotions.

The average tuition at a private 4-year, not-for-profit college is $41,000.  A 10% discount would mean a $4,100 inducement that could yield $164,000 in tuition over 4 years.

One of the best-known consultants in this field of “enrollment management” is the Noel-Levitzteam. This consultancy helps schools find the right students for whom the tuition is affordable and who have at least some demonstration of merit. They advise at least 635 colleges not on how to reward academic merit, but on how to usedata to devise strategies that ultimately extract more tuition.

The selective schools deserve our congratulations.  They invest in students with strong capabilities and who are perched at a low-income rung, i.e. students showing merit and need.  Their aggressive, altruistic use of endowment funds contrasts sharply with the disappointing tactics of many other schools.

Alan Daley is a retired businessman who writes for The American Consumer Institute Center for Citizen Research