Harvard Financial Aid

This post will talk about Harvard's financial aid program, and why it's a perfectly good thing to give money to Harvard, despite what you might read in the New York Times.

I am motivated to write about this also because some weeks ago, I got into a blog-argument with some Chronicle of Higher Education writer who gave an incoherent argument that Harvard should have been spending its endowment increasing its undergraduate class size. (See the bottom of this post for the starting point if you want.) One point I argued was that Harvard had in fact been spending its endowment to make college more affordable through its financial aid program, and that that was probably doing more to open Harvard up to a wider talent pool than simply admitting more students would do.

Certainly one can argue whether teaching more students or making Harvard financially available to more students is a more important goal. But one thing that became clear is that that author, the author of the New York Times opinion piece, and I presume many other people, just don't understand the financial aid picture at Harvard. So I'll say something about it, that's actually based on facts and numbers.

Let me start with a back of the envelope calculation. (I recently got access to some official numbers, but they may be confidential, and the back of the envelope calculation is easy and accurate enough.) About 2/3 of Harvard undergraduates get financial aid from Harvard, and on average it covers about 2/3 of their tuition. That's approximately 4000 students, getting an average of about $35,000 per year in aid from Harvard, for about $140 million per year. Let's call it $125 million in case my numbers are off and to make the math easier.

Long-term endowment spending rates are about 5%. (This seems to be a standard rule across most major universities, but I haven't seen an economic analysis to explain this number. Please give pointers in the comments.) So Harvard's undergrad financial aid corresponds to roughly $2.5 billion of endowment money.

This is a much bigger proportion of the endowment than people realize. Usually people bandy about a figure of $27 billion or so post-crash for Harvard's endowment, but the endowment for the Faculty of Arts and Sciences -- that is, for the undergrads, as opposed to the law/business/medical/graduate/etc. schools -- is only about $11 billion. So Harvard is now using, by my estimates, well over 20% of its annual endowment spending (for FAS) for financial aid. I've argued in the past that Harvard should make itself tuition-free for undergraduates -- but even I'm impressed by and happy with these numbers.

Think of it this way: the projected deficit for FAS over the next few years, roughly speaking, could disappear entirely without any budget cuts if we just turned off financial aid. Of course that's a terrible idea, and financial aid is one area where Harvard, so far, is making sure not to cut. But that gives an idea of the scope.

So when I hear people say that Harvard isn't doing enough to open its educational doors, or suggesting that giving to Harvard is not morally sound, I admit I feel obliged to politely correct them. (Or, sometimes, less politely correct them.) If you believe that affordable education is important, there are of course many institutions deserving of support. Harvard remains on that list.