I have been pleasantly surprised to see a few comments on recent articles asking for a source on the 68% figure that has been flying thick and heavy around need-blind conversations lately. For context, here is an excerpt from a recent controversial speech about donating to Wesleyan:
“Did you know that 68% of any donation earmarked for financial aid gets swept into the general operating budget, and that only 32% of such donations goes to improving the financial aid budget?”
That 68% figure was first circulated in a document produced by Need Blind Wes and distributed during Homecoming Weekend. It is profoundly shocking that the majority of a specified donation would somehow be weaseled into unrestricted funds, isn’t it? Isn’t that illegal?
Well, yes, that would be illegal — except the 68% figure is just flat-out false as described. Incorrect. Inaccurate. Wrong. Or, at the very least, incredibly misleading.
Where the 68% Figure Comes From
Before I can clarify exactly how the 68% figure is misleading, I need to explain how it originated. The idea goes something like this. Financial aid is currently capped at 32% of the budget (this is incorrect, but for the sake of argument let’s accept it for now — see below). Therefore, the University has a certain amount of money it will spend on financial aid in any given year, and it will do so irrespective of anyone’s individual donation. Coterminous with this argument is the fact that no fund currently exists that will increase the cap on the financial aid budget — this part is true (again, see below). The argument, though, continues: an individual donation to financial aid will only enhance the health of the overall budget, allowing for 32% of the budget and gift to each go toward financial aid, while the rest of each goes elsewhere to the operating budget. The 68% of the gift that ends up in the operating budget might nominally be in the financial aid pot, but simply displaces other money from other revenue streams that then go to the general operating budget.
This weekend, I had a long discussion on this topic with a friend — one of the architects of the 68% figure, in fact — in which we became uncertain about the 32% figure, the cap for financial aid referred to above. Is in terms of the overall budget? Or does it refer to the University discount rate, the amount of uncollected tuition (read: financial aid) as a percentage of all tuition charged? I dove back into the mountain of green folders (read: University financial documents) littering my room, and found that the 32% figure does indeed refer to Wesleyan’s target discount rate. It so happens that that figure is also fairly close to the figure of financial aid as a percentage of the E&G Operating Budget, which excludes debt payments and auxiliaries (mostly room and board related expenses), hence the confusion.
There are a few things to note here:
1. As of last year, the long-term target for the discount rate was 29%. The fact that it is now, as of this year, at 32% is a hugely important improvement.
2. The spending on financial aid has increased in terms of total dollars and as a percentage of the budget and in terms of the discount rate pretty much every year for a while now, currently at $50M or 29% of the E&G Operating Budget; the total operating budget has meanwhile declined by about $25M since 2007.
3. The discount rate is 36% this year, so it is scheduled to decline over the coming years.
4. The notion that 68% of a gift restricted to financial aid goes instead to the general operating budget is extremely misleading. Its accuracy depends on a conflation of restricted gifts for financial aid and totally unrestricted gifts. It is true only in the super-macroscopic sense that, given existing budgetary structures, 32% of a gift restricted to literally anything else (or simply unrestricted) also goes toward financial aid. (Note that the proportions are not accurate either. Concerning budgetary figures, which are mostly unrelated anyway, 75/25 would be closer to the mark and I don’t know the actual figure.) However, on the level of an individual donation, 100% of a gift goes toward its restricted purpose, and many unrestricted gifts are put toward financial aid.
5. Additionally, there is the corollary idea that a gift to financial aid simply displaces other money that then goes to the operating budget, or the endowment, or wherever, because of the 32% cap on financial aid. It pre-supposes that the University already has all the money it needs to spend on financial aid, and therefore 100% of the gift effectively goes to the general operating budget via displacement. This concept is false because any such extra money, if we had it, would go to the endowment, not the budget. More importantly, this is also false because…
6. …Your donation to financial aid is already budgeted for, whether you make it or not. The University expects to get a certain amount in donations for one thing or another, and it is pretty desperate for those donations. Wesleyan (as of August) is still missing about $40M worth of donations specifically for financial aid already built into the existing budget. If Wes doesn’t get those dollars, less gets spent on financial aid.
7. This is important because the conversation really needs to be turned on its head. Totally irrespective of the importance of bringing back need-blind admissions and spending more on financial aid, with which I wholeheartedly agree, the conversation so far this year has largely been about the displacement of dollars (by donation) that would have been spent on financial aid anyway. This is simply not true. The dollars of potential donors to financial aid are the dollars that will be spent on financial aid, for the reasons above. They are vital to preserving the amount of money we are already committed to spending, let alone moving above and beyond that.
8. However, there is much truth in an underlying perception: that there is currently no way for donors to increase the amount of money the University plans to spend on financial aid. Given the budget cap, there is no such mechanism for that right now, confirmed to me by President Michael Roth himself. (Again, note that there is a way to decrease the amount of money spent: not donating.) This is something I (wearing a different hat) am currently working on fixing with University Relations, with tentative support from both President Roth and Barbara-Jan Wilson. I am hoping that this will be resolved by early Spring, and if not, if that tentative support wavers, I would ask your help, dear reader, in making it more politically opportune.
But that is a conversation for later.
. . .
Huge chunks of this post appeared yesterday on Facebook. Sorry for the repetition. Pretty much every figure in this article is derived from official University financial statements.