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.
However…
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.
Based on this new information, looks like the reality is far worse than what Krugman seemed to be aware of, based on his speech (http://wesleying.org/2013/12/08/josh-krugman-14-speaks-at-senior-reception-about-need-blind/).
According to what he seemed to be saying, 32% of any donation to financial aid actually INCREASES the finaid budget in a given year, but apparently 32% is the percentage of the budget that goes to financial aid every year (with an eventual target of 29%), and alumni donations can do NOTHING to increase this cap.
Additionally, Wesleyan has budgeted money (40M) it doesn’t even have for financial aid, relying on donors to make up the deficit!
Krugman’s point seems to stand out even stronger, given this new information: WESLEYAN DESPERATELY NEEDS TO CHANGE ITS PRIORITIES, INCREASE SUPPORT FOR FINANCIAL AID, AND INCREASE TRANSPARENCY IF IT WANTS TO REGAIN THE TRUST OF ITS ALUMNI DONORS.
Thank you for posting this! I argued voraciously about the misleading and inaccurate nature of this figure in prior comment posts, and I am glad that it is being addressed. Not donating is the worst thing we can do as a collective alumni body. Fewer donations in the late 80’s-early 90’s (mostly a lack of Wes soliciting alums for money) is what put Wes at a disadvantage in the first place.
Posted this on the story about the SWAG event, but want to put it here too. I don’t really understand all the details of this post and I won’t apologize for that. This isn’t a 100% technical discussion.
I think some people are misunderstanding the argument to withhold donations, possibly willfully. The point of withholding donations is not to immediately increase the amount of money the University has. Of course. That’s not what’s being put forward. What people are talking about is showing commitment and money behind demands for a slightly, slightly, slightly fairer institution. It’s a long term thing. It took hundreds of students getting arrested before the Board of Trustees divested from South Africa, and that was after over a decade of student organizing on the matter, and that’s probably an easier end goal than some semblance of fairness in financial aid, because the issue of apartheid in South Africa doesn’t directly affect the campus as much as financial aid does.
That’s an example to illustrate my point that I think Josh is talking in terms of how do we move forward in the push for fairer admissions and financial aid (among other things, hopefully), rather than how can the University have as much money as possible. Those are two distinct questions. I can see how these two can easily be confused, but it’s essential to see the difference, or things get very confusing.
I think that although it is important to clarify the 68% figure, it is not the most important thing that Josh said–his larger point remains, and it remains unaddressed by a University that is comfortable putting its students tens of thousands of dollars in debt and then giving them an open bar at an event calling for donations.
Fyi, starting a comment with “I don’t understand the issues and won’t apologize” is a great way to be taken seriously.
The problem is, having more financial aid is directly dependent upon the university having a lot of money. Where do you think financial aid comes from? I resent that Josh is trying portray the school as selfish and immoral, ultimately there’s a financial bottom line that determines the viability of an institution
Hard to battle through all the rhetoric and jargon here, but seems like what you are saying is that there is a CAP on the percentage of the total annual budget that can be spent on financial aid, and that our donations will not increase this percentage.
I might be misreading Krugman and the Needblind activists as well, but it seems like this reality is in fact more disturbing than what Krugman and they describe. Krugman and the Needblind people make it sound like 32% of any donation will actually go to increasing spending on financial aid for that year, whereas according to you the cap is absolute.
It seems that this new information should be bolstering the position of Krugman and the Needblind activists, rather than being used against them.
“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.”
Remember, while there is currently no way to increase the amount spent on aid, if Wes doesn’t get enough donations, there will be bigger cuts to aid. By convincing people not to donate, Krugman is screwing future students by insuring that they will get less aid and have to take on more debt. While Krugman and the need-blind activists may contend that protests will only be heard if donations are withheld, there is no way need-blind will return now, with the current financial situation, regardless of alumni input.
This is really an issue about sustainability, and building a sustainable endowment for the future. The problem here is not Wes holding out on us by taking money away from financial aid. The problem is that the money does not exist. Encouraging people not to donate will only make the problem worse.
Wait, yeah, a recording of this would actually be pretty tight…
Remember Roth saying at one point that if earmarked donations came in above the targeted discount rate, the cap/discount rate would increase. As you’ve sort of highlighted, that doesn’t really make a lot of sense, there is no mechanism for such a thing, and there is no way of holding the admin accountable to that.
I’m not buying this!
elaborate!
Thank you pyrotechnics for providing us with some much-needed commentary!
Very much appreciate this post. Too many of the conversations that take place around this issue are well intentioned but not informed sufficiently by how donating to the administration actually works. I’d like to see the University put as much effort into explaining how its finances work as this post.
More broadly, I think this post refocuses the conversation into a more productive place. It is all well and good to make a moral statement about Wesleyan’s decision to become need-aware by not donating (a statement that, in the abstract at least, I wholeheartedly agree with) but the practical ramifications of that statement are a University that has fewer financial resources to help the disadvantaged or simply sustain itself. If we believe that the only justification for Wesleyan’s existence was that it was allegedly totally meritocratic, we are putting ourselves in an ideological place where we will soon be campaigning for the dissolution of Wesleyan and every other private University (except perhaps Harvard)
I also feel that this standard is somewhat misleading, because Wesleyan as an institution reproduced un-earned privilege before this decision. Obviously this decision has made it many times more severe, but it is unclear to me that a bright line was passed that moved the University from a Moral Institution to one that is so Morally Unjustifiable that we would advocate a policy whose logical endpoint is the dissolution of the school.
We should be campaigning for a mechanism by which we who are concerned about the University’s priorities can increase the total dollars given to financial past what the University has earmarked (very glad this initiative is underway), not launching a bona-fide divestment drive from Wes which will inevitably hurt the most vulnerable populations of the University first.