“Michael Bloomberg: Why I’m Giving $1.8 Billion for College Financial Aid” (nytimes):
Let’s eliminate money problems from the admissions equation for qualified students.
America is at its best when we reward people based on the quality of their work, not the size of their pocketbook. Denying students entry to a college based on their ability to pay undermines equal opportunity. It perpetuates intergenerational poverty. And it strikes at the heart of the American dream: the idea that every person, from every community, has the chance to rise based on merit.
… I am donating an additional $1.8 billion to Hopkins that will be used for financial aid for qualified low- and middle-income students.
Here’s a simple idea I bet most Americans agree with: No qualified high school student should ever be barred entrance to a college based on his or her family’s bank account. Yet it happens all the time.
Let’s ignore the obvious solution for the Hopkins administrators: raise headline tuition prices by $1.8 billion over the next 10 years, charge families exactly what they were being charged before, but say that “financial aid” has been increased by $1.8 billion. (See “Credit Supply and the Rise in College Tuition: Evidence from the Expansion in Federal Student Aid Programs”, a 2015 paper from the New York Fed; 60 percent of subsidized student loans were captured by increased tuition rates and provided no relief to the purported beneficiaries.)
Suppose that the Bloomberg program works as advertised and therefore that lower income families will actually pay $1.8 billion less over the forthcoming years.
Won’t this exacerbate the inequality that Bloomberg himself was decrying as recently as May 2018 (see “Inaction on inequality could lead to uprising”)? People born fortunate (high academic potential in an economy that rewards cognitive skills) will now go to college for free instead of taking out loans and paying them back from their high earnings. So they will pull yet farther ahead of Americans with low academic ability.
Instead of the rich-in-genetics person with an IQ of 140 paying back student loans that enabled attendance at an elite university, the rich-in-genetics person will now get to use a full 50-60 percent of income (assume 40-50 percent total tax rate in California, New York, and other typical destinations for elite Americans) on consumption and retirement savings. The smart Hopkins grad who came from a lower-income family will essentially get a gift from Michael Bloomberg of luxury clothing and automobiles that will make median-IQ, median-income Americans sick with envy.
In “Protests against Charles Murray inadvertently prove the points he made in The Bell Curve?” I asked “If you like to fret about inequality, the sidelining of less-than-brilliant workers in favor of robots, etc., why wouldn’t you love Charles Murray?”
See also “The Bell Curve revisited,” my 2004 post on the book. Excerpts:
The Bell Curve starts out by talking about how we live in an era where people get sorted by cognitive ability into socioeconomic classes. In 14th century England if you were a peasant with a high IQ or a noble with a low IQ it didn’t affect your life, reproductive potential, or income very much. In our more meritocratic and vastly more sophisticated economy a smart kid from a lower middle class might make it to the top of a big company (cf. Jack Welch, who paid himself $680 million as CEO of GE) or at least into a $300,000/year job as a radiologist. For the authors of the Bell Curve the increasing disparity in income in the U.S. is primarly due to the fact that employees with high IQs are worth a lot more than employees with low IQs. They note that we have an incredibly complex legal system and criminal justice system. So you’d expect people with poor cognitive ability to fail to figure out what is a crime, which crimes are actually likely to be punished, etc., and end up in jail. (A Google search brought up a report on juvenile justice in North Carolina; the average offender had an IQ of 79.) If they stay out of jail through dumb (literally) luck, there is no way that they are ever going to be able to start a small business; the legal and administrative hoops through which one must jump in order to employ even one other person are impenetrable obstacles to those with below-average intelligence.
… For us oldsters, one unexpected piece of cheerful news from this book is that younger Americans are getting genetically dumber every year. Even if you ignore the racial and immigrant angles of the book that created so much controversy back in 1994 it is hard to argue with the authors’ assertion that smart women tend to choose higher education and careers rather than cranking out lots of babies. … Our population is predicted to reach 450 million or so [by 2050], i.e., the same as India had back when we were kids and our mothers told us about this starving and overpopulated country. An individual person’s labor in India has negligible economic value … It would seem that no enterprise would need an old guy’s skills in a country of 450 million; why bother when there are so many energetic young people around? And how would we be able to afford a house or apartment if there are 450 million smart young people out there earning big bucks and putting pressure on real estate prices? But if the book is right most of those young people will be dumb as bricks.
Whenever anyone talks about “financial aid,” I love to respond with “United Airlines gives more than 95 percent of customers financial aid since the official maximum ticket price is much higher than the typical price paid. Economists call charging each customer according to his or her ability to pay price discrimination, but it sounds better if you say ‘we’re giving these poor souls financial aid.'” (Note that price discrimination is possible
only in markets dominated by monopolies or oligopolies. McDonald’s can’t do this because Burger King is right across the street.)
Readers: Is it logically inconsistent for Michael Bloomberg to say that he wants to reduce income inequality and then give $1.8 billion to reduce college expenses for those Americans who are best set up to earn high incomes after graduation?
I worked hard to save money for my son’s education at a university like JHU. I opened a 529 when he was 6 months old, setting aside money every month. I have saved almost enough to pay full price at JHU. However this donation by bloomberg just cancelled out my effort over the last 17 years because my son will not have any extra advantage when he applies to JHU. I could have spent this money on drugs and alcohol instead and he would not have any less chances of getting into hopkins. Does this seem fair?
presidentpicker: We saw this at MIT in the 1990s. One student was the child of Korean immigrants. They lived in the LA basin and saved every penny that they could. MIT took all of their savings. Another student was the child of Bay Area bohemians who spent all of their money enjoying music, friends, and parties. Because they were poor and their daughter was smart, she got a free ride to an elite private school in San Francisco. Then she got another free ride through MIT. The earning potential of the American-born parents should have been higher than that of the Korean-born, but they decided to pursue hobby-style jobs only a limited number of hours per week. The Korean immigrants worked long hours (both parents) at demanding non-fun jobs.
It’s a great country!
If somebody would invest money in producing high-quality public domain textbooks, that really would lower the cost of education…
Idiots and liberals think throwing money at a problem solves it.
You stand in the way of progress when you only dig a ditch once. The right way to do it is to dig it ‘n’ number of times and refill it ‘n-1’ times. The higher ‘n’, the more productive you are!
It would be better to qualify it as “__undisguised__ price discrimination is possible only in markets dominated by monopolies or oligopolies”. And yet Comcast doesn’t send a salesperson out to get a look inside your house to gauge your wealth because even a monopoly feels the need to cloak upcharges in some sort of justification. “Oh, this house will need the superblitz ultimate package to properly deliver signals up your estate-style driveway and across your 25ft bedroom walls”?
The (literal) textbook example of price discrimination I got in my economics course is the Senior Citizen Discount, which could easily be described as financial aid to seniors from a wide variety of businesses. Child/youth discounts are less common but effectively the same. Coupon clipping and rebates were some of the other examples – make the poor pay in precious time in order to prove they can’t pay in cash!
Or even the more “textbook” example of price discrimination – Ladies Nights!
Idiots and liberals think throwing money at a problem solves it.
Opening a 529 account an pouring money into it sounds like an attempt to solve a problem by throwing money at it. Use of the words “idiots and liberals” implies that only non-liberals who open a 529 account are idiots.
While the remark was intended to refer to matters of public policy and charity, it certainly applies to individual actions as well. There are plenty of shitty colleges that charge high tuitions. Even going to a good college is a waste if the student does not apply himself to his studies.
Spending a little money foolishly is stupid. Spending a lot of money foolishly does not confer wisdom on that spending.
The reason why public policy tends to be more stupid in spending money than private individuals is because we tend to be less careful in spending other people’s money than our own.
Michael Bloomberg is not a stupid man, and he is spending a lot (even for him) of his own money to do this. The individual scholarship recipients gain a clearly great benefit from his charity, while the theoretical detriment is diffuse and applies to society as a whole with the putative ill effects spread out so as to not do any great harm to any single individual.
Bloomberg’s billions are a drop in the bucket compared to the trillions of public dollars spent on higher education through grants and loan guarantees. Let Bloomberg give John Hopkins money, just do not ask such generosity of the taxpayer. It is such generous public spending that is the direct cause of price inflation in higher education; price inflation that makes gifts like Mr. Bloomberg’s necessary to make John Hopkins affordable to a select few.
The individual scholarship recipients gain a clearly great benefit from his charity, while the theoretical detriment is diffuse and applies to society as a whole with the putative ill effects spread out so as to not do any great harm to any single individual.
It can probably said that anything that benefits someone economically will also cause detriment to someone else. In this case the example given for people experiencing the detriment are (mostly rich) kids whose parents or grandparents have hundreds of thousands of dollars set aside for their education. Now, they’ll have to compete against a larger group, including the unwashed working and middle classes, not just other rich kids, if they want to attend Johns Hopkins.
> raise headline tuition prices by $1.8 billion over the next 10 years,
> charge families exactly what they were being charged before,
> but say that “financial aid” has been increased by $1.8 billion.
Why do they need 1.8B donation to do that? What’s preventing them to double the sticker price and claim the difference between what’s advertised and what’s pid is the aid, without Mike’s donation?
@foobar: The college is probably already charging whatever the market will bear. That is what market economics says. If the Bloomberg donation means that the customers do not have to pay as much, but leaves unchanged what they are willing to pay, then efficient market theory predicts that the college will increase prices to extract that money.
A bit of an insider insight from a friend who works in the admission office of a Big Name college institution here in Boston.
1) A student who has 529 means that student will get less “free” money or aid money from colleges, states or federal.
2) A student or parent who show they have cash saving will also get less “free” money.
3) A student disclosing that s/he revived monitory award in any shape or form, from anyone, even family members means less “free” money for the student.
4) There are only a handful of colleges, across the nation, that are short on cash; every single one of them is making money.
With regards to #3, you can be a millionaire and have millions in asset and will still get “free” money as long as you show your money is all tide up, i.e.: no free standing cash on hand for both the student and parent.
So what’s my point (also made by my friend)? The “free” money that government and high ranking millionaires / billionaires who are purring money into an institution is one of the leading cause for colleges becoming expensive. Colleges are simply stacking the cash under the mattress and sleeping on it. Just Google how much money Harvard has.
My friends solution? Any grant a college receives must be spent on expansion so more students can be accepted. Individuals who want to donate, they will help the most if they do so to a community colleges.
I think “qualified students” just means whoever the admissions department admits, using whatever non-test-based “holistic” system they already use, which means IQs of 100 if we’re lucky, who shouldn’t be in college anyway, and who will graduate in one of the unflunkable humanities majors prepared for them.