It’s an Especially Good Year to Be a Wealthy High School Senior

How the Credit Crisis Will Make it Easier for Rich Kids to Get Into Their College of Choice

You may have heard that a male student interested in the humanities has a better chance of being accepted to a prestigious liberal arts college than a comparably qualified female candidate. How about the tale of the gifted athlete with sub-par grades who gets a full-ride to “State” on a football scholarship; everyone tells that story. Have you heard the one about the rich kid from the Upper West Side who gets in because his family is wealthy? This isn’t the kid whose family’s name is plastered all over the football stadium, dining hall, and library; he’s just your everyday, average, wealthy student who doesn’t need financial aid. The sad reality is that all but a select few of this country’s institutions of higher education take a student’s ability to pay into consideration when making an admissions decision.The economic realities of college admissions run deeper and darker than most people know.

The Wall Street Journal reports that the economy is forcing college hopefuls to reconsider their college choices. This isn’t surprising; a number of families have been tapping their home equity to send their children to college. With the credit markets seizing up, and home values plummeting, the disappearance of home-equity loans as a popular college-financing option has families scrambling to fund their children’s college education. Another popular source of financing, the private student loan market, has dried up just as fast as the home-equity loan market. The private student loan and home equity loan markets have been hit hard by the credit crisis. Money is tough to come by in 2008 and that has many applicants rethinking their college choices.

As the WSJ reports, elite private institutions like Northwestern, are seeing a drop in the number of students applying early decision. The reason? When a student applies early, they are committing to attend the institution should they be admitted. For families grappling with how to pay for college in these tumultuous times, putting yourself in the situation of committing to a $50,000 school before knowing how much it is going to cost you is frightening prospect.

The result; many students of modest means are foregoing the early-decision process to play the field in the hopes of finding the “best deal.” Many are looking to state schools despite the fact that as the New York Time reports, state schools have seen their true net-tuition after financial aid increasing at a faster rate than the sticker price. Led by moves from Princeton, Harvard, and other well-endowed colleges and universities, many private institutions have seen their net-tuition increase at a slower rate than the “sticker price.” Still, many families are uncomfortable with their child applying in a binding early decision process to a school with an eye-popping sticker price without knowing what their expected family contribution will be.

The Rich Kid’s Edge

Early-decision applicant pools have traditionally had a higher acceptance rate than the regular decision pool. Early-decision (ED) has become an important part of a school’s yield management. As students apply to more and more schools, determining the yield from an accepted pool has become even more of a crap-shoot for college admissions offices. The ED pool has been one that admissions offices can count on for nearly 100% yield, and it serves as the basis for each incoming class. At many prestigious schools the ED pool nets 30-50% of the incoming class.

As endowments have taken a hit along with the rest of the stock-market, schools are attempting to manage to a financial-aid budget that in many cases will see a significant decrease from last year. Compounding the reduction in financial aid funds from depressed endowments is the increased need of current students whose families find themselves in a very different financial position than they were in a year ago. As students return for the Spring Semester or for the start of the next school year, colleges and university’s are bracing for large increases in the financial need of their returning students. Many low and middle income students are self-selecting out of the ED pool. Wealthy students who aren’t applying for financial aid are left in an applicant pool with far fewer candidates than they would have seen had they applied just a year or two earlier. With college financial aid budgets stretched thin and with significant unknown exposure to returning students’ financial need lurking, you can bet that many schools will be much more aware of a student’s financial need and will be accepting more wealthy early-decision candidates than they have in recent years.

Should school’s budgets continue to be buffeted by the dual forces of shrinking endowment income and rising financial-aid need, trends that shows no signs of abating in the next few months, you can count on this effect to carry over to the regular admission pool.

While even in the good times, wealthy students who don’t apply for financial aid generally have an easier path to admission, the current economic climate will only serve to further tilt the scales in favor of the wealthiest students at the expense of low and moderate income students. A college education is central to the American mythology of social and economic mobility. In these times of economic turmoil, the dream of a college education may be dimming for many students of modest means. The vagaries of the markets have come home to roost and they will challenge the long-held notion that through hard work and education anyone can get ahead in this country.

The bottom line is this: it still pays to be rich.

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Related Reading from the SpeciousRiches Bookshelf:

Equity and Excellence in American Higher Education

Real Education: Four Simple Truths for Bringing America’s Schools Back to Reality


1 Comment

Filed under Economics, Finance, Politics, Uncategorized

One response to “It’s an Especially Good Year to Be a Wealthy High School Senior

  1. Pingback: Wealth and College Admissions « Specious Riches

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