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Should donors give to students rather than schools?
Jonathan Bydlak seeks to match donors directly with students, rather than matching donors to universities. Here is his group. One advantage of the idea is greater competition:
...the current system ties the amount of accessible financial aid to the schools that students attend, giving schools with more resources a distinct advantage...students accepted to a Princeton or Harvard face virtually no quality vs. price trade-off.
What this means for higher education as a whole is that the current financial aid system, whereby alumni and other prominent donors contribute to schools, rather than individuals, reinforces the perceived status of those schools that are considered “top-tier.”
While demand for high quality higher education continues to increase massively,
the supply of top-tier higher education has not changed much at all (one need only look at the lack of variability in the U.S. News rankings for proof of this point). And as any Econ 101 student can tell you, when demand far outstrips supply, costs are inevitably pushed upward.
I like the idea but fear that institutions of higher learning can offer donors greater perks than can intermediaries that match donors to students. Might it be possible to, say, offer donors the chance to support students through the Metropolitan Museum of Art, with the Met taking a lower cut than Harvard does, yet still handing out donor perks?
Posted by Tyler Cowen on July 16, 2008 at 05:03 AM in Education | Permalink
Comments
But surely if my resume says I graduated from a top-tier university, then it's in my selfish interest to reinforce the perceived status of that university, in order to maximize my future employment and networking prospects.
Also, despite the description given, donors can't be matched directly with individual students by name (disallowed by IRS), but can specify categories. Small donations can only specify a broad category (say, athletes), while only large donations can get specific (cross-country runners with GPAs greater than 3.5, majoring in chemistry).
So this will lack the P2P aspect of kiva.org or zopa.com or prosper.com P2P lending, which might significantly diminish its appeal.
Posted by: at Jul 16, 2008 5:36:54 AM
Sounds like a nice idea that would be tough to execute.
On another note, is demand for top-tier education really increasing? I know college attendance percentages are up, but I wonder how many of those marginal students would be competitive for a top university. Isn't it just the echo boom driving greater selectivity right now? Makes me wonder when the right time to have kids would be from a demographic perspective.
Posted by: Greg at Jul 16, 2008 8:58:15 AM
The cited article is missing a huge part of the story by ignoring the heterogeneity of students and the price discrimination on the part of the elite universities. Upper middle class and other richer families will pay a much higher price for Harvard, and there's plenty of competition there.
Only the lower income families get to go to Harvard at a lower cost than a Tier II school. And with these families, there's also the outside option -- not going to college at all. And it may be true for these families that the outside option is more attractive than Tier II school for $20000, and that when Harvard awards these students a full ride, it's creating a college dream that otherwise might not be there. Note this story makes a lot more sense if you think of students years away from college, who are deciding how to invest their time, whereas high school seniors have already made the decision between college and no college.
Posted by: DRDR at Jul 16, 2008 9:15:39 AM
Yes.
"donors can't be matched directly with individual students by name (disallowed by IRS)"
We sure do want to disallow people investing in the educations of people they actually know!
Here's how I'd roll with that. What if they got millions of people pledged before money changed hands. Then do you think the IRS rule would still be around?
Posted by: Andrew at Jul 16, 2008 9:44:01 AM
But instead of graduating from a prestigious university you could claim acceptance of a prestigious grant and then (maybe) get accepted to a top tier school. Hasn't Paul Romer advocated a similar idea?
Posted by: Billy at Jul 16, 2008 10:18:12 AM
"donor perks"? I beg of the MR commentariat to assuage my ignorance.
For giving $50 to my school I was able to get a license plate with the school mascot on it. If I gave $50,000 I would expect... nothing. Maybe if I gave enough I could get a building or something named after me? I don't know exactly what they can offer me. Isn't that why it's called a "donation"?
Posted by: Noah Yetter at Jul 16, 2008 10:30:50 AM
You'd have to change the law. Gifts to universities generally are deductible and to individuals are not. Even a gift to a university for Student Hodges is not deductible, its has to be a scholarship with generic requirements (so multiple students are eligible). Most people prefer making deductible gifts.
Posted by: guy in the veal calf office at Jul 16, 2008 10:49:55 AM
I don't think you'd have a problem if you could concentrate the interests. I bet most people think that education spending should be tax deductible, even if it's not given to an elitist, over-endowed cultural monolith to do the picking who will be the chosen ones.
The first thing they could do is make the website compatible with non-tax-deductible gifts. There may be other ways around the law using some of the education savings plans that can be donated.
Posted by: Andrew at Jul 16, 2008 11:53:23 AM
Who's better at identifying worthy students? If you think that school culture is going to determine who's a good student, then giving money to schools is probably a good idea.
...but if you think that good students are good students regardless of the culture of their institution, then you might find a better way to donate to those students.
Posted by: Michael F. Martin at Jul 16, 2008 1:04:45 PM
I think there are a couple of huge benefits that can be realized with this, if only the project can reach a certain critical mass.
First, groups and foundations that sponsor scholarships can significantly cut their search costs. By centralizing applicants, DiscoverScholars can help these foundations cut the costs of seeking out and screening applicants, leaving more money for good causes.
Second, and perhaps more importantly, untying financial aid from schools will finally lead to some genuine price competition among schools. If a student has a certain amount of money to spend, schools that want that student might consider losing the third deputy to the assistant dean for student affairs, and tighten the bloated budgets of university administrations. And I know people here know the value of efficiency.
Posted by: HH at Jul 16, 2008 2:25:26 PM
Thanks everyone for the interesting comments. We've responded to Tyler over on our blog (http://discoverscholars.wordpress.com), and plan on addressing many of your remarks over the next couple of days.
A couple small things to clear up...
It's true that donors cannot choose students directly because of IRS restrictions, but we think allowing donors to specify categories still manages to accomplish what matters most to donors -- knowing that their money is being spent wisely, and going to something that is effective and valued. This way, the donations can also be tax deductible. We talk more about that here: http://www.discoverscholars.org/HowWillItWork.html.
We also should note that while our original plan was for donors' ability to specify categories to change as a function of donation size, we've since nixed that idea (we'll update the website accordingly).
And with respect to the P2P aspect of other sites... Even though donors won't pick students directly, there are many other means for increasing the personal connection between donor(s) and student(s). Students will write short thank-you letters, for example, and donors will find out after the fact who their money funded.
Posted by: Jonathan Bydlak at Jul 16, 2008 3:26:17 PM
In my mind the answer should be both. Non-profit institutions need the additional support but so do students - no student in American higher education pays the full cost of education.
There is an innovative implementation of Bydlak's proposal in a company called Greennote. It allows students to put their funding needs up on the web and to then generate resources in the form of a loan using standardized documents and conditions. The Website is Greennote.com.
Posted by: drtaxsacto at Jul 16, 2008 5:55:48 PM
@dr.taxsacto: wrong, wrong, wrong, wrong, wrong. many, many students pay full price. international students, out-of-state students, people who had bad grades in high school, older students returning to school after working, those convicted of drug offenses, and spoiled rich kids come immediately to mind.
Posted by: aksrfjhdtg at Jul 16, 2008 7:26:38 PM
also using a loan to pay for school is still paying full-price
Posted by: aksrfjhdtg at Jul 16, 2008 7:28:17 PM
With most secretaries and most realtors having college degrees, if anything we have tremendous over-investment in higher education.
30% of students don't belong there either because of lack of abilities or will and motivation.
Why throw more good money after bad?
Posted by: mik at Jul 16, 2008 10:19:51 PM
I am students.I come to read in city with small sister, My family is very poor in villege. I have some money problem to buy book and pocked money. thank you.
Komal prasad Dulal
Mobile no:0977-9803088515
Posted by: Komal prasad Dulal at Aug 5, 2008 2:24:14 AM
