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Investing in Excellence
The cost of higher education explained
By Judith Rodin, CW'66

Higher education has been subject to widespread, often harsh, criticism of late. Whether America's colleges and universities still provide an affordable product is discussed at home, at parties, and in boardrooms. Nothing has caused more collective anxiety than the inability of family incomes to keep up with the escalating cost of higher education and the perception that a college education is increasingly out of reach for many Americans. This theme has become the subject of cover stories in Barron's, Newsweek, Forbes and, most recently, in Time.
Whether or not investigative reports on college costs are presented accurately, the concerns of the American public and the policy-makers whose actions help make higher education available and affordable are real. Higher education is expensive, despite the best efforts of many within the industry. There is increasing pressure on college and university administrators to commit more and more resources to student financial aid, to expand student services, library resources, and computer technology, and in the case of research universities like Penn, to attract a world-class faculty and provide these men and women with state-of-the art facilities and equipment for research and for teaching.
While sometimes unpleasant for institutions singled out as case studies, like your alma mater, this media attention represents broad-ranging efforts to address the problems of affordability in higher education -- rising prices and stagnating family incomes -- and it is healthy. These issues should be discussed, and discussed thoroughly, beyond cover stories and investigative reports that sometimes don't get it quite right.
At Penn, for example, we admit students based on academic merit, not on their ability to pay. Those who need financial assistance will receive it. It's that simple.
Penn has been a leader for more than a decade in helping its students cope with college costs. Our Penn Plan, created in the 1980s, was the first comprehensive educational financing program in the nation, and it is directed at undergraduate students. The Board of Trustees also has approved a new loan plan for our graduate and professional students, which, when combined with Penn's Keystone Direct Rewards Federal Stafford Loan, is likely the best student-loan program in the country.
Penn also is committed to improving both the quality and cost-effectiveness of its services -- reducing our administrative costs, for example, by $50 million over a five-year period and reinvesting these significant savings in academic programs and other priorities of the institution such as critical public-safety improvements. We are actively engaged in large-scale restructuring projects in human resources, computing, risk management, purchasing, student services, and many other areas. These actions will result in reductions in the base budget that will certainly play a major role in limiting future tuition increases because we will be operating more efficiently and cost-effectively.
One of the most troubling aspects of recent articles I have read is the dismissive and disparaging treatment of the dual mission of research universities. Research and teaching are our heart and soul. Many of our most talented students come here precisely because of the ability of our faculty to offer them a grounding in research. Not incidentally, many of the services we provide our students could never be supported by tuition and fees alone, and we maintain them only by virtue of the synergy inherent in our joint teaching-research enterprise. Research universities, like Penn, are a vital component -- perhaps the vital component -- in the quest for new knowledge in America, whether it is intellectual inquiry or scientific discovery. This quest happens here and at institutions like ours in Cambridge, New Haven, Chicago, Palo Alto, and in other parts of this country.
Students at Penn benefit from exposure to members of our faculty -- one of the finest university faculties in the world -- who are engaged in this quest. Our students -- undergraduate as well as graduate and professional students -- are participants in our research. They also benefit when a member of our faculty spends the summer months at an archeological dig in Turkey, and then brings that experience back to his classroom. If another member of the faculty is in Hungary studying the formation of a constitutional democracy there, her students are enriched when she returns to Penn. These top-tier scholars are often also our star teachers, and we will continue to demand excellent teaching as a criterion for tenure and advancement.
Yes, the cost of higher education at elite institutions like Penn is high, but we are seriously working to limit tuition increases. In fact, the increase in our tuition and fees for the 1997-1998 academic year will be the lowest in twenty-nine years: Penn's total charges for tuition, fees, room and board will increase only 4.5 percent. Endowments, so misunderstood and often misrepresented in media reports, are very important in keeping that rate of increase under control in the future. Income generated from our endowment is available to cover our costs and to support initiatives that are essential to our educational mission. We wish our endowment were much larger: On a per-student basis, it is only the sixty-fifth largest in the country and seriously limits our ability to compete with other Ivy universities that are much better endowed. Endowments are the life-blood of private colleges and universities. And it is precisely because we use endowment income to support our mission that an undergraduate paying full tuition at Penn really pays something substantially less than the true cost of his or her education.
Higher education is a public good, creating enormous collective benefits to the nation. College is also an extraordinarily productive personal and family investment. The financial return to college-going is more than twice as great as it was twenty years ago. In 1975, a worker with a college degree earned about thirty percent more than a high school graduate. By 1995, the relative financial return to a college education grew to about seventy-five percent. Several economists have recently reported that the financial return to undergraduate students who attend premier private research universities like Penn exceeds substantially the individual returns on investment in higher education at other types of institutions. Again, while we strive at Penn to keep our prices as low as possible, it is clear that students who come here will receive an extraordinarily high-quality educational experience at one of the finest universities in America -- and the benefits of that experience are lifelong.

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