A recent report from the National Bureau of Economic Research showed that although most high-aptitude high school seniors respond to colleges’ financial aid packages in responsible ways, a significant percentage respond to the offers in ways that ‘reduce their own present lifetime value.’
The study, by Christopher Avery of the Harvard University Kennedy School of Government and Caroline M. Hoxby of the Department of Economics at Harvard University, aimed to evaluate the ‘investment decisions’ made by students in the top percentages of their classes in 510 different high schools.
The college investment decisions of these ‘walking capital stocks’ are important in determining whether they will be responsible investors in the future because, Avery and Hoxby claimed in the survey, this group will be ‘capable of the largest human capital investments in the nation’ after completing college educations.
Two surveys were distributed to each student: the first determined the background and potential college choices of each student and the second determined how each responded to the financial aid offers of the colleges which accepted him or her. Surveys were also distributed to the parents of each student.
The results of the study, reported in ‘Do and Should Financial Aid Packages Affect Students’ College Choices?’ showed that approximately 70 percent of high aptitude students made decisions that were ‘broadly consistent with rational investment.’
The other 30 percent of students made decisions that were ‘hard to justify,’ according to the study. These students tended to be more attracted to grants and scholarships with names, loans, work-study programs and front-loaded financial aid, where the amount provided is greatest in the first year and subsequently decreases.
These students also tended to take into account the grant’s share of college costs over the actual amount of the grant.
According to Avery and Hoxby, the decisions of this 30 percent of students show a ‘lack of sophistication’ in rational investment making. However, they found that many students and parents reported the financial forms to be too complex and ‘baffling’ to make easy decisions.
According to BU director of Financial Assistance Christine McGuire, 63 percent of Boston University’s Class of 2006 applied for ‘gift aid’ either a merit-based scholarship or a need-based grant from the university, and of those, 50 percent received aid. The average package for need-based aid at BU for last year’s entering class was $22,700.
McGuire said the yield for people who are offered financial assistance to attend BU is generally better than the yield for those applicants who are not offered aid packages.
Carrie Dieringer, a College of Arts and Sciences freshman, said financial aid was indeed a deciding factor in her choice to attend BU since she has two younger brothers, one of whom will be attending college immediately after she graduates.
‘I am from Indiana, so the only way I could attend a private school on the East Coast was to get financial aid. I chose BU’s grants over other colleges’ loan offers so I wouldn’t have to pay back the money later.’
Dieringer said she did not find the process of applying for financial aid to be too difficult, though it would have helped if the forms were a bit clearer.
Vicki Stockley, another member of the CAS freshman class, chose to attend BU even though she did not receive financial assistance from the school. She found the process of applying for aid to be tedious and extensive.
‘It was extremely long and involved,’ she said. ‘It should be shorter and clearer it would have been nice if we didn’t have to go through that entire process just to find out that I couldn’t get any aid.’
McGuire said that in general, financial aid packages are important factors in the process of choosing colleges, but that in the end, they are not the most important.
‘In general, the whole thing is very subjective,’ McGuire said. ‘[Financial aid] is just one of the many things that are important to take into account in deciding where to go to school.’