New Works in the Field / Philanthropy and Education

The Economics of Funding Undergraduate Education in the United States

Editors’ Note: With this contribution, Thomas Adam continues the site’s philanthropy & education forum. 

Rising tuition fees and a lack of scholarship support for an increasing number of college students forces more and more students to finance their university education through student loans. According to the Institute for College Access and Success, in the seven out of ten students who held student loans at graduation, the average student debt was $28,400. Student debt has a significant impact on the life and career of graduates—shaping the decision to buy a house to the decision to start a family. Beyond these repercussions on the individual level, the growing student debt also poses an increasingly significant threat to the stability of the American economy. In 2014, student loan debt surpassed all other forms of debt for American households (including mortgages and credit card debt). And default on student loan debt, at close to 20 percent, climbed to an all time high.

All experts agree that higher education funding is in a deep crisis and that students pay a high price for a college education that no longer guarantees them a well-paid job. Yet both historians and scholars of education have largely failed to study the ways in which obtaining a college degree was funded in the past and how tuition, scholarship aid, and student loans have developed over time. We need this historical perspective not only to understand the economics of higher education but also to find a way out of the current funding crisis for higher education.

American universities and colleges in the nineteenth century were very elitist in the admission of students. A college degree was pricy with tuition rates running from $30 to $150. A student catalogue for Harvard University from 1876-77 estimated the annual costs for attending this university from $499 for a frugal student to $1,365 for a student used to luxuries. Even the low estimate of $499 was out of reach for farm and factory workers who made on average about $30 per month. Tuition at Harvard represented only a fraction of the college cost and ran at that time to $150 per year. However, due to unforeseen circumstances, even students who came from families of means were not always able to foot this bill and relied on the financial support of relatives and friends.

To institutionalize the financial support of college students and to put college funding on a sound basis colleges and universities across the country asked donors, beginning in the 1830s, to provide funds for scholarship and student loan endowments. Such endowments required (relatively) small amounts. Oberlin College was the first college to hold a fundraising campaign through the “sale of scholarships”. The practice of selling scholarships was especially common to Midwestern colleges and spread from Oberlin College to Western Reserve College at Hudson and decades later to Indiana University in Bloomington, Washington University in Missouri, and finally to Baylor University in Texas. The sale of scholarships afforded donors the opportunity to exchange a donation for the promise of tuition-free education for their descendants for generations to come.

In 1830, Western Reserve College president Charles B. Storrs sought to create an endowment in the amount of $50,000 to fund the college’s operations. To that end, he developed a plan of exchanging tuition scholarships for donations. These “perpetual scholarships” came initially at $500 and $100. The subscriptions for $500 could be paid up by subscribers over a number of years as long as the minimum annual payment amounted to six percent of the subscribed donation. This six-percent installment amounted to $30 and, thus, was as much as the annual tuition charged to students of this college during the 1830s. A payment of $500 or more entitled the subscriber, according to the Subscription Book stored in the university archive of Case Western Reserve University, “to the gratuitous tuition … of one student during the subscriber’s life time, or for any number of successive years not exceeding twenty.” And subscribers who gave $100 or more were “entitled to the gratuitous tuition of one student, during the collegiate course, or for the term of four years.” A few years later a new class of subscriptions for $1000 or more were added. These subscriptions entitled the donor to receive tuition-free education for one student/descendant in perpetuity. Such scholarship funds were the first approach by college administrations to provide funding for students who needed financial support to obtain a college degree. And donors were able to secure an education commensurate to their social status even for their descendants who might no longer have the necessary financial means to live up to the standards of their forbearers/donors.

In the following decades a very diverse funding landscape emerged across American colleges. Donors provided small funds for various forms of university student support that included endowed scholarships, loan funds, and state scholarship programs. Some universities provided funding through endowed scholarship funds, other universities provided only student loan funds, and a third group relied on state scholarship programs. Endowed scholarships emerged first among the colleges on the East Coast but quickly made inroads into the Midwestern universities. Such endowments were created by individual donors for the benefit of descendants or for students from particular towns or from particular religious groups. Loan funds first emerged in places such as the University of North Carolina and then spread across the country and reached the colleges and universities of the West coast. And State Scholarship programs emerged first in New York State. In fact, Cornell University, which had been designated as the state university of New York State, greatly profited from the state scholarship program that provided funding for 600 students at the end of the nineteenth century.

Common to these different forms of funding was the setting of the scholarship amount. The scholarship support of students was always to be in the amount of the tuition charged at the particular college to which the endowment was given. But while tuition continuously began to rise after World War I, the endowments of scholarships remained the same, thus preventing the scholarships from rising with the increases in tuition. The system in which scholarships were calculated based upon tuition charged was undermined.

Today, it seems that scholars look at scholarships and at tuition as two different and unconnected phenomena. Yet, an examination of the history of each shows that both were intrinsically connected and the calculation of scholarships was in fact based upon the amount asked for tuition. American funding of higher education in the nineteenth century was certainly not socially inclusive, but it was financially balanced. Scholarship rates were calculated based upon tuition, and there were very few increases in tuition up until World War I. In fact colleges such as Western Reserve College felt bound by an agreement with the donors of scholarship endowments to keep tuition at $30 from the 1830s to the 1880s. There were in general very few increases in tuition at all colleges across the country. Some universities such as Indiana University even abolished tuition altogether in 1860. Today, the frequent tuition increases seem to be determined only and exclusively by the need of universities to raise more revenue. Yet a more holistic approach is needed to salvage the current funding system. Nineteenth-century administrators seemed to have been aware that tuition and scholarship levels were connected and that tuition should not rise above the level of existing scholarship rates.

-Thomas Adam

Thomas Adam is professor of transnational history at the University of Texas at Arlington. This blog post provides insights from his newest book manuscript on funding higher education in the United States from 1800 to 1945 which he plans to finish by summer 2016. He is also the editor of Philanthropy, Patronage, and Civil Society: Experiences from Germany, Great Britain, and North America (2004) and he is the author of Buying Respectability: Philanthropy and Urban Society in Transnational Perspective, 1840s to 1930s (2009). His two latest books Philanthropy, Civil Society, and the State in German History, 1815-1989 and Transnational Philanthropy: The Mond’s Family Private Support for Public Institutions in Western Europe are now scheduled for publication in spring 2016.

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