Each February, the Board of Trustees sets a new rate for tuition and room and board for Stanford students. Invariably, this sets in motion what has to be one of the most emotional -- and least understood -- annual cycles in higher education. The cycle is certainly not unique to Stanford. Many university presidents have the dubious pleasure each year of handling tough questions about tuition and financial aid from parents, alumni and students. In fact, I have talked about these subjects so often it came as something of a surprise when, upon reflection, I found that I had never dealt with those topics in this column.
I start with a deceptively simple distinction: the difference between the cost and price of a college education. A report by the National Commission on the Cost of Higher Education noted that concerns about affordability are often based on misperceptions about the difference between the two. The report defined cost as "the expense an institution of higher education bears to deliver education to a student" and price as "the portion of those costs students and families are asked to pay." Beneath this distinction lie financial intricacies that often defy explanations.
Here are some basic facts concerning Stanford's approach to admission, tuition and financial aid:
The dialectical relationship between research and teaching at Stanford depends as much on the caliber of our undergraduates as it does on the caliber of our faculty. Recognizing this, the University admits students on the basis of their academic and personal qualifications, without regard to their families' ability to pay. This is known as need-blind admission -- admissions officers do not know whether an applicant needs financial assistance. Perhaps only a handful of private American colleges and universities are still able to practice true need-blind admission, and Stanford is one of these.
No student who is admitted to Stanford should go elsewhere for financial reasons. Stanford is committed to a scholarship program that, in the words of Jane Stanford, keeps "open an avenue whereby the deserving and exceptional may rise through their own efforts." Stanford's financial aid programs ensure that students have access to the necessary resources. The University determines the level of need and offers an individualized aid package for each admitted student who applies for financial assistance.
Tuition covers only a portion of the cost Stanford incurs to educate an undergraduate; therefore, all students receive a University subsidy. Stanford undergraduates benefit directly from the extensive resources of a research-intensive university, yet the price for their education covers only about 60 percent of the actual cost. Even students paying the full "sticker price" are subsidized by donors and endowment income.
The University flourishes because each generation ensures that those who follow can obtain the benefits that come from the pursuit of knowledge. A private university must rely on donations from alumni, friends, students, trustees, faculty and parents to help fill the gap between cost and price, and to make need-blind admission possible. Yet even with the generous support Stanford receives through gifts to The Stanford Fund and endowed scholarships, the University must still provide millions of dollars from its general funds for the more than $40 million it gives annually in undergraduate financial aid.
Tuition is an important, but not the primary, contributor to the educational enterprise at Stanford. Student income (including tuition, room and board, net of student aid) represented only about 17 percent of the University's budget for 1998-99. However, it is a critical source of unrestricted funds that pays for the day-to-day expenses of running the University, including faculty salaries and other people-related expenditures. About half of the University's annual operating revenue is restricted by law or by donors in how it may be used. Unrestricted funds offer a vital flexibility.
Stanford faces particular fiscal challenges because of its location. Bay Area inflation rates were close to double the national average between October 1998 and October 1999. The cost of housing, goods and services puts added pressure on tuition revenue. Despite those pressures, Stanford's tuition is currently significantly lower than comparable institutions.
In closing, I will make a point that is often lost in the public discourse about the cost of higher education. Stanford promotes the public welfare by educating first-rate students who, having been engaged in the search to know, are better able to assume leadership roles in industry, business, government and in universities themselves. This benefit to society is rarely a part of the debate about tuition; a university education is increasingly viewed as a commodity with a purchase price, like a car or refrigerator. Legitimate concerns about access and affordability must not cause us to lose sight of the role universities play in society and their contributions to the great stream of blessings that have flowed to the United States and the world from our system of higher education.
