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Rich Get Richer, and the College, Too
If you call up your banker right now and ask to invest a few hundred thousand dollars, and if he is a good guy, you can earn a princely 0.35% over the next year. And that’s taxable. But if you want to pay your child’s tuition in advance at the College, you can pay for up to four years at today’s rate, and avoid all annual increases. Had you done that with your tuition payments to the College when your ‘15 showed up in Hanover in the fall of 2011, you’d have made close to 4.0% per annum on your investment (though the annual growth of tuition is declining). Tax-free.
Why would the College be so generous to wealthy parents? Actually, the motivation isn’t generosity at all. Just the opposite. The administration is happy for forgo annual tuition increases for people who can throw down big money; once the endowment folks have the cash, they can invest it and earn a higher return than what the College is giving up.
Look at the gross returns the endowment’s money managers have made over recent years (Warning: Past Performance Is Not an Indication of Future Results). Over the past three years, the College would have given up 2.9%-5.9% tuition increases to people who paid early, but the endowment’s managers would have earned about 12% on that money:
The College’s Tuition Prepayment Plan (TPP) is a pretty good deal for everyone involved, including people on financial aid. Remember that those big endowment returns finance scholarships, too.
Addendum: A parent writes in:
Thanks for the post this morning on the tuition prepayment plan. My daughter is a student at the College and my son recently graduated, and I’ve never heard of the program. Either I’ve been under a rock or it’s not been well-publicized. In any case, I called the Controller’s office not too long ago and the folks there said that the program is under review and the College is not sure it will be continued. They have no information on when a decision will be made.
I find it curious that the College is reviewing the program, even as Phil has announced that tuition increases are slowing down. With any luck, the endowment will keep growing, and if tuition does not rise as much as in past years, the economics of a tuition pre-payment plan work even better for Dartmouth.
August 14, 2013
Breaking: Of Crips and Bloods and Memories of Ghetto Parties
History repeats itself, first as tragedy and then as farce, or sometimes it just repeats itself. From the New York Times on November 30, 1998: At Dartmouth College, white students at a ”ghetto party” dressed…
June 25, 2013
Dean of the College Charlotte Johnson’s War on Students Part (2/2)
Part 1, Part 2 Today’s post again recounts the events that befell the Freshman. However, the content of the Hanover Police department report reproduced in this space yesterday is supplemented by information from my own…
October 18, 2009
When Love Beckoned in 52nd Street
We were at San Francisco’s BIX last evening, enjoying prosecco, cheese, and a bit of music. A full year of inhabitation in Northern California has unraveled to me no decent venue for proper lounging, but…
October 9, 2009
D Afraid of a Little Competish
So our colleague and Dartblog writer Joe Asch informed me that the D has rejected our cunning advertising campaign. Uh-oh. The Dartmouth is widely known as a breeding ground for instant New York Times successes,…
September 4, 2009
How Regents Should Reign
As Dartmouth alumni proceed through the legal hoops necessary to defuse a Board-packing plan—which put in unhappy desuetude an historic 1891 Agreement between alumni and the College guaranteeing a half-democratically-elected Board of Trustees—it strikes one…
August 29, 2009
Election Reform Study Committee
If you are an alum of the College on the Hill, you may have received a number of e-mails of late beseeching your input for a new arm of the College’s Alumni Control Apparatus called…