"Redefining the Financial Model." A College Goes All-in On Philanthropy to Reduce Tuition

St. John’s College in Santa Fe. Photo: amadeustx/shutterstock

St. John’s College in Santa Fe. Photo: amadeustx/shutterstock

In a recent post exploring the feasibility of a free-tuition university model, I noted that donors are becoming increasingly receptive to the idea of liberating students from a lifetime of debt.

The appeal is simple. Cutting a check to wipe away tuition provides an immediate and impactful alternative to tackling the structural flaws of the student loan system or seemingly uncontrollable university spending.

St. John’s College, which has campuses in Santa Fe and Annapolis, takes this idea a step further. Its $300 million campaign contains no calls for new buildings or lavish student amenities that drive up the sticker price. Rather, its primary goal is to reduce annual tuition costs for students by as much as 50 percent.

The campaign aims to add $200 million to its endowment, provide $50 million through support of the Annual Fund and other yearly contributions, and ensure $50 million in “essential improvements.”

So far, donors have responded enthusiastically. To date, the college has raised more than $183 million toward its goal, including a pair of 2016 gifts totaling $50 million from two alumni, college board chair Ron Fielding and capital campaign chair Warren Spector.

More recently, it received a $50 million gift from Napa Valley winemaker Warren Winiarski and his wife, artist Barbara Winiarski. Awarded through the Winiarski Family Foundation, the challenge grant will match up to $50 million in other gifts to the campaign, enabling the college to reduce tuition from $52,000 to $35,000. New Mexico residents who attend St. John's in Santa Fe will receive an additional grant of $10,000, effectively lowering their tuition to $25,000 a year.

“The time has come for colleges to make a transformational change around college affordability and transparency, and St. John’s is taking the lead in redefining the financial model,” the college’s press release read.

I’ll explore the degree to which St. John’s model is transferable to other universities, both private and public, momentarily. But before I do, I’d like to look at the conditions that compelled the school to turn to a “philanthropy-centered” model in the first place.

“You Cannot Afford to Come Here”

The American higher education system is plagued by a metastasizing student loan crisis built, in part, on runaway tuition. Tuition goes up, students take out more loans, and when students take on more loans, debt grows.

Do schools provide generous scholarships and grants? Of course. Has it ameliorated the crisis? Not at all. According to recent data, more than 44 million borrowers now collectively owe $1.5 trillion in student loan debt in the U.S. alone. The average student in the class of 2016 has $37,172 in student loan debt.

To call this a “problem” would be an understatement. Nonetheless, most psychological professionals would tell you that admitting you have a problem is the first step toward fixing it. But many schools don’t want to go there (psychologists call this “denial”).

For instance, Vanderbilt University Chancellor Nicholas S. Zeppos, upon announcing a $600 million capital project, said, "In a time when long-distance learning and online courses make getting a degree quicker and easier, Vanderbilt is choosing to invest deeply and broadly in an intensive, in-person experience.” While it’s hard to argue with the benefits of the “in-person experience,” Zeppos conveniently ignores online courses’ affordability and his school’s $67,392-and-rising sticker price.

Contrast this verbiage to that of St. John’s press release on the Freeing Minds website: “Fueled by the idea that families believe high price means high quality, most private colleges—led by the wealthiest schools—have embraced an escalating pricing model called 'prestige pricing.' And St. John’s has followed. All told, over the past two decades, tuition at private colleges has risen an astounding 157 percent. St. John’s tuition rose 163 percent, three times the rate of inflation.”

In a political climate in which rampant and growing inequality is the enemy, St. John’s College concluded that its sticker price of $60,00 was bad optics. “There is a perception in our own community that St. John’s is an elite, secluded college on a hill that is not an attainable option for New Mexico students,” said Mark Roosevelt, St. John’s overall president and head of the Santa Fe campus. “These astronomical advertised tuition prices say one thing to many American families: ‘You cannot afford to come here.’

“We are putting a stop to ‘prestige pricing’ and making a transformational change around affordability and accessibility.”

Roosevelt also noted that even if donors can bring the sticker price down to $25,000, that’s “still a lot of money” for working- and middle-class families. (As a point of reference, the total cost of attendance for in-state undergraduates at the University of New Mexico is $22,328. It’s $26,7967 at the University of Maryland.)

With a lower published tuition before financial aid and scholarships come into play, St. John’s wants to “invite more people into the conversation” about enrolling, Roosevelt said.

Rampant “prestige pricing” also exacerbates the “perception gap” between well-heeled private schools and cash-strapped public schools. And while this dynamic doesn’t seem to have factored into St. John’s thinking, it’s nonetheless worth mentioning, as it has profound implications across the larger giving space.

In 2016, 65 percent of U.S. freshmen said reputation was “very important” when it came to selecting a college. “Prestige pricing” suggests that a $65,000-a-year private school has a better “reputation” than a $25,000-a-year public school. All things being equal, a high-performing college student will likely choose a private school over a public school.

“It’s a real shame that some of America’s great public universities are suffering this perception gap—it means they’re unable to compete for faculty superstars with higher salaries and better teaching and learning environments,” said Phil Baty, a former journalist who has edited the U.K.-based Times Higher Education rankings.

“The reality is that these [disparities] in resources will lend fuel to disparities in genuine quality, and the public will struggle more and more.”

An Idea Whose Time Has Come

The idea of providing students with a loan-free or completely free university education has been gaining currency across the higher ed donor community.

Last year, Brown University launched a $120 million campaign, dubbed the Brown Promise, and successfully raised $30 million to eliminate loans in financial aid awards for all current and incoming students starting with the 2018-19 academic year. 

Vanderbilt replaced all need-based undergraduate student loans with scholarship and grant assistance. The initiative, called Opportunity Vanderbilt, gives these undergraduates “opportunities to consider career choices and educational dreams without the prospect of significant debt.” Donors have contributed more than $250 million toward the endowment. (Sixty percent of Vanderbilt students receive some form of financial aid.)

And on the public side, the University of Illinois at Urbana-Champaign announced it will provide free tuition and campus fees for in-state students whose family income is less than $61,000 a year. According to Chancellor Robert J. Jones, the university has the revenue to offer free tuition for at least four years. The university hopes the second wave of financing will come from philanthropy.

The problem—to the extent you could find fault with any of these approaches—is that, at least in theory, donors may eventually lose patience if schools fail to reign in spending and control tuition, which everyone seems to agree will continue to rise indefinitely.

I used the qualifier “in theory” because with a few exceptions, donors haven’t been clamoring for schools to curtail spending. Why? For starters, private schools beholden to “prestige pricing” have enough money to go around. Stanford’s sticker price, for example, is $71,587. Its endowment stands at $43 billion. And it’s free to all students from families that earn less than $125,000 a year. Will Stanford donors revolt when—and not if—tuition rises to, say, $100,000? It’s doubtful.

Meanwhile, donors accept the fact that escalating tuition and the drivers behind it, like the rush to roll out lavish amenities to attract top students, are simply the cost of doing business. If donors are complaining to administrators about the costs of rock climbing walls, lazy rivers and outrageous football coaching salaries, they're doing so privately.

Students, on the other hand, are a different story.

Last year, the University of Oregon announced it had received a $50 million gift from an anonymous donor. When it held a press conference to celebrate the gift, students protested, citing rising tuition costs.

“Diversions are Limited”

The St. John’s College experiment is unique because, as noted, most of its campaign is devoted to reducing tuition. Representatives have also noted that it has made great strides to address the cost side of the equation. One would hope that other schools are equally vigilant about reigning in costs, but this is often not the case.

“The unfortunate truth is that while most college presidents care deeply about their institution’s success, an important part of their job is to shake free more resources. They seldom initiate serious campaigns to contain costs,” said James V. Koch, a member of the board of Partners for College Affordability and Public Trust.

St. John’s has one enormous and anomalous baked-in advantage: It doesn’t have a major athletics team. This automatically takes a potentially huge cost sinkhole off the table.

What’s more, the school, according to this piece by Frank Bruni in the Times, offers a product light on ostentatious amenities, which helps to keep costs down. “Diversions are limited,” he writes. “There’s no swimming team. No pool. The dorms are functional; same goes for the dining. You’re not here for banh mi. You’re here for Baudelaire.”

According to the Albuquerque Journal, St. John’s recently laid off about 30 people to address part of a $12 million structural deficit. Upon making his $25 million launch gift back in late 2016, capital campaign chair Warren Spector said that “belt-tightening has been painful.”

So why is the college’s cost of attendance $60,000? One answer involves its previous reliance on “prestige pricing.” Another is its highly personalized educational model.

St. John’s offers small seminar classes with a 7:1 student-to-faculty ratio. It also relies on full-time faculty rather than adjunct faculty. “These commitments,” the Freeing Minds page argues, “bind us to a financial path with little flexibility.”

As for the $50 million St. John’s is raising for “essential improvements,” Roosevelt, in an email to Inside Philanthropy, said the funding will be earmarked for “our basic infrastructure systems and existing buildings—like upgrading boilers, heating systems, dorm rooms and classrooms. This isn't fancy work, but it's important work that keeps the college in good working order and provides essential comforts for our students.”

No Stadiums, No Buildings, No Amenities

All of which brings me to the $50 million mega-gift from Warren and Barbara Winiarski.

The couple attended St. John’s in Annapolis. Warren is the owner of Acadia Vineyards and founder of Stag’s Leap Wine Cellars. According to the school, “his place in wine history was secured in 1976, when a three-year-old Stag’s Leap cabernet sauvignon won a tasting in Paris, for the first time putting California wines on par with French vintages.” Barbara Winiarski’s paintings were published in the 2018 book Passages.

Warren oversees the Winiarski Family Foundation, which supports educational and charitable causes. Recipients have included the Smithsonian’s National Museum of American History, the Land Trust of Napa County, and the Napa County Open Space District. Earlier this year, Winiarski committed $3.3 million to build the most comprehensive collection of wine writers’ work in the world at the library at the University of California, Davis.

Regarding their gift to St. John’s, the couple said in a statement, “In supporting the college and its future, the Winiarski Family Foundation hopes this gift will continue to give students the opportunity to learn as we did.”

Ultimately, St. John’s College’s situation is a combination of foreign and familiar challenges facing universities. I suspect most universities can’t identify with a tiny school without a major sports program. These schools won’t shutter the wildly popular lazy river or dial back plans for a multi-million-dollar football performance center. And why would they? Donors are more than happy to fund these projects.

On the other hand, many universities can identify with making the difficult choice of laying off workers or addressing the perception that their product is out of reach for many families. Will schools emulate St. John’s approach by launching fundraising campaigns to reduce tuition while resisting the siren songs of new buildings, stadiums and amenities? That’s the $64,000 question moving forward.

If they do not, the laws of mathematics suggest that tuition will continue to rise and the student loan crisis will not abate, a point made by St. John’s Roosevelt in an email to Inside Philanthropy.

“St. John’s may not be the first to lower its tuition price or place philanthropy at the center of its financial model,” he said, “but one key difference is that while many schools implement campaigns to increase scholarships or eliminate loans—which are much-needed programs—the advertised tuition price remains high and the majority of students still require financial aid to bring the high sticker cost down.”