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Bass, Scott A.
Provost

Office of the Provost
4400 Massachusetts Avenue NW
Washington, DC 20016-8061

MEMORANDUM
August 3, 2016

TO:

American University Community

FROM: Scott A. Bass, Provost
Doug Kudravetz, CFO, VP and Treasurer
SUBJECT:

Support for Low-Income Students at AU

____________________________________________________________________________

A new report by the advocacy group, Education Trust, promotes a position that wealthy private universities with large endowments could do more to make higher education accessible to low-income students. The report targets institutions in the “$500 million club” whose endowment values in FY2013 were at that level or higher, who spent less than five percent of their endowment value in that year.

American University was not among the institutions with an endowment value at $500 million in 2013, yet we were included in the report. Though we share the same aims as Education Trust—to meet the needs of more low-income students and make education accessible—we have pursued alternative financial strategies to achieve socio-economic diversity and increase access. We are very proud of our record in that regard.

Over the last ten years, the percentage of Pell-eligible freshmen at AU doubled, from 10 to 20 percent—a higher rate of economic diversity than 20 of the 25 of institutions at the top of US News and World Report’s Best National Universities.

In the last five years, in particular, AU accelerated our support for Pell-eligible students. In 2010, we awarded $4.8 million to 231 Pell-eligible freshmen, representing 22 percent of our total financial aid expenditures for first-year students. In 2015, we awarded $11.8 million to 349 students, which comprised 35 percent of our total aid for first-year students.

In addition, the percentage of need met for Pell-eligible students rose sharply. 2015 Pell-eligible freshmen received, on average, $33,773 in AU institutional funds, equivalent to a nearly 80 percent of tuition. The percentage of incoming Pell-eligible students whose full need (100 percent) was met jumped from 64 percent in 2010 to 91 percent in 2015. This year, we joined 90 other institutions with a commitment to package full need for all low-income students. Moreover, AU reduced loan indebtedness for Pell-eligible students by 25 percent in the last five years, to $6,298 in average loan debt 2015.

AU achieved these results through strategies that were funded primarily with reallocation of annual operating revenue. In 2010, only one-third of our financial aid budget was awarded based on need. In 2015, 80 percent of financial aid was awarded based on need. We also stopped including federal Perkins loans in financial aid packages for Pell-eligible students and replaced them with institutional grant aid. Finally, we set aside almost $700,000 for low-income students to support their participation in experiences like study abroad and internships.

We disagree with Education Trust’s assertion that all institutions should achieve economic diversity and access in the same way. For wealthy institutions whose endowments are two, three, or even ten times their operating budgets, it may be possible for more of the endowment spend to contribute to this goal, assuming their unrestricted endowment resources allow that flexibility.

Our endowment is growing, but is roughly equal to our operating budget. It does not yet have the value or flexibility of some of the nation’s wealthy institutions to contribute to operating resources in a meaningful way. For many years, AU has been primarily a tuition driven institution and will continue to be so in the near term. But with careful investment and more ambitious fundraising, including for scholarships, we will ensure that AU will be less dependent on tuition alone in the long term.

In short, AU chooses to look out for the long-term financial health of the university by growing its endowment, while at the same time effectively meeting the needs of a growing percentage of Pell-eligible and low-income students.