A Study of Student Loans AND THEIR RELATION TO Higher Educational Finance Prepared under the Supervision of the STUDENT LOAN INFORMATION BUREAU Under the Authority of the ASSOCIATION OF UNIVERSITY AND COLLEGE BUSINESS OFFICERS OF THE EASTERN STATES HARMON FOUNDATION MONOGRAPHS NUMBER ONE A Study of Student Loans and Their Relation to Higher Educational Finance By L.J. CHASSEE Lecturer in Banking, School of Business Columbia (Jniversity PREPARED UNDER THE SUPERVISION OF G. C. WINTRINGER, Chairman Controller, Princeton (Jniversity C. S. DANIELSON Bursar, Columbia (Jniversity L. E. KIMBALL Comptroller, New York (Jniversity UNDER THE AUTHORITY OF THE ASSOCIATION OF UNIVERSITY AND COLLEGE BUSINESS OFFICERS OF THE EASTERN STATES «St TABLE OF CONTENTS PAGE Foreword 5 Letters op Transmittat, Committee on Loans • Secretary of Student Loan Information Bureau 9 Perspective Student Loans and “The Business of Higher Education” 11 Chapter I Financial Development op Higher Education Early Development 17 The Spread of the University Idea 17 Motives in Higher Education 17 Martin Luther and the New Motives 18 Beginning of State Support 18 England and its Philanthropic-Religious Institutions.... 19 The Early Colonial Period in America 19 Early National Period—(1776-1825) 20 The Present Period—(1865-1925)—and the New Purpose 20 Financial Support and Purposes 21 Chapter II Sources op Educational Income Three Sources 22 Property Values of Institutions of Higher Education 23 Philanthropie Sources 24 Gifts to Higher Education 25 Recent Gifts 25 Reliability of Philanthropie Sources in the Future 26 Philanthropie Sources in 1924-25 27 Public Sources 27 Incidence of Public Revenue for Higher Education 27 Public Sources in 1924-25 29 Student Fees for Tuition and Other Educational Services 29 The Increasing Cost to the Student 30 Comparative Fees and Tuitions in State Institutions 31 Present Schedule of Fees and Tuition 32 Comparative Fees and Tuitions in Private Institutions 37 Fees and Tuitions in Private Institutions in 1924-25 38 The Cost of Education to the Student 40 Cost of Building 44 Sources of Income versus Benefits 44 Chapter III Allocation op Higher Educational Costs Two Phases 45 Costs and Increased Enrollmcnts 45 Points of View 46 Society Should Bear the Cost 46 Recipient Should Pay Full Cost 48 Dividing Cost Between Recipient and Society 48 The Problem of Cost Allocation 49 Arriving at the Ratio 50 The Present Situation 50 Basis for Cost Allocation 52 Reasons for Such Allocations 54 The Individual 55 Knowledge with an Economic Purpose 56 The Share of Philanthropy 56 The Share of Society 56 The Share of the Student 57 The Results 57 Chapter IV The Student as a Financial Risk page Education as a Commercial Venture 61 The Cash Value 61 Education an Investment 64 Analysis of Student Credit % 65 Credit as Applied to Education 66 Training to the Student 66 Student Security 67 Reasons for Lösses 68 Endorsements 69 Group Guarantee 70 Purpose to be Served by Group Guarantee 70 Service of the Group Guarantee 71 The Guarantee Fund 74 Disposing of the Guarantee Fund 75 Chapter V Financing the Student The Student’s Problem 77 Personal Economics or Finance 77 The Student’s Budget 79 The Announcement and the Student’s Budget 79 Making the Budget 82 Kinds of Student Aid 82 Self-Help '• 83 Management of Self-Help 84 Self-Help and Student Finance 85 Self-Help and Loans 85 The Postponement of Fees 86 Fellowships and Scholarships 86 Chapter VI The Administration op Student Loans Methods of Administration Amount of Funds Available 1924-25 Past Experience Selecting the Risk Size of Loan Interest Rate Security for Student Loans Term of Loan Methods of Repayment Collections Organization to Administer Loans .•••.• Charitable, Religious, and Fraternal Organizations Banks and Trust Companies Philanthropie and Semi-Philanthropic Organizations The Educational Institution Digest Recommendations Appendix A. Experience of the Harmon Foundation in Student Loans B. The Loan Association of the German Students The Institution of Honour Loans—France 90 91 94 97 98 100 101 102 103 105 106 107 107 108 109 110 119 121 147 156 CHARTS, TABLES AND DIAGRAMS PAGE Table 1 — Income for Higher Education—1921-22 22 Table 2 —Value of Property in Universities, Colleges and Professional Schools in the United States—1921-22 23 Tabu: 3 —Average Fixed Charges for Resident Students in State Colleges and Universities, United States—1900-25 33 Table 3A—Average Fixed Charges for Non-resident Students in State Colleges ­ and Universities, United States—1900-25 33 Chart 1 —Average Fixed Charges per Resident, State Colleges and Universities—1900-25 ­ 34 Chart 1A—Average Fixed Charges per Non-resident, State Colleges and Universities—1900-25 35 TablE 4 —Comparative Fee Schedule of State Institutions 36 TablE 5 —Average Fixed Charges in Privately Endowed Institutions, United States—1900-25 38 Chart 2 —Average Fixed Charges in Privately Endowed Institutions— 1900-25 39 Table 6 —Comparative Fee Schedule of Private Institutions—1924-25.... 40 Chart 3A-—Tuition and Fees Compared with Cost of Living 41 TablE 7 —Indices of Cost of Education, Cost of Building, and Cost of Living Compared 42 Chart 3B—Tuition and Fees Compared with Cost of Building 43 Diagram I—The Sources of Revenue and the Assumed Expenditures for Higher Education—1924-25 51 Diagram II —Hypothetical Allocation of the Sources of Revenue and of the Expenditures for Higher Education 53 Diagram III—Effect of Education on Average Incomes at Different Ages and Total Life Earnings 53 Table 10 - Comparative Costs of Educational Services and Other Expenses (1924-25), Private Institutions 80 Table 11 —Comparative Costs of Educational Services and Other Expenses (1924-25) for Non-resident Students in State Institutions 81 Table 12 —Comparative Costs of Educational Services and Other Expenses (1924-25) for Resident Students in State Institutions 81 Foreword to Study of Student Loans and Their Relation lo Higher Educational Finance r EAR ago, in December, 1924, I agreed to finance an independent investigation, and study of established Student aid methods, under the auspices of the Association of University and College Business ­ Officers of the Eastern States. I did so because, from the threeyear experience of the Harmon Foundation in this field, we feit that existing methods of handling eight or ten million dollars of public moneys in trust funds for Student aid loans, scholarships, etc., each year by the Colleges were often based on doubtful premises, conducted with a poor technique, were seriously wasteful and in a very large number of cases engendered harmful influences on the character of the recipients. Mr. Chassee started with only the most meager outline of data embracing the scope of the work to guide him, and obviously without any attempt to influence his judgment. His mental attitude was so judicial that for three or four months it was impossible to determine the trend of his mind in the many Conferences he had with the members of our staff, and only as the various chapters or sections of the final report were submitted did we realize the extraordinary character of the conclusions. The reception of “A Study of Student Loans and Their Relation to Higher Educational Finance” by the Association of University and College Business Officers of the Eastern States at its annual Conference was also a source of great and unexpected satisfaction. A copy of the report was sent in typewritten form to each member in advance of the meeting and the endorsement of Mr. Chassee’s position was cordial if not even enthusiastic. The objectives of the Harmon Foundation have been two-fold— Service and Education. The Service could be handled with independence and in accordance with our convictions because we were using our own money. It was necessary, however, to limit our educational program to an exhibit of the results of our experience and an expression of our opinion when asked for by educators, which happily, has been of almost constant occurrence. With the “Study of Student Loans and Their Relation to Higher Educational Finance” available, prepared by a man with scholastic, scientific, ­ and business training—endorsed as a whole and rejected in no particular part by the Association of University and College Business Officers of the Eastern States—we feel that culpable or careless methods [5] «■ IH'.IHMMJ»' >^|Wüg of handling funds devoted to Student aid can no longer be excused or palliated. Further, that large budgeting deficits should no longer be justified simply because it is easier to raise money through an appeal to alumni or a generous public than to increase charges for tuition. There are ample grounds for generous gifts to Alma Maters outside of those made to meet current expenses. These should as a rule with obvious exceptions be paid for by the recipient at cost, either in cash or through deferred Obligation. Unless this problem is adjusted of having the beneficiary as far as possible pay the cost of his education (which usually directly increases his. powers and earning capacity), the time will come when that generous band of contributors, made up in a larger measure of keen and successful business men, will become wise and legitimate needs will suffer from the careless destruction of confidence. I might say that this foreword is the expression of an individual and personal opinion only, written without consultation or endorsement, but it is the result of a very profound interest in and concern for the wellbeing of institutions for higher education and the students who emerge therefrom to take up the responsibilities of life. Sincerely yours, TTo the Association of University and College Business Officers of the Eastern States Gentlemen : At the last meeting of this Association, Mr. William E. Harmon of the Harmon Foundation, very generously offered to contribute the sum of $5,OCX) to cover the expense of a year’s study and research in Connection ­ with Student loans and their administration. This offer was accepted and a committee of three appointed to confer with Mr. Harmon and report to the President and Executive Committee any plan or conclusions that might be reached as to the best method of Cooperation with Mr. Harmon along the lines that he had indicated. We were most fortunate in securing as our investigator, Mr. L. J. Chassee, a Lecturer in Banking in the School of Business of Columbia University,—a man well qualified to carry on the details of this research and one who has in addition evinced a very great interest in the work. We are indebted to him for a thorough investigation of the subject as is evidenced in the report we submit herewith. Your Committee held its first meeting with Mr. Harmon in January at which time plans for the work were outlined, including the decision to secure the Services of some one to do the necessary research work. We reported to the Executive Committee in March and, receiving approval of the plan under which we proposed to operate, the work was immediately started on the investigation. While your Committee was not charged with the recommendation of any specific plan that should be generally adopted, the Executive Committee ­ feit the report should include such recommendations as our investigation ­ indicated should be presented to the Association. We have therefore embodied in Chapter VI general recommendations which we hope will form the basis for a discussion of this subject and lead to the adoption by our membership of some general plan of Operation. Respectfully submitted, Charles S. Danielson November 6, 1925 \7) LeRoy E. Kimball [9] Columbia University New York City October 15, 1925 Tf/ie Association of Unioersity and College Business Officers of the Eastem States The Committee on Student Loans Genteemen : The result of the study on Student loans made by the Student Loan Information Bureau is being transmitted to you for appropriate action. The study began as one of Student loans proper, but as the work progressed, it was found that the fundamental wrong with Student loans was not so much the loans themselves as the position which they occupy in the financial policies of universities and Colleges. It was found necessary, therefore, to expand considerably the scope of the study in Order to treat the subject of Student loans adequately. The study is divided into eight parts. The first, a Perspective on “Student Loans and The Business of Higher Education”, is a summary of the seven parts which follow. It should be valuable to those who lack time to read the entire work, since it takes up the salient points in digested form. Chapters II and III will be of interest to those who lean toward the broader aspects of higher educational finance. Chapters IV, V and VI will be of interest to those who are close to the Student and are responsible for the administration of some of the university and College funds. Appendices A and B should be of value to those who are working out the mechanism for the administration of Student loans. In the preparation of this study we have received the most generous Cooperation from the members of both the Eastern and Western Associations of University and College Business Officers. We must feel indebted to them, since without such Cooperation in the way of furnishing the desired material and giving valuable suggestions the work could not have come to a successful end. The members of the Harmon Foundation ­ Staff have also given untiring cooperation and have made available to us all information at their command. Miss Ethel C. O’Neill, who has been associated with me, did all the secretarial work connected with the study, prepared all the graphs and charts, made the digest for Appendix B, and has given constructive criticism at every step in the work. The suggestions ­ made by Mr. W. E. Harmon and Professor Samuel McCune Lindsay of the Faculty of Political Science at Columbia University and 1 il Economic Advisor to the Harmon Foundation, have been most valuable and constructive. Acknowledgment is due to Dr. H. Parker Willis, Editor of the New York Journal of Commerce and Professor of Banking in the School of Business at Columbia University, for his advice in the Organization of the work and the formulation of the problem. He also contributed some of his time to a careful reading of the manuscript and making valuable suggestions. Acknowledgment is also due to Dr. Robert M. Haig, Professor of Business Administration at Columbia University, for his careful perusal of the manuscript and constructive criticism. Director James C. Egbert of the School of Business, Columbia University, ­ made available the necessary office space for the Bureau and both he and Dr. R. C. McCrea, Hepburn Professor of Economics in the School of Business, Columbia University, have given friendly support to our efforts. It is realized that there exist many errors in the report as presented; in the style, the method of presentation, and the construction. These will have to be eliminated before the report is ready for publication if the association recommends such a Step. It would be well, it seems to me, that sufficient time be given at the convention to discuss thoroughly each part of the report. In this way it would be possible to benefit by the experience of all the members. The criticisms and suggestions made could be incorporated in the final publication and thus make the document more valuable and practical. My association with the members of the Committee has been very pleasant and fruitful. I wish to take this opportunity to express my appreciation to them for the amount of freedom that they have allowed me in developing the work. However, I am willing to assume complete responsibility for all the Statements made in the study. STUDENT LOANS AND “THE BUSINESS OF HIGHER EDUCATION” 1 A Perspective It is impossible to take the correct view of Student loans unless the Position which they should occupy in the business of higher education is first considered. The institution of higher learning is made up of seven elements: 1. Buildings and Grounds, 2. Physical Equipment, 3. Available Funds, 4. The Business Administrative Staff (which go to make up the business division of higher education), 5. The Faculty, 6. The Academic Administrative Staff (which make up the academic division of higher education), and the Student who then enters in as the seventh element and who must have a relationship with each of the two divisions of the university. These relationships should be separate and distinct; that is, the student’s business relationship to the university should be with the business officers and under their control; his academic relationship to the university should be and is under the control of the faculty. In discussing loans we are concerned only with the student’s relationship ­ to the business side of higher education and enter into the academic side only to the point where his academic life will influence the business officers in the granting of loans. The business officer should be informed as to whether the Student is a member in good Standing of the academic community and as to whether a loan is desirable for him from an academic standpoint. The business officer then has this information at his command when he is deliberating over making a loan and this information ­ should act as a guide to him in the application of business principles to loans made to students. The business of higher education must be clearly set forth at this point if it is to be shown how Student loans can be advantageously handled on business principles. In higher education as in industry and commerce, ­ the plants have become so numerous, have reached such magnitudes, and the purpose for which higher education exists has so changed that the academic life cannot be efficiently conducted unless the factors or elements of higher education are properly proportioned and the management ­ of the physical plant and the finance is left to men trained in business. This management of the physical plant will mean furnishing it, equipping it, operating it, and financing the whole enterprise of higher education in such a way that the faculty will be able to do the best work. The faculty having decided what the requirements are for the proper 1 The phrase “The Business of Higher Education” was suggested by the title of a course given in the School of Business, Columbia University, by Dr. H. Parker Willis, entitled “The Business of Journalism.” Hi] 12 A Study of Student Loa ns and advancement and dissemination of knowledge, it then falls upon the business officers to provide for these physical and financial needs. The furnishing and operating of the physical plant and the financing of the whole enterprise of higher education may properly be termed “the business of higher education” and should be under the guidance of business officers with responsibility to the President only. This may be considered theoretical, but it is theory that is being put into successful practiceby some institutions. Student loans cannot be advantageously handled until some definite policy such as the one discussed above is established with regard to the scope of authority between the business officers and the academic officers of the institution. The fundamental wrong with Student loans may be traced to the Organization of the university itself and the consequent lack of definiteness which the institution has in its business relations with the Student. It is at this point that higher educational institutions have been losing a great opportunity to train the Student in the practical affairs of life. This training need not be confined to those who borrow, for all students can be required to budget before entering College. Those who borrow will simply receive additional training in the financing of themselves on a credit basis. This can be done by making loans in monthly allowances rather than in one large amount. Payments of the loan will be made in the same way which means that the transaction will cover a period of eight to ten years. Promptness and precision in dealing with the Student in this matter cannot fail to be a valuable lesson to him in the fundamental principles that make for success. A large proportion of the students borrow and will therefore profit by such training. Similar training can be extended to those who do not borrow. This group will also be required to budget themselves before entering College. Some will have to budget to see what loans they will require, others will have to budget so as not to be forced to resort to loans, and the rest will have to budget so as to use most efficiently the resources which they have at their command. Thus all students will be receiving a training in proper personal business management. 2 To accomplish this end, however, it is necessary that a definite line be established ­ between the business side of the institution and the academic side, and the proper cooperation be brought about between these dual organizations. Institutions will then become more efficient, and the Student will come out of the institution a better product. 3 There is no reason to suppose that his academic training would be inferior under such a System and, on the other hand, he would receive a training in practical affairs that would better fit him to deal with the business world. Every individual must realize sooner or later in life that the world in which he lives demands 2 See Appendix A. 3 A more elaborate discussion of this will be found in the text, pp. 82-89. Their Relation to Higher Educationae Finance 13 that he know how to cope with the practical affairs of his environment. The university and College could do no greater service than to train the Student in these matters. The student’s contact with the business side of higher education is an opportune place to do this. The business side of higher education, however, must be business-like and this can be done only by making it independent of the academic side. The Situation then becomes comparable to conditions which the Student will encounter in the outside world. When the above conditions have been complied with, the Student loan problem then becomes more simple and easier to handle. However, this training in the business affairs of the student’s life can be initiated at an earlier period than in College. The way in which the College or university may bring this about is to require that each Student has demonstrated a knowledge and ability to handle his personal business affairs properly before entering College. This will awaken the public, his parents, and educators in secondary schools to the realization of the importance of knowing proper personal business management. When Colleges and universities begin to consider a knowledge of personal economics or personal finance essential to a successful career, institutions which prepare students for College will evolve the necessary machinery to bring this about. In general it will consist of guidance, and perhaps courses in grade and high schools in the managing of one’s personal economic resources and finance. It can be done in Cooperation with savings banks. The grade and high school Student will be encouraged to save and what is more important, he will be taught how to better manage the resources which he has at his command. The development of the idea of greater efficiency in handling checking accounts, balancing these with the bank, accurate bookkeeping methods in personal affairs, the proper budgeting of one’s resources over a period of two or three years may be made a requisite to College entrance or be given some form of credit toward the College work. The actual book in which the Student makes and keeps his calculations, how closely the outcome measures up to his calculations, and corrections made for future personal finance could be made the basis for both financial and academic credit. This teaching will have to be of a practical nature. A new literature will have to be created on the subject of personal finance. The Student will be taught how to fit himself best to his economic and social environment. It can be successfully done by appealing to the selfish motive and thus turning the selfish motive to a fruitful end. Young people must be taught how to manage their personal economic affairs so that they will be better able to utilize their opportunities, both for themselves and for others with whom they come in contact. If the universities would exert such pressure from the top, they would be spreading a whole- 14 A Study of Student Loans and some influence which would permeate all of American life, for such training and guidance would soon be extended to all people whether they attended College or not. 4 * With such a background the Student would enter College better equipped than he does now. His relationship with the business Organization of higher education would further his training in the management of his personal affairs and would lead him to see what he must encounter in the outside world after he leaves College. Such a procedure need not interfere with the academic program, but in fact should assist it, since the Student so trained in the management of his financial affairs will take such as a matter of course and can then give better attention ­ to his academic life. What then becomes of the loans? The institution would find that it could deal with the Student on a business basis, for he will expect it and will resent in fact being dealt with in any other manner. This business basis means the application of the highest business principles in the business dealings which the institution has with the Student. The application of business principles to Student loans, however, does not mean that the peculiar characteristics of lending to students will not be taken into consideration. Adjustments will have to be made, but this will not prevent entering into a definite agreement with the Student and making him realize the responsibility which he undertakes. He is borrowing money for an economic venture and should, therefore, pay the commercial rate of interest. The term of the loan (except when it is an emergency loan), should correspond with the period of turnover in College, which is approximately five years. The amount of the loan should be enough to be of substantial assistance to the Student. Once a loan has been made to a Student the institution should come to his assistance with further loans in Order to “see him through” unless it is found that he is no longer a good risk. It is unwise to require any security except a note of honor. The Student who needs the money most has no security to off er. If he has security or can get an endorser, there is no reason why he should borrow from the institution. If, nevertheless, some form of collateral or security is deemed wise, the group guarantee is then the best way in which to secure the funds. In this way the students accept collective as well as individual responsibility. However, those who constitute the group should have a voice in the selection of the risk. It is urgent that student loans be put on a business basis. Students who have borrowed where loans were administered in a business-like manner ­ express preference to borrow under such administration. They appre-4 The possibility of such a result was expressed in conversation with Mr. C. S. Danielson of Columbia University and Mr. O. C. Tester, Assistant Vice-President of the Bowery Savings Bank, New York City. Their Relation to Higher Educational Finance 15 ciate being dealt with in a firm manner, if the firmness is of a high type. They would rather be looked upon as young men who have a business to transact than mere boys who need assistance. Many objections will be raised against the introduction of business principles into Philanthropie works. To refute these objections it is possible to show that most of the great philanthropists were first great business men. It is difficult to decide in which role they have accomplished the greatest social good. Constructive philanthropy of the highest type approaches efficient business ideals. They approach, at times, each other so closely that they are often indistinguishable. 5 The value to society of good business is so great and philanthropy so surrounded by risks that one should hesitate to advise the successful shoemaker who is constantly striving to produce a better pair of shoes to trade places with the man who is endeavoring to give away large sums of money intelligently. The change might involve too many possible changes of disappointment, if not actual failure. 6 Student loans cannot be divorced from the business of higher education. Higher education will have to assume a new form of administration and such administration will have to approach the best forms of business ideals. Our universities and Colleges are now taking only emergency measures and accomplishment is lagging far behind opportunity. They will have to adopt in an intelligent and earnest fashion more business-like methods of Organization in Order to adjust themselves to the rapidly changing conditions of American life. Institutions of higher learning can meet these demands by radical reorganization. 7 The faculty must be faculty and the business officers must be allowed to be business officers. The President must be a unique individual. America has a different problem to meet in higher education than Europe. Ours is a young and rapidly changing society; Europe is an old and more or less static one. Since our universities and Colleges are failing to keep in advance of changing conditions, they must either take. bold and rapid steps forward, perish, or remain a remnant of the past—a haven for slumbering scholars. New financial policies will become necessary. The individual, at the time he receives his education, will be called upon to pay a larger Proportion ­ of the cost. If a sufficient amount of additional funds is to be secured to carry on the changed Organization, the objectives of the university and College will have to be shown to be useful, commercially sound, returning a reasonable rate of interest or some combination of these objectives. These values are not necessarily commercial values only, for usefulness may be 6 W. E. Harmon, “Business versus Philanthropy”, Harmon Foundation Bulletin, Sept., 1925 p. 4. 8 Ibid., p. 5. 7 Similar Statements have been attributed to Dr. R. Pound and Dr. A. Flexner in an Editorial in the New York World, Oct. 4, 1925. 16 A Study of Student Loans other than commercial usefulness. The outworn appeals of “loyalty to one’s Alma Mater,” “for the good of society,” and “the uplift of mankind” are empty phrases which are out of harmony with modern changes in human Organization. Our education must be put on a more individualistic basis and the individual must pay a larger share of the cost, depending upon the kind of value which can be assigned to the training he receives. If the individual is to pay for a larger proportion of his education, he will have to be guided how to meet these new demands both through a wiser use of the resources at his command and through making available to him additional resources in the form of loans. In Order to secure funds so to assist him, it will be necessary that they be administered under business principles. If a higher price is to be placed upon higher education, it will be necessary to study higher educational finance not only as it has been studied from the standpoint of costs, but from the standpoint of benefits derived by those who come in contact with it and the benefits given to society as a whole. Thousands of dollars have been spent to study the cost of higher education, but there has been great reluctance and no attempt to estimate the values which higher education produces and what price should be placed on such values. Perhaps higher education has no value to either the individual or society; its efforts may be producing negative results for all we know. It is necessary that we show what results higher education is producing over a long period of time, that we assign values to these, and that we Charge proportionately. If this is not possible, we must declare higher education bankrupt. To say that it is not bankrupt, the results which higher education brings about must be shown to possess values sufficiently above cost to make it worthwhile for universities and Colleges to continue and it must be shown also that it is a paying proposition for certain individuals to purchase the Services of these institutions on credit. A higher price for higher education may be justified by the fact that in so far as it is deemed theoretically right for “the consumer to pay the freight”, it is right for the educated to pay for his education. The adoption of a sound Student loan plan would permit Colleges to increase fees to meet costs, except where state institutions are strongly competitive, and in time they will have to follow the trend in fairness to their tax paying constituency. When the consumer is not able to “pay the freight” in cash, the costs are not written off against him, but an agreement is entered into for payment when the goods have enabled him to secure the necessary funds. So too, in education the Services should not be given away simply because the consumer is unable to pay at the time, but they should be extended to him on a definite credit basis which should consist of well administered Student loans. CHAPTER I FINANCIAL DEVELOPMENT OF HIGHER EDUCATION Early Development The financial support of higher education in general during the early years of development cannot be identified separately from that of the church and religious Orders. Scholars would get together at a designated meeting place, even on the Street at times, to discuss topics of scholastic importance. In the early part of the Middle Ages, the monasteries became meeting places. Eventually the discussions were grouped under four heads: philosophy, medicine, theology, and law, and it was with this division of learning and the establishment of academies as meeting places for scholars that our present day higher education had its origin. The more formal beginning, however, was with the establishment of the University of Bologna in 1158, which later became famous for its courses in law. Universities had existed before this date, but Bologna was the first to which a university charter was granted. To Frederick Barbarossa is due the distinction of being the first person to establish a university in a formal way. He not only granted a charter to the University ­ of Bologna but bestowed his protection upon it and conceded Privileges to it as well. 1 The Spread of the University Idea During the next five hundred years similar institutions spread throughout Europe and the British Isles, and it is from this beginning that the present university and College Institution has developed. They were at first known as academies and in Germany a type known as “manual labor institutes” developed for the training of teachers. The idea of the “manual labor institute” spread to the United States as late as 1825-1840 and was the nucleus of some of the institutions of higher learning which are still in existence in this country. Oberlin College at Oberlin, Ohio, started in this way. 1 2 Motives in Higher Education At first education combined spiritual and secular training with the emphasis on the former. Hence religious Orders were closely involved and practically the entire financial support came from the church. Eittle 1 F. P. Graves—“Evolution 0 f Our Universities”, School and Society, Vol. 8, pp. 691-702. 2 Paul Monroe—History of Education, p. 723. [17] 18 A Study of Student Loans and by little, however, the secular interests came to the forefront. Until the middle of the sixteenth Century, the time of Martin Luther, it was the religious motive which controlled the Situation and so no distinction can really be made between the financial support of education and that of religion. This religious motive remained the dominant one until the latter part of the eighteenth Century and so religious denominations were the chief source of support. 3 New motives were gradually introduced. Higher education began to be looked upon as having a cultural value, an influence on citizenship, and finally an economic value. These new motives furnished an argument for new sources of support and so wealthy individuals left endowments for certain schools of learning; the States assumed educational responsibilities; and finally the Student was asked to pay his share of higher education. The religious motive as the sole motive for higher education, was first challenged by Martin Luther. Martin Luther and the New Motives Martin Luther pointed out that: even though there were neither soul, heaven, nor hell, it would still be necessary to have schools for the sake of affairs here below, as the history of the Greeks and Romans plainly teaches. The world has need of educated men and women to the end that the men may govern the country properly, and that the women may properly bring up their children and direct the affairs of their households. 4 Luther further pointed out and insisted in his teachings that: schooling was to be brought to all the people, noble and common, rieh and poor; it was to include both boys and girls, and finally the state was to use compulsion if necessary. 5 Martin Luther’s doctrines formed the opening wedge for a program of state support for education in general and gradually for higher education. Beginning of State Support Luther, therefore, was in a large measure responsible for the propagation of the idea of a state system of secondary schools together with institutions of higher learning which developed in Germany. This was the first state support given to higher learning and it was brought about by a changed purpose in higher education. The next state to take interest in the support of higher education was France. In this country higher education was the first division of learning to be favored by state support, for in 1806 the University of France was established which included in itself, practically as a department of the National Govern*Ibid„ ­ p. 729. 4 Monroe—Op. Cit., p. 410. 5 Ibid., p. 412. Their Relation to Higher Educational Finance 19 ment, all secondary and higher education. It is conspicuous that financial support was given to the state university and secondary education twentyseven years before it was extended to elementary education in France. 6 Here, as in Germany, it was the development of the feeling that it was to the ad van tage of the state to educate its citizens that brought about state support. It was part of the scheme of Nationalism. England and Its Philanthropic-Religious Institutions A different development is to be found in England. The close Connection ­ between church and state which is still to be found, implies that support for a large part of higher education is not yet entirely divorced from that of religion. It was this close Connection which is found between state, church, and higher education that prompted a more liberal group to found the London School of Economics. By far the largest Proportion ­ of financial support for higher education in England, therefore, first came from philanthropic-religious organizations. Even those institutions not connected with the church of England were at first religious in character. Later, religious and Philanthropie support was supplemented by forms of land grants to those institutions already in existence. 7 This was the beginning of direct state support for higher education in England. Additional state help was given later but even at the present time no state institution for higher learning has been established as such. The Early Colonial Period in America In America as in European countries, the institutions of higher learning ­ were philanthropic-religious. This was inevitable, due to European influence during the early development. The Philanthropie sources, however, differed; mostly religious at first in a population where no great fortunes had as yet been amassed, the contributions were numerous and varied. There were a large number of small gifts and no small amount came from England, due for the most part, to the influence of religious organizations. This applies to the entire history of American College building and it was not until recently that large sums were given by one donor. Many of the gifts were for specific purposes such as libraries, professorships, scholarships, and buildings, but a relatively large per cent. of these were made to the Colleges unconditionally. 8 During these years America contributed little to theoretical discussions of higher education and its financial support. As time went on, the idea 6 Monroe—Op. Cit., p. 732. Ubid., p. 733. 8 J. B. Sears—“Philanthropy in American Higher Education”, U. S. Bureau of Education Bulletin No. 26, 1922, p. 105. 20 A Study of Student Loans and of free public education began to take root and gradually the leaders of America came face to face with the question of school support. The first moves toward state support of higher education came in the form of land grants and later taxation. This was in fact a duplicate of what took place in England, presumably due to English influences. These sources, however, were only a Supplement to religious and private support and were at all times surpassed by the latter. This predominance of private support has persisted even to the present day (as the figures in the following chapter show), if we view higher education in the United States as a whole. Early National Period—(1776-1825) The close of the Colonial period and opening of the early National period in the United States, marks the beginning of the states taking a hand in the initiating and in the support of higher education. The break with England naturally cut off the sources of support from the mother country and caused the leaders in the United States to take the matter in their own hands. This was only in so far as financial support was concerned, for there was no special break in the main forces that had been building up Colleges in the Colonies. The difference came in an expansion in the number of Colleges and in the educational aim and type of studies. The turmoil of the revolution and financial reconstruction of the new nation caused state support of higher education to slump and during the latter part of the eighteenth and early part of the nineteenth Century the question of the state’s function in higher education was much discussed. The doctrine that it was the duty of the state to advance knowledge through higher education and thus make better citizens spread and led to the establishment of several state universities and Colleges supported by the appropriation of state funds. The Present Period—(1865-1925)—And the New Purpose After 1865 the United States entered upon a period of vast expansion both in state and private institutions of higher learning. Large fortunes had been accumulated by this time and many donated a large proportion of their wealth in the form of unconditional gifts or gifts for specific purposes to institutions of higher learning already in existence. New institutions, such as Johns Hopkins and Leland-Stanford Universities, were founded upon a single gift. A new development appeared in higher education during this period. The Student demanded an education not only to increase his intellectual powers and thereby gain social or political preferment, but also asked for Their Relation to Higher Educational Finance 21 a training which would bear directly on his economic progress. The economic ­ advantage of such an education began to be stressed and along with this idea developed the Professional schools. The outcome was that many of the universities established Professional schools beyond those of medicine and law, and there developed schools of journalism and schools of business and the old divisions of law, and medicine, were looked upon as having an economic value to the individual as well as to the state. With the various purposes for training coming into existence and with the realization of the economic advantage to be derived from a College education, ­ increased funds were made available to institutions both by States and 'by individuals. The establishing of professorships and the giving of funds for the construction of buildings, as monuments to individuals, ­ and fields of economic endeavor became prevalent. Higher education ­ now became one of the greatest recipients of charity, with the result that today it has a vast permanent endowment and philanthropy still bears the major portion of the cost of advanced training. 9 Financial Support and Purposes Throughout the entire development of higher education we find that the purpose for which it existed and its sources of financial support were closely related. A view of the present Situation reveals the same fact. It may be concluded that the reasons for the existence and liberal support of these institutions are three in number. 1. Cultural—which includes the religious or spiritual purpose and also embraces the advancement of knowledge in unremunerative fields. 2. Political—which is generally explained as the training for citizenship. It should be noted that education for culture also bears directly on the training ­ for citizenship. 3. Economic—which includes the advancement and dissemination of knowledge for the purpose of Controlling the material environment of humanity so as to bring the greatest amount of comfort and happiness possible, and that the individual may be able to command more wealth. 10 The above Classification is not necessarily listed in order of importance, but in historical sequence. These three purposes are now so closely interrelated that an attempt to assign separate values to each is difficult and perhaps futile. If it were possible to conclude that support and purpose bear absolute relationships, it would then be possible to determine the part the different purposes play in the carrying out of higher education, for the proportion of support which each source furnishes can and will be determined. 9 Sears, Op. Cit., p. 108. 10 This is reflected in the large sums of money set aside for research in the physical as well as the social Sciences. CHAPTER II SOURCES OF EDUCATIONAL INCOME Three Sources 11 The sources of higher educational income may be grouped under three heads: 1. Endowments and gifts, or the Philanthropie sources. 2. Appropriations by cities, States, and the national government (the last named would include land grants). 3. Fees and tuition paid by students, or “income from students’ fees for tuition and other educational sources.” 11 12 The public as well as the private institutions receive an income from Philanthropie sources and both receive state funds and federal aid. As may be noted in Table 1, public institutions receive 'by far the largest TABLE 1 INCOME FOR HIGHER EDUCATION—1921-22 Private Institutions 1 Per Cent, of Total Public Institutions 2 Per Cent, of Total Both Per Cent, of Total Total $186,006,242 100 $133,747,023 100 $319,753,265 100 Sources Students’ Fees... 50,602,128 27 13,694,084 10 64,296,212 20 Public Sources 8 .. 4,691,421 03 89,092,662 67 93,784,083 29 Philanthropy 73,862,731 40 3,538,025 03 77,400,756 24 Other Sources... 13,932,098 07 13,607,847 10 27,539,945 09 Income from property and productive funds*.... 42,917,864 23 13,814,405 10 56,732,269 18 1 Statistics of Universities, Colleges and Professional Schools (1921-22), U. S. Bureau of Education Bulletin, 1924, No. 20, p. 37. 2 Statistics of State Universities and State Colleges (1921-22), U. S. Bureau of Education Bulletin, 1923, No. 49, p. 15. 3 Including city, state, and federal appropriations. 4 Figured on a basis of 4%. amount of state and national appropriations for higher education, although private institutions are still the recipients of public funds. Some States find it more advantageous to assist private institutions than to establish a 11 This study is primarily concerned with the last named, but in order to give the third source its proper place and examine it in its broader aspects, it is necessary to study it not by itself, but as a part of the wkole scheme of higher educational finance. 12 Used by the U. S. Bureau of Education to designate this source of income. A Study of Student Loans 23 state Institution of higher learning. It is interesting to note that in 1921-22 (the year which Table 1 represents), public institutions received over three tnillion dollars from Philanthropie sources and private institutions ­ received over four million dollars from public sources. As may be expected, the fees and tuition from students in the public institutions constitute a much smaller percentage of the income in proportion to cost than they do in the private institutions. This is also true of the actual total sum. Besides the three major current sources of income for higher education (as shown in Table 1), there is the fourth which is classed as “all other sources.” This includes any miscellaneous income not already included. With the proper information it would be possible to divide this item between Philanthropie and public sources. There is in addition to the income from students’ fees, public sources, philanthropy, and “other sources”, the income received from property and productive funds in which the Institution has invested, as shown in Table 1. This does not include the value of the property and equipment which the institutions use, as shown in Table 2. TABLE 2 VALUE OF PROPERTY IN UNIVERSITIES, COLLEGES AND PROFESSIONAL SCHOOLS IN THE UNITED STATES—1921-22 Per Cent. Public of Per Cent. Private of Per Cent of Institutions 1 Total Institutions 1 Total Both Total Total $345,360,183 100 $1,072,946,619 100 $1,418,306,802 100 Value of libraries, scientific apparatus, machinery, and furniture.... 62,806,414 18 78,093,992 07 140,900,406 10 Value of grounds.. 46,371,534 13 100,482,239 09 146,853,773 10 Value of buildings excluding dormitories 160,832,813 47 270,506,358 25 431,339,171 31 Productive funds.. 75,349,422 22 623,864,030 59 699,213,452 49 1 Statistics of Universities, Colleges, and Professional Schools, (1921-22), U. S. Bureau of Education Bulletin, 1924, No. 20, pp. 31 and 36. Property Values of Institutions of Higher Education Many of the gifts and appropriations which have been made in the past have been invested in or given in the form of property that has increased in value. This has brought about an enormous advance in the assets of higher education, so that in 1921-22 the various institutions possessed property valued at nearly a billion and a half dollars. This is, no 24 A Study of Student Loans and doubt, a conservative estimate of the funds permanently invested in higher education, since it is based on the information furnished only by those universities, Colleges, and Professional schools which report to the U. S. Bureau of Education (780 institutions in all—119 public and 661 private). It includes the property held in 1921-22 and does not take account of the many gifts and appropriations that have been made since for permanent investments, nor the increase in value of the property held. On the basis of the above figures, it should be safe to say that the present value of such property owing to accretion, additional gifts and appropriations amounts to almost three billion dollars. Accepting with due caution the estimates in Table 2 made by the U. S. Bureau of Education, some light may be thrown on the distribution of these values as in the different forms of property. The forms of property ­ listed in Table 2 are very definite sources of income to institutions of higher learning and must be included as such. It is not possible to assign to philanthropy and the public their proper share of this income from fixed assets. It is reasonably accurate, however, to assign the income from the property of public institutions to public sources and that of the property of private institutions to philanthropic sources. The overlapping will just about balance. Philanthropic Sources The philanthropic sources were the first means of support for higher education. Religious organizations, later on individuals, and at present both of these as well as certain corporations, associations, and foundations are contributing heavily to higher education. The motives underlying these different gifts are diverse. Philanthrophy, the desire to help society in a general way, is a strong incentive; religious zeal is also an important factor and is closely allied to the purely philanthropic ­ sentiment—it is a desire to spread one’s own religious belief. (The numerous religious institutions of higher learning are ample evidence of this.) Next should be noted the desire to advance learning. This has come to the fore recently and is exemplified in the numerous foundations ­ and institutes for research—all endeavoring to ascertain truths along certain specific lines. Millions of dollars have been set aside for this purpose within recent years and the result should be a rapid advancement of knowledge rather than just the dissemination of knowledge already acquired, as was the case in the most part under the purely philanthropic and religious motives. The other motive of primary importance is the personal one. When donations and endowments are given for philanthropic, ­ religious, or research purposes, there is offen in them the personal Stimulus; thus large endowments, gifts, professorships, and scholarships, Their Relation to Higher Educationae Einance 25 for example, are sometimes established to commemorate the memory of certain individuals. This is as good an incentive as the others, for while it is the erection of a monument to some individual, it serves, at the same time, purposes other than the individual one. It perpetuates an ideal as well as a name. Gifts to Higher Education Philanthropy has been generous to higher learning. According to the figures published by the U. S. Bureau of Education, it has given more to the advancement of higher education than it has to all other education combined. „ . . Gifts and Bequests to Higher Education Gifts and Bequests to All Education, Including Absolute Per Cent, of Higher Education Amount Total 1910-12 $30,061,310 $28,185,999 92 1912-14 31,357,398 29,927,138 92 1914-16 37,093,280 34,845.551 94 1916-18 29,856,568 27,450,945 91 1918-20 67,417,156 65,286,159 95 1920-22 78,330,790 77,400,756 99 If all the money which has recently been given for the advancement of higher education in the way of research were added to the above, it would be found that this type of education has been receiving an increasing Proportion of the total amount of money which philanthrophy has given to education in general. There are three reasons for this: first, elementary and secondary education have been better provided for by the public than has higher education; second, money placed in higher education yields more immediate and conspicuous results—those who have large sums to give are generally more interested in the spreading of certain ideals and the advancement of knowledge along certain lines than they are in merely the development of youth in general; and third, the maintenance of higher education is becoming increasingly more costly. Recent Gifts The question which presents itself now is whether Philanthropie sources of income will continue to be as generous as they have been. At first it might seem so, especially if we examine some of the large gifts which have been made recently. The J. B. Duke and G. Eastman donations together with the five million which Mr. G. F. Baker gave to the Harvard School of Business Administration are the most notable. The Eastman gift, in all, was more than fifty million, of which over forty million was for higher education. 13 This means that fifty-eight million dollars was given 13 Editorial, “Millions for Higher Education”, Outlook, Dec. 17. 1924. 26 A Study of Student Loans and for higher education during the last year by three inviduals and does not include the many other gifts and commitments which will be found to amount to several million. If the amounts donated for research and the advancement of knowledge to institutes and foundations, other than universities and Colleges (and such research should be classed as part of higher education), were added, the gifts and bequests in the United States in the year 1924-25 may be well over $150,000,000. Reliability of Philanthropie Sources in the Future In speaking on this subject, Lord Bryce said that the people of England who usually endow Colleges can no longer give in the generous sums to which they have been accustomed; that the taxation of incomes and inheritances is taking half the property of the rieh; that the same conditions prevail in America where income taxes and other forms of taxation are lessening the available income of many people by one-half; and that only the possessors of very great fortunes can still give in large amounts. 14 As against this, Dr. C. F. Thwing, President Emeritus of Western Reserve University, maintains that the fear among certain College people in America that the race of rieh men will die out and so be unable to give in large sums is not well founded, because new sources of revenue are continually being discovered. It is difficult to reconcile these two views. The facts in the case support neither one as stated. An increasing amount of money has been set aside each year by philanthropy for higher education, but while these amounts received from private sources have increased, and there is no reason to suppose that they will not continue to do so for some time, still the needs have outrun the sources by leaps and bounds and accomplishment seems to be lagging far behind opportunity. 15 It is not a question of how much is nerw being received and is to be received, in an absolute way, but what proportion the receipts bear to the expenditures necessary to move forward at a pace commensurate with opportunity and need for the development of higher learning. This Situation demands more than just increased endowments or appropriations. It is doubtful if it could be met in this way. Although more money is essential, alone and unaided by farseeing management, it will scarcely serve to meet present ­ and future needs. 10 What is necessary in higher education is a proper financial as well as an educational program. Such a program must not only budget the income available, but should budget according to the 14 Quoted by C. F. Thwing in “Support of Higher Education,” School and Society, March 19, 1921, p. 356. 15 Editorial, “Cost of Higher Education,” Educational Review, Sept. 1920, p. 173. 10 Ibid., p. 173. Their Relation to Higher Educational Finance 27 necessary requirements for maintaining a progressive Institution and without reliance on an uncertainty. This can only be secured by the allocaticm of costs with relation to the purpose and motives back of higher education and the building of a budget for many years ahead upon this cost schedule. The sources of income must then be sought in the channels that are parallel to the purposes for which higher education exists. The need of economy and of a more definite financial program in higher education ­ is urgent if it is to receive the proper financial support. Philanthropie Sources in 1924-25 Taking the 1921-22 figures as shown in Tables 1 and 2, it may be Seen that the income from property and productive funds of private institutions figured at four per cent. amounted to $42,917,864. Allowing for a reasonable increase estimated at the rate of increase in the income for higher education during the past twenty years, the income from philanthropy should reach approximately $50,000,000 in 1924-25. Adding to this an estimate of the gifts of philanthropy in 1924-25, amounting probably to $150,000,000, it makes a total contribution of $200,000,000 by philanthropy to higher education in 1924-25. Public Sources The public sources of income for higher education made their appearance with the advent of the desire for training in better citizenship. If higher education served such a purpose, it was therefore imperative that the state contribute toward its support. Land grants were made to private institutions already in existence and land set aside for state institutions to be established. Support to both state and private institutions was also rendered through funds derived from taxation. Later, city institutions for higher learning were founded which means that there are now both city and state taxes levied for the support of higher learning together with certain funds coming from the Federal government. Incidence of Public Revenue for Higher Education In discussing the public phase of support of higher education it is necessary to inquire into the equity of the incidence of such revenues. As economic conditions change, injustices are likely to arise and if they persist without remedy, the financial support of these state institutions of higher learning will be greatly hampered. It is necessary, therefore, that those who have the financial policies of such institutions in hand should study the social import of the sources of revenue and make an 28 A Study of Student Loans and effort to shift the incidence of such revenue to make it conform with the new economic conditions and the changing purposes back of higher education. It can hardly be said that the general property tax is still a just source of funds for higher education. It has been found to be an inadequate ­ form of taxation; so other forms have been resorted to, but always only to secure the required revenue and without regard to whether the incidence was equitable. It is urgent that adjustments be made if the necessary revenues are to come from this source, for the Capital needs for higher education are increasing almost proportionately with commodity and wage prices whereas growth of assessment values, on the basis of which these must largely be met, has decidedly lagged. 17 18 19 Such being the case, there must be a readjustment in the means of support for higher education. ­ The mill tax which is still used as a foundation gradually became inadequate and new sources of revenue were sought, generally with the idea of securing money with the least resistance and not with any policy of forcing those persons who receive the benefit of university training to pay for it. In 1919-20 the per capita share of public contributions to higher education in the different States ranged from $3.12 to $0.11. 1S It is reasonable to conclude that these contributions bear no relaticm to the benefits received. The University of Nevada with its income of $3.12 per capita in the state undoubtedly is not serving the public any better or more extensively than the University of Wisconsin which is in a state where the per capita tax is $1.21; or in Ohio with its $0.44 per capita tax during the year 1919-20. To carry out a policy which would provide for taxation in accordance with benefits received would be a difificult task, but the present is an opportune time for the introduction of such a plan, for we are now at the outset of that state of government activity that might be called the constructive functions of government. We do not simply build upon the actually existing Situation and improve it, but we now seek to create entirely new conditions and to make something exist which never existed before.“ There is, then, but one alternative in this matter. The state expenses for higher education must be allocated in accordance with and at the point where such institutions market their waves; or the sources must be left as they are now and, to those who are bearing the financial bürden, should be given a full return on money invested, as some of the state universities are attempting to do. It is difificult to see any other alternative. 11 For full discussion of this subject see: D. Snedden, “Capital Needs for Education in the United States,” Annals of the American Academy of Political Science, Jan., 1920, pp. 71-82. 18 Including Normal Schools. Taken from the “Report of a Survey of State Institutions of Higher Uearning in Kansas,” U. S. Bureau of Education Bulletin, 1923, No. 20, p. 143. 19 E. R. A. Seligman, “The Financing of Education,” Educational Administration and Supervision, Nov., 1922, p. 450. Public Sources in 1924-25 Referring to Table 1, we find that the income from property and productive ­ funds in state institutions amounted to $13,814,405 in 1921-22. Allowing for the same proportionate increase during the last three years that has taken place during the years previous to 1921-22, this source will yield approximately $25,000,000 in 1924-25. Adding to this the current appropriations which can be estimated on the basis of the figures in Table 1, at approximately $110,000,000 in 1924-25, the total income from public sources for current consumption can be estimated at $135,000,000 during this year. Student Fees for Tuition and Other Educational Services Student fees for tuition and other educational Services constitute the third source of income for higher education. This source is- by far the smallest, having been only $64,296,212 in 1921-22 or 20% of the total income; of this $64,296,212 from students’ fees, $50,602,128 or 79% was paid in private institutions and $13,694,084 or 21% in public institutions. ­ Taking into consideration the rate of increase from 1917 to 1922, 20 it should be safe to estimate an income from this source of about $100,000,000 for the school year 1924-25 as against $200,000,000 from philanthropy, and $135,000,000 from public funds. The total from the three sources amounts to $435,000,000 which is inclusive of new Capital Investments and which represents current expenditures for higher education or the cost of maintaining it for the year 1924-25. The Student, therefore, bears less than a fourth of the cost of higher education (taking an average throughout the United States). This does not take into consideration that a large proportion of contributions to endowments and current expense funds are received from former students. The fact remains that the average Student pays less than a fourth of the cost of his education, for those who have given endowments ­ constitute a very small proportion of the entire number who attend College. This is true of the public sources as well, for they also fail to take into consideration the distribution of the benefits of higher learning. A large number of graduates of state institutions bear the bürden of supporting them in no greater proportion than do those individuals who never attended. We find in state institutions, as in private institutions, large numbers of individuals who are the direct recipients of the benefits of higher education and who are never called upon to reimburse the institution which has given them assets at a price far below cost. 20 See Annual Bulletins of the U. S. Bureau of Education on Education.” ‘Statistics of Higher 30 A Study of Student Loans and The Increasing Cost to the Student The income from students has been mounting gradually, but only in absolute figures. Income from Fees and Tuition Year Total Income Absolute Amount Per Cent, of Total Income 1875 $7,960,569 $2,136,062 26.8 1880 7,980,128 1,881,350 23.5 1885 12,253,158 2,270,518 18.5 1890 16,808,734 3,764,984 22.4 1895 22,134,601 6,336,655 28.6 1900 31,676,572 8,375,793 26.4 1905 45,715,927 10,919,378 23.8 1910 80,438,987 19,220,297 23.9 1915 118,299,296 34,067,238 28.8 1920 240,141,994 65,604,128 36.9 1922 319,592,549 64,296,212 20.1 1925 (estimate) 435,000,000 100,000,000 22.9 However, the per cent. which the income from fees and tuition is of the total income of higher education has remained relatively constant until 1920, with a sudden drop in 1922 to 20.1, the lowest since 1885. The per cent. which Student fees and tuition is of the total income, based on the estimated figures for 1925, is 22.9. 22 From the individual student’s standpoint he is paying approximately the same proportion of the cost of his education as he was in 1900. A comparison of 1900 with 1922 shows the Situation to be about as follows: the average fees and tuition have doubled; the total income has increased nine times ; the income from students has multiplied itself eight times; enrollments have increased five times and the cost of living has just about doubled. This means that the Student has been paying a slightly decreasing proportion of the cost of his education since 1900. It is a matter of common knowledge that it costs more to attend College now than formerly. But these higher costs are not due to larger fees and tuition, for when the expenses of a Student are analyzed, it is evident that the increasing ­ costs have been more rapid in other items such as board, room, clothing, and social expenses than they have in purely educational expenses. ­ The Standard of living in the university community has mounted very rapidly and if it is possible for the Student to meet the demand of the rising costs of necessities together with a higher Standard of living, he ought to be able to meet a larger share of the cost of his education. 21 Based on data taken from Sears, Op. Cit., pp. 55-61, up to 1915 and after_ 1915 from U. S. Bureau of Education Bulletins on “Statistics of Universities, Colleges and Professional Schools” for respective years. 32 Since these estimates were made and presented to the Association of University and College Business Officers of the Eastern States, December, 1925, at Pinehurst, N. C., the U. S. Bureau of Education has given out its figures which are: Total Income $387,694,609 and Income from Students $81,168,998 which is 20.9 per cent of the Total Income. This is only .8 per cent higher than 1921-22 and is still lower than any other year since 1885. These, however, do not necessarily invalidate the estimated figures, inasmuch as the figures of the U. S. Bureau of Education ­ represent only those institutions reporting and do not include some of the larger institutions, many of which are privately controlled and thus receive considerable income from fees and tuition. Their Relation to Higher Educational Finance 31 Nor have purely educational expenses increased as rapidly as individual incomes. The result has been that family incomes have expanded, students have been given more money for College allowances, and the students who work their way through College no longer pay as large a share of their personally earned income for educational purposes as formerly. In short, the Student has been paying a constantly decreasing Proportion of his income for his education and an increasing proportion for a rising Standard of living while at College. Comparative Fees and Tuitions in State Institutions A study of fees and tuition charges made by Dr. C. H. Thurber of the University of Buffalo, reveals some interesting facts relative to this source of income. 23 His study shows that from 1900-21 the rise in average fees and tuition charges was as follows: Departments 1900-01 1920-21 Non-Per Cent. Increase Non-Resident Resident Resident Resident Resident Resident Arts and Science... $16 $27 $47 $106 193 293 Dentistry 78 81 150 188 92 132 Medicine 79 83 139 182 75 120 Law 51 53 79 116 55 119 Pharmacy 35 43 69 90 97 109 Engineering 30 53 57 104 90 96 Ihis should not be surprising in private institutions where specifications in endowments may cause such a distribution, but in state institutions it is most amazing because nothing could be more subversive to the public interest. It is not easy to explain why the fees for the different courses were changed as shown by the above data. There seems to have been no fixed policy based on social equity. The per cent. of increase is not sound criterion, examined as of itself, for it is measured from the basic period 1900-01 at which time the distribution was as shown above and in Tables 3 and 3A. Whether the distribution of charges in 1900-01 or in 1924-25 is the most equitable, it is difficult to say. But it is equallv as difficult to defend the changes in charges during this period. Why there was a flat increase, for residents in state Colleges and universities, of $28 for Arts and Science, $24 for Engineering, $21 for Law, $55 for Medicine, etc., is difficult to explain. Nor does there seem to be any underlying principle of equity involved. It can be attributed only to a “makeshift” for the purpose of balancing budgets. In general most people in Arts and Science are preparing themselves for the professions, especially the teaching profession where they will later “cash in” on their educational ­ investment at a somewhat nominal sum. Furthermore, women generally form a large proportion of these students. They will receive 23 Thurber, Op. Cit., pp. 48, 51, 55, and 57. 32 A Study of Student Loans and financial returns on their education for a very short period and when they marry will give the benefits of such an education to society in the rearing of children. An examination of Tables 3 and 3A together with Charts 1 and 1A reveals what has been happening in the matter of fees and tuitions in public institutions, and substantiates what has been said. It must be observed, however, that the figures for 1924-25 present some evidence of the fact that after 1920-21 an effort was made in certain institutions to right matters and place tuition and fees on a more just basis. In this year (1924-25) the absolute figures change the former order considerably. Arranged according to decreasing cost to students in state institutions, they are as follows: Resident Non-Resident Departments 1900-01 1924-25 1900-01 1924-25 Dentistry $78 $171 $81 $223 Medicine 79 134 83 181 Pharmacy 35 69 43 121 Law 51 74 53 111 Engineering 30 54 53 93 Arts and Science 16 44 27 85 In view of the data in Tables 3 and 3A and the above Order of charges it is evident that an attempt is being made to fix charges in the various departments in proportion to benefits to the individuals and society, and, no doubt, in some institutions a proper ratio in this matter has been reached. Other institutions, however, are still far from attaining anything like a scientific ratio in the imposing of fees and tuitions. The facts that have been set forth help to show that tuition and fees within state institutions are not yet fully in harmony with the benefits received by the individual and society. In fact, if we are to judge from averages and take all public institutions into consideration collectively, the Situation is relatively the same. The distribution within the institutions, ­ however, seems to be worse. Many institutions have been moving toward a flat rate, while others are trying to ad just costs to the economic value of the education. Therefore, we find the various institutions moving in opposite directions. Present Schedule of Fees and Tuition A more detailed view of the Situation now shows that the distribution of fees and tuition in the various state institutions is irregulär and in most cases without regard to value which the training has to the individual in an economic sense. Table 4, which is made up of the data gathered by members of the Western Association of University and College Business Officers, shows the Situation in the Western institutions as of June. 1925. Their Relation to Higher Educational Finance 33 TABLE 3 AVERAGE FIXED CHARGES FOR RESIDENT STUDENTS IN STATE COLLEGES AND UNIVERSITIES, UNITED STATES 1900-25 1 rs u. ui Department Institutions Charge Per Student for an Academic Year Increase 1900-01 1905-06 1910-11 1915-16 1920-21 1921-22 1924-25 U900-25) Average $48 $50 $56 $61 $83 $90 $91 $43 Arts & Science.. 24 16 20 22 24 39 47 44 28 Law 18 51 47 53 52 64 79 74 23 Medicine 14 79 68 83 91 140 139 134 55 Engineering .... 16 30 34 33 33 49 57 54 24 Pharmacy 9 35 47 45 45 59 69 69 34 Dentistry 6 78 86 102 119 149 150 171 93 1 Compiled from data adapted front Thurber, Op. Cit., pp. 48, 51, 52, 55 and 57 (and brought up to date). TABIyE 3A AVERAGE FIXED CHARGES FOR NON-RESIDENT STUDENTS IN STATE COLLEGES AND UNIVERSITIES UNITED STATES 1900-25 1 Departments Institutions Charge Per Student for 1900-01 1905-06 1910-11 1915-16 an Academic Year 1920-21 1921-22 1924-25 Increase (1900-25) Average $57 $61 $67 $77 $95 $131 $136 $79 Arts & Science.. 24 27 42 44 52 75 106 85 58 18 53 49 63 67 93 110 111 57 Medicine 14 83 70 84 97 153 182 181 97 Engineering .... 16 53 64 55 59 85 104 93 40 Pharmacy 9 43 51 49 55 70 90 121 78 Dentistry 6 81 88 108 134 177 188 223 142 1 Compiled from brought up to date). data adapted from Thurber, Op. Cit., pp. 48, 51, 52, 55, and 57 (and Their Relation to Higher Educational Finance 35 TABLE 4 COMPAUATIVE FEE SCHEDULE OF STATE INSTITUTIONS 1924 - 1925’'” Institution Arts&Sdencss Commerce & Business Artnin Law Mediane Engineering Dentistry Pharmacy Agriculture 6raduateSchooi Free Scholarships ln Use I ä 1 ui a> QL ä ä M M </) *> QL M i 1 Non Res Ui QL 1 vi *0 QL & i ui <D cd. i 1 i i Numbet Matriculation Dipioma Average 44 85 SB 85 74 /// 134 184 S4 93 IV 223 69 121 43 85 85 65 Arkansas (s-b) 50 60 90 40 90 30 30 25 800 Approx. 15 4 Cincinnati (e) ISO 200 200 300 300 150 200 (c)!00 (m 25 2SI0 io Colorado (to 45 30 45 90 IS I0S 165 270 1945 0)90 45 90 (o) (0) 23S 1041 S Approx 5 10 s 10 Illinois SO 75 SO 75 75 112.50 165 200 SO 75 'tä n 125 ISO SO 75 SO 75 1333 87297 10 10 Indiana 60 95 60 95 75 110 ns 250 60 95 140 8680 (015 5 Iowa 10 90 no ISO 90 130 110 140 ns 3S0 90 130 ns 250 90 130 479 19169 10 10 Iowa State College m m 172 m 90 ISO 72 112 30 30 590 43600 Kansas 20 30 35 45 35 I0Ö 45 100 20 30 35 45 20 30 10 IS 10 Kentucky(d-b) 40 so SO 80 40 so 70 40 so (u-v) (u-v) Service Miami-a 20 SO 20 SO 3 5 Michiqan(Men& Women) 85 80 110 tos 85 80 110 I0S 110 tos 130 I0S 180 ns 260 255 100 95 125 120 180 ns 260 255 100 9S 125 120 es 80 no I0S Some (r)IO (nr)2S to Minnesota 60 90 90 120 90 120 180 210 90 120 180 210 I0S 135 60 90 30 30 0)S Missouri SO 70 SO 70 SO 70 so 70 SO 70 SO 70 so so 106 5300 s Montana (q)30 flffi 30 75 S 5 Michigan^) Agricultural ~0d4 h090 W29— M35 78 123 (0 4 <t)4 S S Nebraska -HTJ— (Pb OH (1)3 (1)1 0 2 OH (l>? 02 0 3 (in 0)5 IST '1iS~ 160 dH 0)2 dH. 0-2 ISO no 150 no (PI (03 0/ 05 01 01 (1)1 (03 tDl (Pi Some S 5 10 North Dakota 25 25 SO SO SO 100 35 2S 35 2S (u) N) Ohio 45 150 100 205 ISO 765 45 ISO ISO 2SS AS ISO 45 ISO 4S 45 10 5 10 Purdue SO 100 SO 100 SO 100 SO 100 SO 100 104 1560 5 5 Texas SO 30 20 20 45 ISO 30 30 40 ISO 16 3500 10 30 4 Utah(m) 38 63 98 123 113 138 38 63 88 113 Utah Agricultural 28 53 28 51 28 53 28 S3 tMOpUx Entrenofee S Washington 45 ISO 75 180 45 ISO 45 ISO (u) (v> Service S Wisconsin 24 148 24 148 24 148 24 148 24 148 <v) (») Wyommg-(b) 21S0 22. SO 2150 11.50 2ZSO 2150 22.50 22.50 22.50 22.50 0) (<j) 84 1872 2 S a Extra formusic. b Extra 1vr laboratory c Covers all Student actMties d Feltorvships. . Cincinnati tos an additional fbeof*30 fcr Miitns arm *40 rerNun resident*. f Iw Medice! School only. s included n regulär tuitbn totals listed in coiumns to we ieft. h industrial Science i Vetinary Mediane i norm Economics k Special large dipioma only. I Per credit hour. m Additional incidental fee. b Student banüe. o Release fron Matriculation fee. f AMIt'onal tir Migrant StoAentr. q All schools. r Includes laboratory. s Also Applied Arts t Per course. v The samt astte College m which the imrk is taken. i Adopted wrth modificat/ons from mmutesofFifthAnnual Meeting of the Western Association of University and College Business Officers he Id at the University of Missouri, Columbia Mo.. May 22-23.1925. A Study of Student Loans and Their Relation to Higher Educational Finance 37 It is illuminating to examine conditions in some of the individual institutions as shown in Table 4. The University of Arkansas, for instance, asks no fees of resident students in Arts and Science, Engineering, ­ or Agriculture. Courses in Law and Medicine, on the other hand, are charged for, though these fees are but nominal. The charges are irregulär and no valid reason can be assigned for their imposition from a scientific standpoint. Political expediency and budget deficits, no doubt, are the causes of such a distribution of fees and tuition, and has coincided with wisdom in the case of Arts and Science. Another interesting case is the University of Wyoming with straight charges for residents and nonresidents in all the different schools. As for the lack of distinction made between residents and non-residents in these institutions, it is not of concern here, for it is due more to political factors than to educational policies. The fact that charges are the same in all schools is worth noting for the present study, and with Wyoming must be included Wisconsin, Purdue, Missouri, and Washington (with the exception of charges in the Law School). The conclusion is self-evident. In many cases charges are not in proportion to economic benefits to the individual; in a few cases there seems to be a tendency to make adjustments in this respect, such as, for example, in Nebraska and Michigan, although even in these cases where the proportioning of charges between schools seems well-balanced, there is little upon which to found a belief that there is a proper balance of charges between the Student and the state. It should be added that in Arkansas, Colorado, Kentucky, and Wyoming there are extra fees for laboratorv courses. This, however, does not invalidate what has been set forth. Comparative Fees and Tuitions in Private Institutions The same general conditions are to be found in the private institutions. ­ In the relationship between the Student and the Corporation, the former is far from bearing his share of the expense. He does, however, bear a larger proportion than in the public institutions. This is inevitable, since private universities receive money from the state only in a few instances and the sums so received are small. It may be seen in Table 5 that charges in the various schools in private institutions bear no relation to the economic value of the training. In 1924-25 the fees and tuition Were as followS : Increase Fixed Charges Since 1900-Engineering $283 $71 Medicine 275 109 Arts & Science 247 163 Law 213 105 Graduate School 127 —3 38 A Study of Student Loans and TABLE 5 AVERAGE FIXED CHARGES IN PRIVATELY ENDOWED INSTITUTIONS, UNITED STATES 1900-25 1 Charges Per Student for an Academic Year Increase Department 1900-01 1905-06 1911-12 1915-16 1920-21 1921-22 1924-25 (1900-25) Average $129 $136 $136 $149 $187 $216 $229 $100 Arts & Science 118 125 121 130 192 229 247 71 Law 2 104 114 112 141 179 205 213 109 Engineering 3 120 130 141 162 184 225 283 163 Medicine 171 181 176 189 194 235 276 105 Graduate 4 130 130 130 125 184 186 127 —3 1 Adapted from Thurber, Op. Cit., p. 58, with changes and brought up to date. 2 Johns Hopkins University not included. 3 Chicago University not included. 4 Vanderbilt University not included. Harvard, Columbia, Chicago, Deland-Stanford, Johns Hopkins, Vanderbilt, Cornell, and Bryn Mawr are included in Arts and Science and Graduate figures. The Order here is somewhat better than in the case of public institutions. There is no reason to believe, however, that it is a calculated result. It is more reasonable to believe that endowments for some branches of learning have not been forthcoming as abundantly as they have for others. This is undoubtedly true in some cases and is an unfortunate Situation. The line-up is encouraging, however, and shows the advantage which private institutions have over public institutions. Due to the absence of state politics they are able to initiate sounder financial policies. If the years prior to 1924-25 are examined, it is found that the Order is constantly shifting and there is a tendency to conclude that charges in the different schools are not made on any basis of economic justice to the individual or to society as a whole. 24 It seems quite obvious that there has been no improvement in the apportioning of fees and tuitions within the institution, even in the private universities and Colleges. No trace of a definite policy involving economic justice can be found. Fees and Tuitions in Private Institutions in 1924-25 The present fee and tuition schedules in private institutions show more consistency than those in public institutions, as may be seen in Table 6. There is less difference among institutions and among the various schools within these institutions. There has evidently been an effort on the part of each institution to keep within the limits prescribed by other institutions. 24 Thurber, Op. Cit., p. 62. Their Relation to Higher Educational Finance 39 A!/£ ?AC£ r/. X£D CM C/Ms WC/TC 77 2 -&Ctr 77?/t '4TC/.Y i 4 Z//&CYVC. /900 ~ // 0 /MC 7 ■/925 7T//T/C A/M j&O / -/uA 't ic± iw — T \ \ \ \ l6th / ' / . // \ \ \ \ V 1 ■/£& —r"'*' —x xtzß- A x— C/£lfVlS /s £ Sciem YVY Q//7efjxaa~ e> n ^ 1 : i i jj 'oftCt/t? ■craCa/e ?rape /s 00 /$» OS /« '0 /9/ f /£ 20 /& V 40 A Study of Student Loans and TABLE 6 COMPARATIVE FEE SCHEDULE OF PRIVATE INSTITUTIONS—1924-2S 1 Institutions Arts and Science Faw Medicine Engineering ­ Matricula Graduate tion Fee ■ Graduation ­ Fee Average $247 $213 $274 $282 $127 $7 $12 Brown Univ 300 300 300 10 Carnegie Ins. of Tech. 300 180 5 Chicago Univ 225 225 240 300 300 10 Columbia Univ 300 300 300 300 300 12 20 Harvard Univ 300 250 300 300 300 20 Lehigh Univ 300 300 5 10 Univ. of Penn 275 275 325 325 200 5 20 U. of Pittsburgh 212 212 312 212 Princeton Univ 350 100 5 12 Stanford Univ 225 195 255 150 5 Syracuse Univ 225 225 275 275 100 5 10 Yale Univ 300 300 20 1 Compiled from the announcements of the various institutions. The other interesting features which Table 6 discloses are that tuition and fees are on a flat basis, or nearly so, in most institutions, and that charges in the Graduate Schools are much lower than in the other schools with the exception of Brown, Chicago, Columbia and Harvard Universities. The figures for Arts and Science are at a relatively high level in practically all institutions, which would indicate that the charges for these courses are as much as for Law, Medicine, and Engineering, except where a difference is caused by large laboratory fees. It is fair to conclude that charges are neither apporticmed in accordance to educational costs nor the economic value of the training to the individual. The Cost of Education to the Student There has been much said about the rising cost of education to the Student, but, as was pointed out above, the purely educational item in the student’s budget has not risen proportionately with the other items, such as clothing, amusements, and future earning capacity. It is of little use to examine absolute figures in this manner. The rise in fees and tuition ­ must be compared with the rise in other things that enter into the cost of education. The major factors in the cost of education from the student’s standpoint are tuition and fees, and cost of living. From the Their Relation to Higher Educational Finance 41 -275 T7//T/OA7 77/VD F£. wit/i rs ccm/ 7 Aft£/D C77A77T JA COi ^ i N is. 'W/VG - rw 7/0/7 S-ffiPO H // LFCFA/L (fosta/ent. (JVo/i/fps.. 7 State 7a " rt/tc/t/o/7o */ Co< !/ V ;/ of Liv/7 Frt'yate) ’9 //Mtttc/tl, VJO A -2&0 / \ / ' "* 775 1 A / P Li y*— —75H7 / / / / 7 X // / / / / /J —725 / / / ,y iS ~TOO — — —75 APS 7900 7905 79. ’O 7975 7920 7925 IS gral standpoint of the institution the main items are the cost of physical expansion, which may be divided into building wages and building material, real estate values, salaries, and cost of equipment. In Table 7 may be found an index of some of these factors, showing the relative change in price, using 1913 as a base. These changes in prices are plotted in Charts 3A and 3B to show the relation between tuition charges and the cost of living, and the cost of building. They are self-explana.tory as they give a moving picture of what has been happening. TABLE 7 INDICES OF COST OF EDUCATION, COST OF BUILDING, AND COST OF LIVING COMPARED Year Tuition and Fees in Private Institutions 1 Tuition and Fees in State Institutions 2 Cost of Building 3 Cost of Living 4 Resident Non-Resident 1900.. 90 81 78 1905.. 95 85 84 1910.. 95 95 92 1913.. 100 100 100 100 100 1914.. 96 103 1915.. 104 104 105 98 105 1916.. 114 118 1917.. 138 142 1918.. 152 174 1919.. 179 199 1920... 131 141 130 234 216 1921.. 151 153 179 175 180 1922.. 174 166 1923.. 194 172 1924.. 19T 169 1925.. 160 154 186 173 1 Bureau Based on data in Sears, Op. of Lducation, “Statistics Cit., pp. 55-61, of Universities. up to 1915 and , Colleges and after 1915 from Bulletins of the Professional Schools” for the respective years. 2 Based on data in Sears, Op. Cit., pp. 55-61, up to 1915 and after 1915 from Bulletins of the Bureau of Lducation, “Statistics of State Colleges and Universities” for the respective years. 3 Index of the Federal Reserve Bank of New York. 4 U. S. Department of Labor Index. 5 First nine months only. Chart 3A shows that the cost of living went up much more rapidly from 1913 to 1921 and reached a higher point than did any of the fees and tuitions; and from 1921 to 1925 still remained higher than did fees and tuitions for residents in state universities and students in private institutions. Their Relation to Higher Education al Finance 43 TL//T/OA ' MD AZ m/A rs comp. CDA 4PCD % k et COS'. 'l * ! 1 l£C£M 7 ----- Ttft. . . / Coi Zmi/ees // " .. / cf ßc//Za (JVoa-Pes) (Private) i/tß Oi&iJ? //T<$i, •• ArtMvAa "/ufZ&TTf W j\ 1 \ f 1 290 / \ / 1 / r r-^ / y-"' / -ftt / r i ~~/56 7 / / -ir ✓./ / ^ / / —/25 '-ZL *—/&& z ^ ** ZZ^ 62S /900 (905 /9 '0 (9/5 /920 (925 _ ± ."•-W V%S* 44 A Study of Student Loa ns Cost of Building Comparing the same curves as in Chart 3A with the cost of building, Chart 3B, we observe practically the same relationship. The only difference is that the cost of building reaches a higher peak, has a gradual rise after 1921, and keeps above all the tuition lines, except from 1921 to 1923, whereas the cost of living line falls below one cf the tuition lines in 1921 and remains in that position up to the present. Sources of Income versus Benefits Keeping in mind that Statistical information is very inadequate and unreliable, we may nevertheless formulate certain postulates. First, that the income from the Student body has not risen proportionately to that of the income from other sources. This is a matter which needs serious consideration. Second, that the educational charges in the various schools within the institutions, both public and private, have not been apportioned with due consideration given to the differences in the economic value of the training to the Student as among the various branches of leärning. A few institutions have approached such an arrangement, but there is no reason to believe that this has been done in a calculated way. Third, that the financial policies of institutions have not been remodeled in accordance with the changing economic conditions and the new purposes for which higher education exists. Fourth, that the general argument or contention that higher education justifies large state appropriations from the subsequent value it renders to society, is equally applicable to any form of training, physical, moral, or for the trades. The bricklayer (on the average) is potentially as useful to society as the average writer, poet, artist, musician, or even lawyer or business man, as well as a large Proportion ­ of those engaged in the many forms of so-called scientific work. Not all College graduates contribute more to society than the average individual. ­ It is only the exceptional man in the exceptional position who contributes more to society. Fifth, that an attempt should be made to allocate costs of higher education among the various sources of revenue in proportion to the benefits which institutions of higher leärning have to offer to these different individuals, groups, and organizations which constitute the sources of income. In order to do this, it would be necessary to measure both the benefits of higher education which the different parties receive and also the cost to the Institution to make these benefits available. [45] CHAPTER III ALLOCATION OF HIGHER EDUCATIONAL COSTS Two Phases The allocation of higher educational costs ties up closely with the purposes for which such education is maintained. The three purposes which have been found to be cultural, political, and economic, bring up the question as to what the sources of support for higher education are and how these sources ally themselves with the purposes. The present sources of support together with the proportion that each bears to the whole and to each other have just been examined. The question now arises as to whether they and their present interratios are satisfactory in view of the purpose for which higher education is being conducted, and if not, what would be a proper ratio, and how could such a ratio be established ? In the allocations of higher educational costs there are two phases to be dealt with: 1. The allocation to society, to the philanthropist, and to the individual who is the recipient of the education. 2. The allocation within the institution among the various schools, faculties, classes, and individuals attending; these costs to be allocated proportionately to the purposes which such education serves. Costs and Increased Enrollments The number who have availed themselves of the opportunity for a College or university education has been steadily growing and causing our educational equipment to become inadequate. We have adhered to old views without any regard for the changing phases of our social and economic ­ organization. The increased costs due to greater enrollment and more expensive educational equipment have not been fully taken into account in fixing charges for educational Services. The result has been a call for additional endowments and larger appropriations. This naturally has raised questions concerning the advisability of investing more money in higher education. It has resulted in developing three points of view as to what proportion of this cost society and philanthropy should bear and the Charge for tuition or the price that should be paid by the individual receiving the university or College education. There is necessarily a ratio here between the benefits received by the different parties contributing to the support of higher education and the proportion of the cost paid by each. Whether this ratio is a true or false one has never been determined, nor has the problem ever been scientifically studied. 46 A Study of Student Loans and Points of View 34 Examining the present tendencies of thought on this subject, we find that they fall into three categories. At one extreme we find those people who think that society should furnish higher education. By this is meant that when there are not sufficient funds available from Philanthropie sources, the state or community should become responsible. At the other extreme we find those who believe that the direct recipient, that is. the Student attending the university or College, should pay the full cost of education, and who hope that means can be found to maintain the present type of enrollment under such a regime. Between these two extremes we find the large majority who believe that society as a whöle and the direct recipient should bear jointly the financial support of higher education. This group, of course, is further divided as to what per cent. of the total cost each should bear. Let us examine each of these views in turn. Society Should Bear the Cost Those who advocate that society should bear the cost take their stand on the ground that education is not only beneficial but necessary for the well-being and progress of society. This is a socialistic or institutionalistic point of view toward education—a commodity to be distributed to the public and paid for by it. This doctrine had its roots in lower education and not in higher education. The essence of it is that by giving all individuals an opportunity to be educated, society is benefited proportionately. This was true at one time and may still be claimed of lower and secondary education, but higher education has assumed new purposes. Those who are of this opinion have not progressed beyond the trend of thought that was prevalent when universities and Colleges were first established. The early institutions of higher learning were privately endowed universities and Colleges. They trained ministers and other Professional men to meet a social need. These people went out and worked for very small fees and. their efforts were in large measure missionary, whether they were in the ministry, in teaching, law, or medicine. Education did not have the same economic value then as it has today. 34 Based on Interviews and correspondence with: Mr. T. C. Carlson, Bursar, University of Arkansas. Mr. J. C. Christensen, Ass’t Secretary, University of Michigan. Mr. Horace S. Ford, Bursar, Mass. Institute of Technology. Mr. A. J. Lobb, Controller, University of Minnesota.. Mr. M. E. McCaffrey, Secretary, Bd. of Regents, Univ. of Wisconsin. Mr. W. J. Mathers, Ass’t Cashier, University of Chicago. Mr. Lloyd Morey, Comptroller, University of Illinois. Mr. J. D. Phillips, Bus. Mgr., University of Wisconsin. Mr. N. C. Plimpton, Auditor, University of Chicago. Mr. George F. Sheers, Auditor, Carnegie Institute of Technology. Mr. Shirley W. Smith, Secretary, University of Michigan. Dr. S. S. Wilson, Secretary, Western Reserve University. Dr. C. F. Thwing, President Emeritus, Western Reserve University. Their Relation to Higher Educational Finance 47 Our Colleges and universities have now multiplied their courses and in many cases the training received enables the recipient to command a higher salary as well as to render a greater Service to the public. Conditions have altered without shifting the point of view of many who are responsible for the financial policies of education. A large proportion of the public does not as yet see the changed purpose of a higher education. The young man who enters a law school, medical school, school of journalism, or school of business is no longer actuated solely by the Philanthropie ­ motive, but hopes to make more money and thus to “cash in” on his investment in his education. Those who hold the view that society collectively owes the coming generations a higher education at a nominal cost are evidently not aware of the changed circumstances. They argue that no cash value can be placed on an education since it is a legacy which we have received from our ancestors, the value of which cannot be estimated. They further hold that since we have received such a legacy, we in turn should pass on a like one to posterity. The trouble here lies in viewing higher education as a whole rather than examining it in the light of the various purposes for which it exists. They do not recognize the three major purposes of all Colleges and universities. No institution, faculty of learning or individual course has only one aim or purpose, but rather combines all or part of them in varying ratios depending upon the type of information expounded. Only in proportion as a brauch of learning ­ serves each purpose does the present generation owe this education to posterity. It should be recognized that certain forms of training and varying proportions of other training are of primary importance to society and that society should pay for them. There is a failure to allocate costs in proportion to benefits. Higher education is available for a large number of people with a variety of aims. Those who seek it are increasing in number more rapidly than are the financial resources of Colleges and universities. The philanthropic sources are far from sufficient to keep pace with the new demands, so that public institutions must be supported by taxation. Under this view the tax bürden for higher education will constantly have to be increased or higher education will go bankrupt, unless endowments can be raised to talce care of the surplus students. It is obviously unfair that the poorer classes, which are only remotely benefited by some branches of higher education, should bear the bürden of its support. If these institutions can show that they are serving all persons, the present state of affairs must not be disturbed. But few of them are able to do this and so the view under discussion is constantly being abandoned by the more progressive elements which are striving to adopt policies that will allocate cost in proportion to benefit. It is not equitable that the young man be educated at the expense of those to whom 48 A Study of Student Loans and he will later Charge a price for his Services, based upon his training. The advocates of this view would ask a fee that is just sufficient to make the Student appreciate the training he is receiving. Such a charge would bear no relation to the economic value of the training. Recipient Should Pay Full Cost Those who hold the opposite view maintain that the recipient of the education should bear the full cost. This is an individualistic opinion as compared with the socialistic one just discussed. There is some difference within this group as to what is to be included in the cost.of education. However, regardless of that, they believe that the Student should be charged the full cost of giving him his training. This is based on a philosophy that the Student is the one who gains primarily and that society’s benefit is so remote that it should pay either little or none of the cost. Many who speak of the full cost have their own interpretation of what this consists. Some interpret it to be current expenses; others, both current and fixed expenses, and some would go so far as to include the interest on invested Capital, leaving out only the element of profit. This means an attempt, or at least a belief that the whole of higher education should be put on a purely business basis. If such a practice were followed, it might result in serious consequences. It might disturb our present type of enrollment unless we found a way to assist the less well-to-do Student to help himself in the way of loans. It would also mean that the cost of instruction would rise, since if education were on a purely business basis, the teaching staff would demand higher salaries and there would be a danger of throwing the whole of education on a bargaining basis and thus make it purely a money proposition. The same would be true if cost were interpreted to mean current costs or current expenses. It would mean that the state or endowments would furnish the plant and the Student would be charged the cost of upkeep and Operation. The same objections enter here. It is an arbitrary way of allocating costs because it fails to take into account aims or purposes on one hand and the direction which benefits take on the other. It is an attempt to apportion costs between society and the individual, but one which is based on the mechanics of accounting rather than being based on social equity. Dividing Cost Between Recipient and Society Between the two extremes we find more sturdy thinking not only from the standpoint of College and university finance, but from the broad social consequences as well. This group believes that the cost should be Their Relation to Higher Educational Finänce 49 Bibliolh&J divided between the recipient of higher education and society. There is no unity of thought regarding such division. It brings up not ot'.ly a qufstion, of accounting, but one which involves social and financial determine how much each should pay, it is necessary to estimate just the Proportion of benefit the individual and society receive when the individual is given a College education. We find that some believe in drawing a line between fixed and operating expenses. Such a division is not necessarily in proportion to benefits received. It is not possible to obtain equity in this matter with any mathematical precision. A further problem presents itself here. There is not only the allocation of costs between society and the Student body, but further adjustments must be made within the Student body. The ratio will not be the same for society and for the Student in different courses. It is evident that the ratio between society and the individual ­ will vary depending upon the economic value of the course the Student follows. This does not mean that all professions and other endeavors are not necessary to our social organization, but the cash value of the education received varies depending on the subjects pursued. According to the theory of dual benefit in higher education, the next step is to find the ratio of benefit as between society and the individual, and also the difference which exists in this ratio in the various schools or professions. The latter should be based on the cost to the Institution of giving education and the cash value of that education to the recipient. The finding of this ratio and the allocation of educational costs accordingly, would seem to be the starting point for the readjustment of College and university finance under our present social and economic organization. The Problem of Cost Allocation The views set forth above are illustrative of the cross currents of thought that exist among those who direct the financial policies of higher education. The reasons for the divergent views are obvious. They are due to the failure to take a long ränge view of higher learning and the failure to recognize the changing aims, or purposes, which come about due to a changing social, political, and economic society. Notice has not been taken of the facts that in some fields of learning the political motive, in others the cultural, and in many more, the economic predominates; that in most fields of learning all three are present in varying degrees and costs should be allöcated proportionately. The financial house of higher education ­ needs to be constantly remodeled to meet our changing economic and social conditions. This readjustment should necessarily Start from the ratio of benefits received by the parties concerned. Just how such a ratio can be established and costs allöcated accordingly is the next question to be determined. 50 A Study of Student Loans and Arriving At the Ratio In attempting to find this ratio for the allocation of costs, it is important to refrain from making too minute divisions. Classifying the aims or motives of higher education into three major divisions should enable us to arrive at the part of the total cost the Student should bear and then to develop a policy of Student financing that will help him to meet these needs. The Present Situation The present Situation in the allocation of costs may be represented as in Diagram I. It may be seen that the individual is furnishing slightly more than one-fourth of the total cost of maintaining higher education, or approximately $100,000,000. Society, on the other hand, is furnishing less than one-third of the total cost, about $135,000,000; and philanthropy contributes nearly one-half of the total amount, or approximately $200,-000,000. In Diagram I, which represents the total field of higher educational finance, it may be further observed that the three main purposes or aims for which higher education exists are represented as equal, each receiving one-third of the total financial support which goes to this branch of learning. This is but a rough estimate and would, no doubt, be modified considerably if it were possible to secure accurate data on the matter. However, such estimates are of Service as a basis for further thought and study. The line XY divides the field of higher educational finance into two parts, one of which is given to the dissemination of learning and the other to the advancement of learning, as the diagram indicates. This constitutes the fourth plane from the standpoint of the diagram. The first, is the total field of higher educational finance; the second, the same divided into its sources of support; the third, the field again divided into the purposes or aims toward which the expenditures are made; and the fourth, divides the field again into two parts, one of which is for the dissemination ­ of learning and the other for the advancement of learning. It may be observed that no account is taken at present of the difference in relationship as between purpose and support of higher education. Purposes or aims have no influence on cost (in most institutions) and there is no distinction made as to how much should be expended in the dissemination of learning and how much on the advancement of learning. Money is being spent for both, but without any definite plan based on an intelligent estimation of what share of the available funds each should receive and to what fields of learning these funds should be applied. In Their Relation to Higher Educationar Finance 51 D/HOE4M / T//E EÖUECES OE EETE/VDE AND THE ASSt/MED EXEEAVD/TDEED ED/? E/EEEE EDECAT/O/V /924 -Z925 52 A Study of Student Loans and short, it appears as if matters have been in an unconscious state of drifting and as a result some branches of learning have leaped far ahead of others and money has been used to disseminate knowledge in some quarters long outworn by changing conditions whereas a larger proportion of the funds available should have been spent to advance knowledge in that field. It is urgent that we study carefully the relative importance of the different fields of learning and ascertain the proper source for financial support of each. That is, there is needed a redistribution of emphasis in learning and the advancement of knowledge. This having been done, a reapportionment of costs should be made accordingly. Basis for Cost Allocation Diagram I shows roughly how the allocation of costs is now made in most institutions. Diagram II, following, shows a basis from which a Start could be made for a more ideal System of cost allocation. It is not proposed as a final solution of the problem of allocation of cost, but rather as a basis for further thought and discussion. With such a policy higher education could be placed on a sound financial basis. It is reasonable to suppose that philanthropy will still continue to give higher education ­ as much support as it has heretofore. Society could then be asked to match philanthropy which would mean that $200,000,000 should have been forthcoming from this source in 1924-1925 instead of only $135,-000,000. Philanthropy and society together would have furnished $400,-000,000 in 1924-1925. According to the proportions set down in Diagram II the Student would be asked to match both philanthropy and society. His share would be $400,000,000 as of 1924-1925, making the total income for higher education in 1925 $800,000,000 instead of $435,000,000. To sum up: philanthropy would continue to give an increasing amount of money to higher education, society would at least match it, and the recipient of the education would match both philanthropy and society. In this way higher education could broaden in scope and push forward more rapidly into both the old fields and new fields of knowledge. In Diagram II, the whole field of higher education is represented by ABCD. This is then divided into three equal parts, one part assigned to each of the three major purposes or aims: ABFH to the political, FHRK to the cultural, and RKCD to the economic. The field is again divided into three parts, representing the proportion of the cost each of the three major financial sources should bear. This division assigns one half of the expenses to the Student, ACD : one fourth to society, AED: and the other fourth to philanthropy, EBD. The last, philanthropy in higher education, should be devoted in the main to the advancement of learning, excepting the small portion EXT which should be given to the dissemi- Their Relation to Higher Educational Finance 53 D/AGPAM I //YP0T//P T/CAL ALLGCAT/O/V OP 7PP SW/PCPS’ OP PPPPMi/P AMD OP TA/JET PXPPMD/ TU REO PO/? P/OP£P PDUCAT/OM 54 A Study of Student Loans and nation of political knowledge. The other three fourths AECD which should be supported by society and the Student should be devoted to the dissemination of learning, excepting a small portion YTD, which should go toward the advancement of learning. We admit here that an arbitrary Start is being made, but only such an arbitrary start as can be readjusted. If, as our information on the subject increases and experiments warrant, too large a portion of the intellectual endeavor is being given to any one of the purposes, the lines FH or RK or both can be shifted. This also applies tö the other lines: AD can be moved at its A end towards F or towards E and ED can be moved at its E end towards A or towards B. As it is found necessary to give more attention to the different purposes, a new proportion of the field of intellectual endeavor can be assigned to them, and as it is found more advisable to give more attention to advancement ­ of learning or dissemination of learning, the line XY may be shifted, and, as such shifts are made, the three major sources of income should be tapped proportionately. Reasons for Such Allocations The question which arises here is why these proportions are taken as a basis. The reasons are, first, that the proportions are not meant to be fixed, but adjustable, and so can be adapted to changing circumstances and the type of the institution and thus form a permanent basis for policy and action. Second, these proportions as represented are believed to be fair approximations of ideal conditions and in fact approach existing conditions in some institutions. Advancement of learning has been given mainly to philanthropy, since, if left to the individual, little progress could be made because of the increased cost of the development of information due to actual cost of apparatus and salaries, and also, because as our society becomes more complex, there are more fields that require intellectual ­ attention and inquiry. In a more intricate society, methods of inquiry become more costly and therefore more money must be spent to obtain accurate knowledge. 25 The share of society has been assigned mostly to the dissemination of learning since society cannot always be relied upon to promote the advancement of learning where social and economic factors are pitted against each other in rivalry and such rivalry 25 W. C. Mitchell in “Quantitative Analysis in Economic Theory” American Economic Review, March 1925, p. 2, in speaking of the increased cost of the acqui'sition of economic, knowledge ­ (and it should be true of any other fields, especially those with a political purpose) says in part: “* * * prospects are improving. One of the chief obstacles in the way of quantitative ­ analysis in economics has been the heavy bürden of routine labor involved. A qualitative ­ worker requires hardly any equipment beyond a few books and hardly any helper except a typist. A quantitative worker needs often a Statistical laboratory, a corps of Computers, and sometimes a staff of field workers. Few economists command. such resources. But of late the endowment of economic research has begun on a scale which reduced this handicap upon quantitative research and promises to reduce it further in the future.” Their Relation to Higher Educational Finance 55 manifests itself in politics. It is impossible to get a wise distribution of funds among the various fields of learning because of group interests in control of the public purse. The Individual The individual in our ideal scheme is asked to bear practically twothirds of the cost of the dissemination of knowledge and one-half of the cost of higher education, because he can hardly receive less than half of the benefits which such trainiug has in störe for him, taking education as a whole. If the training is in dentistry or in business, the individual is the recipient of practically all benefits and so such training should be placed near the CD line in Diagram II, which shows that the individual pays practically the entire cost. In the case of knowledge with a political purpose the individual should pay very little, society a large part, and much of the income from philanthropy should be at present spent on the advancement of learning in such fields. The political organization of society has lagged far behind the cultural and economic; therefore, most of the efforts of philanthropy should be directed toward the advancement ­ of learning in fields of political knowledge. In the wild dash for economic conquest, the political and social organization has been left in the background without a sufficient amount of new knowledge to be used as a guide. 26 Philanthropy having furnished the knowledge in political fields, society should bear the largest share of the cost of dissemination since the benefit to be derived from the dissemination of political knowledge ­ is largely social. Only in so far as such learning has a slight element of cultural or economic benefit to the individual should he pay for it directly. That knowledge which is acquired for cultural purposes should in large part be paid for by the individual. Society should pay a fair portion of it as long as the belief continues that the greater number of cultured individuals there are, the better off society will be. Philanthropy must come in to advance knowledge of this kind because society collectively and the individual have a natural tendency to be dominated by economic motives. In order to maintain culture therefore philanthropy must preserve it and place it on the intellectual market at a reasonable price, thus making it available for a sufficiently large number of people. 20 Mr. William S. Culbertson says on this point: “The conceptions of political and social control prevailing in Western States today are, if not Aristotelian, at least those of the eighteenth Century. The material progress of Western civilization has been effected at an unprecedented rate and is still rushing forth to new conquests. Eiving in a new material world, we lack a Science of government capable of Controlling lts destructive tendencies or of turning its achievements to social ends.” International Economic Policies, pp. 8-9. 56 A Study of Student Loans and Knowledge with an Economic Purpose The third division is knowledge with an economic purpose which primarily benefits the individual who possesses it. Knowledge of such a nature, whether possessed by an individual or Organization has a commercial value and so its full cost should be paid for by the recipient. Philanthropy and society should bear only that portion of the cost of such knowledge as to cover only that part of it which is cultural and political. Business organizations can be depended upon to furnish the funds for the advancement of economic knowledge, and society and philanthropy can organize such knowledge in suitable form to be placed on the intellectual market for the individual at practically the full cost. Again, it must be realized that none of the dividing lines are hard and fast; that there will necessarily be some overlapping; that different fields of learning will have to be assigned to relative positions; and that there will have to be further allocation within each of the three sources of income. The Share of Philanthropy The distribution of the share which philanthropy bears will necessarily be determined by the conditions imposed in restricted endowments and gifts. But with definite financial policies the funds forthcoming from philanthropy should increase if they are guided into the proper channels where their assistance is most needed and where the greatest benefits will be derived. A certain donor in a recent conversation has said: Institutions of higher learning must not come to me for funds until they can show a wiser use and more eflicient way of administering the funds they already have. The Share of Society In the interest of social justice there must be a reapportioning of taxes for higher education. If the educational reformer will become for a time a Student of taxation and finance, the path will be cleared. The continued reliance upon outworn methods, the old shibboleth-like increase of assessments, equalization of property and the like are in vain. The first condition of progress is an appreciation of the real secret of the present failure. 17 The program includes two remedies, one economic and the other political, ­ which means the development of a fiscal System that will respond to modern needs and that will tap the resources of the community according to the relative ability of the individuals and an apportionment among these individuals in accordance with benefits derived from the existence of insti- 27 27 E. R. A. Seligman, “The Financing of Education,” Educational Administration and Supervision, ­ Vol. 8, p. 456, November, 1922. Their Relation to Higher Educational Finance 57 tutions of higher learning in the community. It should include taxation of individual incomes, taxation of business, and taxation of inheritance. 28 This method, though not ideal, is a better way of calling on the public to shoulder its share than the one in use at present since it embraces both the principles of ability to pay and benefits derived. It should at least be a great improvement upon methods, in vogue in many States today, supported by arguments no longer substantiated by existing conditions. The Share of the Student As the share of society must be reapportioned, so too the share of the Student must be reapportioned within the Student body. It is folly to charge a flat rate for all courses. The greater economic benefit which the individual ­ derives from certain courses should be taken into consideration and charges made accordingly. Not only the cash value of a College education should be studied, but also the difference in cash value of training received in the various schools within the university. The findings should then be used as a basis for future charges. Some of the institutions have already realized that there exists a different economic advantage from following certain lines of study and have adjusted their tuition charges accordingly. ­ The data in the previous chapter, however, show that further adjustments are needed. It must be determined what portion of a course serves the public purpose, what portion serves the cultural purpose, and what portion serves the economic purpose and the allocation of costs made to these various sources proportionately. The Results What would naturally be the results of such cost allocations? 1. It would place higher education on a sounder financial basis by balancing costs of certain educational efforts against specific sources of income. This would enable those seeking funds, public or private, to give specific reasons for asking for aid and to point to definite benefits which such funds would produce. Individuals and legislatures would be more willing to help higher education if they could be shown how and along what lines the money would be used instead of just receiving an appeal for funds to balance the entire College budget. The allocation of costs as shown above should enable an institution to ascertain what amount of money is needed to carry out definite ends. This having been determined, those in control of the sources of support applicable to the ends could then be approached with defensible arguments. Such an appeal would be Ibid., p. 456 58 A Study of Student Loans and stronger than the arguments for educational support in general, because it would show definitely what was to be accomplished, what interests were to be served, and who was to be benefited. A financial program of this kind might enable higher education to receive support commensurable with its importance. The importance of higher education must not be minimized, for the day is not far off when a nation’s greatness will be measured by the hundreds of millions it spends for education rather than by the millions spent for the maintenance of armies and navies. 29 If business methods were used in the handling of educational funds and if its support were sought on a definite basis of what it produces rather than the indefinite basis of “benefits to society” and the sentimental ­ basis of “loyalty to one’s Alma Mater” the necessary funds would be obtainable. It would mean a more efficient way of administering funds and a more business-like way of securing the necessary financial support to carry out the various purposes and aims of higher education. An editorial in the Educational Review on “Costs of Higher Education” ­ referring to money spent for this purpose states : 30 While the amounts of money appropriated or received from private sources for education, especially higher education, have increased, the needs have outrun them by leaps and bounds, and accomplishment seems to be lagging far behind opportunity. It is doubtful whether the Situation can be possibly met merely by increased endowments and appropriations. Essential ­ as these needs are, alone, and unaided by intelligent management, they will scarcely serve. The economy that is demanded of many citizens in business and in private matters is no less needed in public affairs and of all concerns of the public the need is probably the greatest in higher education. We cannot continue in the vicious circle of constantly striving to increase academic income to keep pace with the diminishing value of the dollar. The real remedv must be found in a wiser use of educational funds. Questions of wastefulness and duplication are not confined to any part of the country; the need of an economy in higher education is everywhere urgent. All institutions seeking the support of public and private wealth, especially in this period of unprecedented expansion and high prices, should satisfy both themselves and others that their existing means are being used to the best advantage. Only thus can further stewardship be justified, when financial demands are everywhere so large and insistent. 2. Proper cost allocation would advance the educational ends of institutions by making larger funds available for the carrying on of intellectual endeavors rather than having the intellectual accomplishments await the proper financial support. Intellectual activity and aims of institutions would be less dependent upon financial strategy. A reversal of present financial policies is needed in Order that we may realize from the untapped sources of support for higher education. 3. Such cost allocations would mean higher tuition and fees, which present a perplexing but not insurmountable problem. Having decided 29 Seligman, Op. Cit., p. 450. 30 September, 1920, pp. 173-176. Their Relation to Higher Educational Finance 59 that increased tuition and fees are advisable in the interest of higher learning, what reasons can be advanced for the carrying out of such a policy which at first seems inhuman and hard-hearted ? To refuse to assist the young person to “get on his feet” so to speak, is strictly against tradition and sentiment, but if kept within reason it is not against common sense and clear thinking. The task should not be made so difficult that the Student will give up, but sufficiently difficult to make him appreciate the value of the training he is getting. The fact that he has been paying full price for his clothing and amusements has caused him to give no less attention to these elements of his College life. A higher price for the academic element ought not to lessen his zeal for it. It is contrary to common sense to have the Student pay full price for everything in his College life except that which should be the most important to him —his intellectual training. In speaking on the cost of education to the individual, Dr. Thwing says: There is a fear among certain College people in America that the race of rieh men will die out, that they will be unable to give in large sums. For one, I do not so believe. New sources of revenue are to be discovered. ‘New forces of Nature are to be discovered. The creation of power through the tides, the making of nitrogen from the air, and new sources for electricity will be conditions out of which riches will be earned in the future.’ In securing larger revenues for the private institutions, the movement is strong in charging a higher price for tuition. Fees have been greatly increased.. Such merease is proper. Distinction should be made between the fee to be paid in the undergraduate College of liberal learning and in the Professional school. Although students do not enter the Professional schools in order to become rieh; yet the Professional school is a tool which immediately fits them for self-support and for aiding the community. The undergraduate College has for its purpose the enlarging of the mind and sympathies of the graduate. It has a pecuniary value of course—and a great pecuniary value. But this value is not so significant as found in the case of the Professional school of medicine or law. Professional education, in money, is extremely costly. It is now costing the university seventeen hundred dollars ($1,700) for this year (1920-21) to educate each of its students in the medical school, for which the Student is paying two hundred dollars. The undergraduate cost is four hundred dollars, and the Student pays less than two hundred dollars. The endeavor for the better endowment of the College should be constant, and the endeavor also for the Student to pay as large a share for his education as possible should be continued. 81 The idea here is not necessarily to have the Student pay the full cost of his education, but the full cost of that portion of it which is of positive benefit to himself and brings a direct commercial return to him. No argument can be raised against such a policy except doubtful and false sentiment and arguments based on false concepts. All other products which an individual purchases must be paid for at full value. No exception must be made with training which should be the most highly prized of all products. 31 C. F. Thwing, ‘'Support of Higher Fducation” in School and Society, March 19, 1921, pp. 356-7. 60 A Study of Student Loans The objection will be made in some quarters that such a policy would make it impossible for the less well-to-do Student to receive a higher education. There is no foundation for this. The policy here advocated would add relatively little to the student’s annual expenses and the desirable Student would be able to meet these additional expenses if a well worked-out program for aid to students were installed. The means for Student aid are many at present and new ones can be devised. For instance, a higher education is the only product having a commercial value which has not availed itself of the opportunities offered by the modern institution of credit. The type of enrollment need not be changed by increased tuition and fees if, at the time such a policy is introduced, a well worked-out plan of Student assistance is put into Operation. At some institutions it is believed that with a sufificient amount of endowments and a limited enrollment, the financial ills will have been done away with and tuition can be kept at a fixed and nominal level. This is, no doubt, a very sound view and perhaps one which should be adopted for both financial and educational reasons. But the fact remains that there is a growing number of young people seeking a College and university education who must be cared for. This is necessary in the interest of the advancement of learning and a progressive society. As the economic, political, and cultural phases of our civilization grow and become more complex, there will be need of an increasing number of trained individuals who will seek to understand the guiding principles of our civilization; and thus be in a position to direct human endeavor accordingly. The increase in the absolute number of College trained people is not the criterion of sound policy, but the proportion of the population which is receiving a College education must be used as a measure to determine whether institutions ­ of higher learning are leading civilization or merely following it. It is the common error of thinking in absolute terms rather than in terms of ratios. If the institutions of higher learning now in existence close their doors against the increasing numbers that seek admittance, new institutions ­ will have to be established and the same financial problems will arise. Or, on the other hand, large numbers will fail to get the necessary training to be in a position to guide human efforts and instead of progress, Stagnation ­ and retardation will set in. It is therefore a problem which must be confronted and means devised to solve it. CHAPTER IV THE STUDENT AS A FINANCIAL RISK Education as a Commercial Venture No well worked-out policy for the administration of Student loans can be arrived at without examining the value of an education to the individual. ­ The easiest way to measure values is, of course, in terms of money, and this is the value which is of greatest concern to those making the loans. In a general way it may be said that no bank or financial house of any kind will make a loan without some estimate of the ability of the borrower to repay. This ability is measured by the increased earning capacity of the individual or Corporation due to the loan. The size and length of the loan is proportioned to the earning capacity of the concern and its business turnover. Carrying these elementary principles of lending over to student loans, it would seem that the amount which is to be loaned to a Student and the length of time of the loan are to be measured by the cash value of the education he is to receive and how soon it will make financial returns to him. When a bank loans to the XYZ Corporation it has a fairly accurate estimate of the additional profits which this loan will enable the XYZ Corporation to make. So, too, when money is loaned to a Student, some estimate should be made as to the additional earning capacity which the Student will receive from such a loan—or the cash value of his education. ­ Care must be taken, however, not to weigh the loan against the entire cash value of the education, for the student is investing other funds besides what he borrows, and in addition to this, four years of his time which in itself has a monetary consideration. The Cash Value The cash value of a College education has been estimated at various times by different people. The most careful studies are perhaps the one made by Dean Lord of Boston University and the one made at Northwestern ­ University. These studies, though not intended at the time as a basis for making loans, form a good background for this discussion. Let it be understood that each university would have to make such a study for its own use. There are good reasons to believe that the cash value of a College education differs in the various institutions. It also differs in the several schools within the Institution and again with individuals. There may be assigned, therefore, four elements which go to make up the cash value of a student’s education: (1) the individual, (2) the field of learning, (3) the Institution, (4) the opportunities which [61] 62 A Study of Student Loans and present themselves after the Student graduates. The first can be measured by an estimation of personal qualities, the second and third by past experience of the graduates of the Institution, and the fourth by relying on averages. It is not a simple process to arrive at the cash value of a College education. The efforts made by Dean Everett W. Eord of Boston University and those made by statisticians at Northwestern University are worthy of note at this point. In Diagram III and the accompanying explanation, the cash value of a College education is placed at $72,000. The study made at Northwestern University in 1913 places it at $24,080. 30 . The manner in which Dean Lord arrived at his figures can best be told in his own words: These statistics, as indicated in the note on the following sheet, are based on reports of the Massachusetts Department of Labor and Industry and on statistics of earnings of students and graduates of the College of Business Administration of Boston University, the latter figures compared with, and to some extent adjusted by, similar reports from other institutions. The Statement carried by the Associated Press, and published in many newspapers that the figures are ‘based on a lengthy study of the earning capacity of College students’ will then be seen to have been slightly exaggerated. I believe, however, that the figures will be found reasonably accurate in application to College graduates in general, and decidedly conservative in relation to graduates of Colleges of business administration. Fig. 1, The Earnings of the Untrained Man, based almost entirely upon statistics published by the Massachusetts Department of Labor and Industry, safely represents conditions in this state. It is probably a fair representation of conditions elsewhere. The estimate made by Northwestern University was determined in the following manner: In 1913 a census of the dass of 1903 was taken by statisticians of Northwestern for purposes of computing the worth in money of higher education. This dass was taken because it had nearly ten years “to get shaken down” and to realize the permanent value of things acquired in College. Ist five years after graduation, average earning power $1,867 2nd “ “ “ “ “ “ “ 1,862 The National Census Bureau gives the annual yearly income of the Chicago salaried man during that period at $1,200; $1,862 minus $1,200 equals $662 annual cash value; 40 times $662 equals $26,480, forty years being a fair estimate of a man’s productive activity after he leaves College. Deducting cost of four years College course ($2,400): $26,480 minus $2,400 equals $24,080 which is the net value of the “sheepskin”, so to speak. 30 “Educational Values”, Dial, July 1, 1913. Their Relation to Higher Educational Finance 63 Dl AGR AM III' THE COLLEGE OF BUSINESS ADMINISTRATION OF BOSTON UNIVERSITY Effect of Education on Average Incomes at Different Ages and Total Life Earnings FiGURE I.—The Untrained Man. He goes to work as a boy of 14—reaches maximum income at 30, on the average less than $1,200. a year. Since his income is largely dependent on physical strength and manual dexterity, it falls off at 50 or earlier, to'a poiut below the level of seif support. More than 60 out of every 100 untrained workers are dependent ­ upon others for support at the age of 60. Total earnings from 14 to 60, about $45,000. Not more than $2,000. is earned in the four years that would have given him a High School education. Figure II.—The High School Graduate. He goes to work at 18, passes the maximum of the untrained man within seven years, rises steadily to his own maximum ­ of approximately $2,200. at 40, and continues at tliat level for the remainder of his active life. Total earnings from 18 to 60, about $78,000. The $33,000. more than that earned by the untrained man represents the cash value of a four-year High School course—but note below what return may be expected from four years of Higher Education. ­ Figure III.—The College or Technical School Graduate. His permanent earnings began at 22, although a considerable amount may be earned during the College course. By the time he is 28, his income equals that of the High School graduate at 40, and it continues steadily to rise, practically without a break. Since his income is dependent upon his mental ability and training constantly improved by practice, it increases instead of diminishes with the years. The average of $6,000. at 60 is offen surpassed. Total earnings from 22 to 60 (not including anything earned during the College period), $150,000. The $72,000. more than that earned by the High School graduate represents the cash value of College, or technical training. 1 Used through the courtesy of Dean Lord. 64 A Study of Student Loans and Taking into consideration that these studies were made ten years apart (1913 and 1924) and the rise in incomes since, the final estimates bear a close relationship. These two studies bear sufficient evidence that a College education has a cash value. This value is sufficiently important to be taken into consideration as one of the many reasons for helping the Student through College. However, the cash value as set forth by these two studies lacks certain adj ustments which should be taken into consideration: 1. The cost of a College education includes not only the positive expenditures, but what the Student would have been able to earn if he had been engaged in a remunerative activity. 2. There are not a few young men whose aims and ideals are so raised by a higher education that they themselves are rendered much less efficient as money rnaking machines. This is to be considered only from the cash value standpoint of a higher education. 3. Those who complete a College or university education are in most cases the ones who, without such an education, would have earned an income above the average. The comparison of a selected group with the general average is not a reliable way to determine this cash value. It must be observed, then, that these estimates are not scientific and are not therefore sufficiently reliable to be used as a basis for credit extension. The problem of arriving at the cash value of an education is not so simple as the above studies would indicate. It should be determined for the purpose of loans in an entirely different manner. The earnings of graduates the first, second, third, and up to the tenth year after graduation should be ascertained. This would be divided further into the earnings of graduates of the various schools of learning. A comparison would then be made, not with average incomes, but with the incomes of a group having the same ability as College people; the difference to be measured not being the ability, but the difference between the same ability when untrained and trained by a College education. A man’s College training cannot be considered as the all important element in his financial success. In Order to secure more accurate figures, it would be necessary to measure the amount of influence which a higher education has on the earning capacity of an individual. Education An Investment It is not possible to conclude what the exact cash value of an education ­ is, but it can be accepted with certainty that education has some cash value. This value warrants not only the loans now being made to students, but loans on a much larger scale. If acquiring a higher education is the securing of a product (training) which the Student will later be able to “cash in” on, then there is as justifiable reason to secure this training on credit as there is to buy land, Stocks, bonds, or any other form of invest ­ Their Relation to Higher Educational Finance 65 ment on credit. Higher education is as truly an investment for the individual ­ and as beneficial to the public as the buying of a farm; taking part in a cooperative apartment plan; or the securing of any other form of property on the installment plan. The difference lies in the analysis of the basis of credit, and the method of payment and term of credit. Analysis of Student Credit A better method for analyzing this form of credit is much to be desired. The first requisite for better analysis is to take the matter out of the hands of faculty members and place it under the direct supervision of the business officers of the university. This Statement is warranted by past experiences. Where members of the faculty are in authority on Student loan committees, the matter has been handled less efficiently than when the business officers are entirely entrusted with it. Lending money to students is a business proposition which should be done according to modified business Standards. The coupling of loans with the academic side of education has proven unwise. Loans have been made to individuals without due caution and without specific terms. Business officers in most instances in the past have been nothing short of rubber stamps in this matter. This may be assigned as one of the chief reasons for the unfortunate experiences in the field of Student loans. There is every reason to believe, and experience bears out the fact, that where loans are under the direct supervision of the business officers, they are better administered. The second step in this analysis is to estimate the individual. ­ This consists of two parts: present character and the promise of future ability to “cash in” on his educational investment. Credit can be wisely extended only to the Student who can show some evidence of reliability and determination of purpose. His past record, not academic, but his dealings in other matters is the fairer basis upon which to estimate his reliability. His academic record is what keeps him in or puts him out of the institution. The dass work is no accurate measure of his business principles. Let the Student have two separate and distinct relationships with the institution: his academic relationship, which will be cared for by the faculty, and his business relationship, which will be cared for by the business officers. 81 His academic standing is of importance, but this information can be made available to the business officers by the faculty and at that point the authority of the faculty should cease so far as the loan is concerned. 81 This is in line with the view held by a small minority of the men interested in the Administration of higher education. This view is that the business side and the academic side of Institution should be kept separate and distinct. This form of Organization consists of a Division headed by a vice-president who administers the business side of the institution; and a second division also headed by a vice-president who administers the academic side of the institution. ­ The two vice-presidents are then each fully responsible to the President for their respective or Sanizations. The University of California is at present conducted under a similar plan. 66 A Study of Student Loans and The other factor in analyzing the Student as a credit risk is his ability to cash in later. In extending credit to an individual or Corporation the all important point is whether the borrower will be in a position to repay the loan when due or be at least as good a financial risk as when the loan was made. The first, character and definiteness of purpose, is but a basis upon which to estimate the second. The Student, for instance, who has no definite plan for financing himself and is doing nothing to help pay his expenses could hardly be considered as a good risk. Credit As Applied to Education There are only a few institutions which have taken over business credit principles in the administration of their loans. It has been their experience that even though they were eager to apply such principles to educational credit, it was not possible to do so directly. This is not surprising. Business credit methods can only be drawn upon in working out an educational credit System and not applied directly. They must be attuned to fit the purpose. It must be recognized that though education has a business side, it also has the academic side, which by its nature must conform to other Standards than those merely of business. Further, those seeking educational credit are young people, many of whom have had few responsibilities and are not in an advantageous position to judge the future. They have not yet learned to manage their personal affairs. The Student, therefore, must be treated differently from the business man when credit is being extended. But this treatment, for his own good, cannot be lax or indefinite. He must be made to feel the responsibility he is undertaking and assisted by proper administrative methods to carry out his contract. The commercial business methods must therefore ­ be readjusted to the business of education; the analysis of the risk must be made differently; the credit term must be longer; the methods of payment and collections must be revamped. Training To The Student When credit is extended to a Student, the transaction, if properly administered, has three values; it gives him a valuable business training; it gives him a credit rating; and it assists him to make a good investment. The average Student when he enters College has had very little experience in dealing with others in a business capacity. The institution, therefore, has an opportunity to give him a training in practical business which may prove as valuable to him as his academic life. It follows that the placing of Student loans on a business basis will have a double benefit. It will give the Student a business training at the time he needs it most and it will Their Relation to Higher Educational Finance 67 mean the accommodation of a larger number of students with loans if the funds are efficiently administered. The value of properly administered loans in establishing a credit rating for the Student is not to be overestimated. If he is made to meet his öbligations on time and in accordance with his agreement, he not only creates for himself a credit rating, but comes to realize the importance of such a credit Standing in his dealings with others. There are few College people who are able to do this without a certain amount of moral pressure. This is where loans to students are bound to differ somewhat from business loans. The Student is not a business man as yet and therefore must be assisted to grow up to sound business principles rather than have these principles applied to him directly during his College career. This does not mean more laxity than in business, but a sympathetic sort of firmness. The third element of value which loans have in the training of the Student, namely, assisting him in making a good investment, carries with it an economic benefit which far surpasses the value of the loan. The institution is helping him to invest in a product that will constantly increase in value and which will net him not only cash returns, but other returns as well. It assists him to make the best use of his time and trains him to exchange present pleasures for greater future pleasures. In the administration of Student loans, therefore, the institution has an opportunity to render the Student a four-fold Service: selling him a valuable product on easy terms, making him realize the full value of his purchase, assisting him to purchase this product in an honorable way, and giving him a training in business methods. Student Security The administration of Student loans differs from commercial loans in still another respect. The Student does not have a fixed line of credit, but has possibilities which are difficult to evaluate. He can get endorsements, but not always bankable endorsements; he has no collateral, and his character is not yet definitely formed. Though these are the fundamentals of credit, still the very foundation of credit is faith in another and this is the very element upon which the Student can claim credit and upon which credit must be extended to him. This is the one security which he has to offer—a promise to make good and not to break the trust placed in him. The one security, then, which the Student has to offer is himself. 32 In granting credit to a large Corporation, character plays a minor part, the finances of the Corporation must be separated from individualities. 32 . . credit precedes and exists independently of the instrument; contracts, written or Pärol (oral), characterize a credit economy and may well be regarded as an essential attribute of p e djt, but emphasis on this feature is likely to becloud the more fundamental element—confidence." K. B. Westerfield, Banking Principles and Practice, Vol. 1, p. 36. 68 A Study of Student Loans and In the small business concern character becomes more important; a loan to an individual, regardless of the assets he has at the time of the loan, is based primarily on character; in loaning to the Student character is the fundamental test. But it becomes more than an estimation of character, for the student’s character is in a formative period and so the loan is in reality based upon his character as it is expected to be rather than as it is. This is what makes the problem of Student loans a unique one. It may therefore be said that the Student has nothing to offer—not even character. Business principles and methods cannot be applied directly, but can and should be applied in a modified manner. As has just been noted, the student’s character is not yet fully formulated, but with a careful selection of the individuals, the institution can bank on the material the Student has for the formation of character. Having estimated this, it can then proceed to advance him a loan and administer it in such a way that not only financial Service will have been rendered, but also a Service which will build him up into a reliable individual. There is a character building power in well administered financial assistance to students which the institutions have been overlooking. The integrity of the selected Student has been established beyond question in the experience of institutions and individuals who have loaned money to students on a quasi-business basis. 33 Reasons for Lösses Where loans to students have been a partial failure, one or more of the following reasons can be assigned: 1. The loans have not been properly administered. a. Lack of a definite agreement. &. Student was not made to realize the Obligation he was undertaking—the institution failed to develop a clear-cut sense of responsibility. c. The risk was not properly selected. d. There were no systematic collections. e. No interest or too low interest. 2. The institution failed to “see the student through.” Loans were made in the early part of the College career and additional loans were refused, which kept the student from finishing his education. 3. The institution missed the opportunity to use loans as a character building weapon. 34 33 See article by Mary B. Brady, “How Students Can Borrow Money with Character as Security”, Independent, Jan. 5. 1924. 34 “If student loans are conducted on a strictly business basis, their character building value may be many times greater than their financial value. Traits of character developed and strengthened as a result of receiving such assistance will do far more towards bringing success and happiness than the money alone. Self-respect is the foundation of good character and a businesslike method of making student loans fosters this trait. However, it does not increase a student’s self-respect so much as it does nothing to decrease it.” Pansy G. Glenn of Berea College, quoted in Harnion Foundation Bulletin, June, 1925, p. 1. Tiieir Relation to Higher Educational Finance 69 Endorsements Notwithstanding that it has just been pointed out that the Student has only himself to offer, there are many institutions which require different ­ forms of endorsements. These ränge all the way from the endorsement of a guardian to bankable collateral. The study made by the Student Loan Information Bureau revealed the following information on this Security No. Institutions Note, one endorser 52 Personal note only 51 No security 24 Note—no endorsement except if minor 8 Life insurance 5 Unclassified security 5 Note, two endorsers 4 Note, collateral and endorsement 3 Note, guardian and parent guarantee 2 Bond with three signatures 1 Endorsement of two faculty members 1 Life insurance or real estate 1 Bankable note 1 It is difficult to understand why matters should be as they are and what value is to be derived from requiring such endorsements and collateral. Where bankable collateral is required, the institution is really rendering the Student very little Service unless it is by way of charging him a lower rate of interest than at the bank. If the endorsement is that of a property holder, it has value as security and in helping the institution to form a judgment of the borrower. The endorsement by faculty members ­ is not widely used. This is encouraging since such a practice is undoubtedly unwise. The guardian or parent guarantee is of questionable worth even where the borrower is a minor. It shifts the responsibility from the Student at a time when he should be acquiring independence. There is nothing of soundness in all the other forms of guarantee with the exception of an endorsed note and but little good can be said of this. Since the institutions seldom press the endorser in case of default, the requirement of such an endorsement is superficial and burdensome. No reason can rightfully be assigned for such a guarantee since it is a foregone conclusion that it will not be made use of. On the other hand, it is harmful in that it denotes a lack of confidence in the Student and insincerity on the part of the institution. To put it more direct, the institution is simply bluffing the Student. It is just as dishonest on the part of the institution to fail to carry out parts of the agreement which it requires as it is for the Student to fail to pay when he is able to do so. This phase of Student loans has been most lacking in principles. This form of guarantee is the most widely used of any and, as presently administered, is perhaps the most increditable one. 70 A Study of Student Loans and The next most widely used guarantee is the personal note of the Student. This places him on his own honor. He accepts it as a moral Obligation to the institution and feels that he is dealing on a very high plane. The institution places confidence in him that spurs him on to do the right thing. If he fails to pay, he has broken a high trust. This is a more powerful and honorable weapon to hold before him than the threat (which he knows will not be carried out) of collecting from his endorser. The note of honor where properly used has been the most effective way of administering loans. The other forms of guarantee in the tabulation above are not in sufficiently wide use to be given much space in this discussion. The same objectiotis can be lodged against a band with signatures as against a bankable ­ note. All such forms of guarantee are too burdensome and insincere to be used by institutions of a high type. Life insurance is too expensive and smacks of being out of place. It is good only in case of death. The death rate among students is very low and it is extremely questionable whether collections should be attempted under such circumstances. The Student who borrows to go through College has no assets and a loss due to death should be charged off. This does not mean that young people should not be encouraged to carry insurance when able to. To the contrary, insurance is valuable, but it may be unwise for a young man to take on this additional bürden when he is already financially handicapped. This is not the place for insurance. It is not suited as collateral for a Student loan, because it is too expensive and because the same objections may be raised against this as against endorsements—it is required only as a pretense. Group Guarantee The group guarantee plan of lending money to students has not been extensively used nor has it been used for any length of time. It has been used outside the educational institution by organizations which affiliate with the universities and Colleges and do not lend directly to the students until they have been so affiliated. There are two organizations which have loaned successfully and extensively under this plan. 35 This System, as all Systems, obviously has advantages and disadvantages. It is perhaps best to see whether there is a purpose to be served by such a plan and then to see how near this plan comes to serving the purpose. Purpose To Be Served By Group Guarantee It would perhaps be possible to accept it as a foregone conclusion that there is a need for money loaned under the group guarantee plan. 85 The Harmon Foundation of New York City and Geschäftsbericht der Darlehnskasse der Deutschen Studentschaft in Germany. For description of these, see Appendices A and B of this publication. Their Relation to Higher Educational Finance 71 In reality, money loaned by the university or College on a note af honor is under a group guarantee. The Student who borrows thus feels that he owes it to the Institution and to those who are to come after him, to pay the money back. That which he fails to repay, other students must pay for him in the way of decreased equipment or less money to be loaned to future students. It is the “next batch” of students who pay for the defaults of the “present batch.” Under the group guarantee it is the “present batch” that pays for the defaulting member of its own group. The question, therefore, must not be whether the group guarantee is sound, but rather which form of grouping is the most sound. It is all group guarantee. One is positive, the other negative. The positive is to be preferred. Shall the next generation pay for the defaults of the present generation or shall the present generation pay for its own defaults? There should be no need for argument to convince the thoughtful individual which is the better plan. It is easier for a group to use pressure upon its own members than it is for the members of the following group (in point of time) to exert pressure upon their predecessors. A terse way of disposing of the question is to ask: Shall generations pay as they go or consume what rightfully belongs to posterity? This question may be thrown out as a challenge to the leaders of higher education. If they are to be worthy of their trust as leaders, they must Start from the roots of the evil. They must conserve and use more skillfully the instruments of higher education. 36 The first step towards such Conservation is to encourage the present generation to pay full price for what it consumes. The influence of such a program practiced by higher education would go far beyond the walls of the institution. It would ingrain in the College Student a quality which is now lacking, namely, the sense of placing a higher price on the training which he receives and the willingness to pay that price. The influence would then project itself into future time so that when the Student thus trained becomes a leader in the community, he will exert an influence towards the ideal which is fundamental to civilization—-that the generation of present time must leave more to posterity than it has received from ancestry. Service of the Group Guarantee The group guarantee therefore serves as an instrument to teach the “pay as you go” doctrine—speaking in terms of generations. It is an instrument to make the present “batch of students” look after their own 30 This Statement is based on the thought that higher education is produced by the use of seven instruments or what may be called the seven elements of higher education. Without regard to their order of importance they may be stated as: (1) Buildings and grounds, (2) Physical equipment, (3) Available funds, (4) The Student body, (5) The faculty, (6) The Academic Administrative Staff, (7) The Business Administration Staff. The efficiency of higher education depends upon the proper combination or proportioning of these elements. 72 A Study of Student Loans and members. Many students when introduced to this scheme are more in favor of it than the charitable plans. They experience a feeling of independence for their group. They like to know that they are not dependent upon their elders, but can battle their own way. It comes to them at a time when the desire for independence is greatest and such a System of loans is a source of real pleasure to desirable students. Those who have borrowed under a plan of this kind have expressed themselves in such a manner. The following quotation is worth-while evidence as to how some students view this form of security: Each borrower feels that he is in a measure responsible for the ongoing of the plan as a whole and thus holds himself accountable not only to the members of his group, but to students who will in the future need help such as he himself has received. He is no longer an individual borrower accountable chiefly to himself, but is rather a link in an endless chain, the continuity of which depends upon his own integrity. Thus the sense of responsibility at first centering about himself has through his participation in a common enterprise passed its narrow bounds until it is now a feeling of Obligation to countless people, most of whom he will never see. The Student loan is therefore a powerful instrument in developing character because it operates indirectly, for it is a truism that when character is made the object of conscious, labored effort, the purpose is defeated by the selfish nature of the process employed. Character is truly the by-product of fine living and can best be developed by strengthening personal ­ integrity and quickening that sense of social responsibility which transcends private interest. 37 The group guarantee plan makes use of the only asset which the Student has—present and future character. A loan made on this basis is a Service to the individual and the Community, since it moulds and strengthens the element which is the best kind of collateral and is the essence of credit—the element of character. The group guarantee further develops a spirit of group responsibility which is fundamental in our present institutional society. This form of borrowing helps the Student to acquire financial independence because it takes him directly into the field of finance, making him realize the serious and definite nature of his contract which he frequently did not feel when borrowing under the old regime. On the other hand, group guarantee releases for loans the principal of funds rather than confining loans to the income of funds only. Needless to say this makes it possible to serve a much larger number of students. At the same time the funds are just as safe as when invested in gilt-edged securities. The group guarantee plan therefore serves a purpose and fills a need. The funds now available for loans to students are inadequate and this plan should attract more money into a field which will enable students to borrow more and in a manner in which many prefer. An estimate made on the basis of figures jointly compiled by the Harmon Foundation and 37 Taken from an essay on the group guarantee plan for Student loans written by Martin C. E/ntorfF, and quoted in Harmon Foundation Bulletin, June, 1925. Their Relation to Higher Educational Finance 73 the Student Loan Information Bureau reveals that the annual shortage of money for Student loans is approximately one million dollars. If we figure on a ten-year cycle for revolving loans, it means that at least ten millions of dollars more could be effectively used in this field. This means lending on the conservative basis that is the practice today. If a more liberal policy is to be extended, which is believed by many to be desirable, this amount could easily be tripled, creating a need of something like $30,000,000 more during the next ten years in the United States. This is in addition to funds already available. The maximum average amount which a Student can borrow today is about $300 during his entire College career. One institution is contemplating “seeing the Student through” by lending him $500 annually for four years, after a careful selection of the rislc. This would mean $2,000 loaned to each Student. Such a sum is not excessive, compared to what many students borrow today, if all his loans from different sources were added together. If this figure is used as a basis, the above figure ($30,000,000) then rises to $190,000,000 which could be used in the next ten years for Student loans in addition to funds already available. This would permit the raising of fees and thus increase the income of institutions. It would also make money available from outside sources for loans and enable institutions to use for other purposes the funds they now set aside for loans, fellowships, and scholarships. In turn, the budget deficits of Colleges and universities could at least be met in part by funds thus released. Where such a fabulous sum (even $30,000,000) can be obtained is problematical. At least it is possible to say that present funds are far from adequate and the reason, no doubt, is because past funds have been so poorly administered that confidence in Student risk has been destroyed. The result has been that individuals are reluctant to leave money for this purpose. Students, therefore, have borrowed from home where the money very often was needed for other useful purposes, or from friends and relatives, ­ many times bringing about an embarrassing Situation. Nor have such funds been obtained gratis, for many students pay commercial rates of interest on the money so obtained and not infrequently an even higher rate. Any College can raise money for a use of demonstrated soundness that will stand the test of economic value. Although some may object to the group guarantee scheme, it has many commendable features and will make funds available to help students finance themselves without any financial or social embarrassments. The surplus amount charged for the guarantee is the one feature against which objections have been lodged. If this could be done away with, the scheme would be self-defensible. But even this feature has a worthy element if viewed from a broad aspect. It is the phase of the scheme which brings 74 A Study of Student Loans and about pressure to force payment. It therefore causes the delinquent to sit up and take notice and brings him to the full realization of his duty to his social group and in turn to society. It is believed by the proponents of the practice of the group guarantee that two or three per cent. premium is sufficient to protect the principal of the fund. The Guarantee Fund As may be found in Appendices A and B, the guarantee fund isderived from a surcharge to students who borrow. When the several participants of the group have all paid, as under the Harmon plan, a refund is made deducting losses and paying six per cent. on the funds which have been paid in as a surcharge. Under the German plan every Student is made to contribute to the guarantee fund. The objection that can be raised to the Harmon plan is that the group is too small. In case of a default or accident to one or more members of the group the other members are too severely punished. It is contrary to sound principles for the distribution of losses. However, cognizance must be taken of the fact that an alternative ­ is difficult to find while the funds are so limited. As more funds are loaned the risk should be spread over a larger number of individuals. This can come only with time. Under the German plan, on the other hand, we find the opposite extreme. All students are made to pay into the guarantee fund whether they borrow or not. This is no doubt unwise, since it places the bürden of loss on those outside the borrowing group and should be objectionable even to the borrowers. There is no doubt but that the principles underlying the group guarantee ­ plan are sound. This is in harmony with social institutions and human activity. All losses must be borne by some one and the sound method should be to have a group, community, or generation bear its own losses when such losses are the result of its own activities. The objection to be levied against the plan is, therefore, not against the group guarantee itself, but against the grouping for such guarantee and the selection of the risk. Without attempting to show the faults of the present grouping and selection of individuals, it should be in order to discuss a more favorable form, and thus make self-evident the shortcomings of the present grouping and selection. To obtain the best results it would seem that a grouping by classes within the College would be the best form. Use the dass as a group. This should prove effective because there is already existing a certain bond in the dass. The members of the same dass spend four years in College together and perpetuate this grouping in their alumni association. Their Relation to Higher Educational Finance 75 By grouping in this manner those administering loans could reach the defaulting borrowers through the alumni association and a rivalry could be set up between the different classes as to which would have the best record at the end of, say, ten or fifteen years. The assessment for the guarantee fund could be placed on the borrowing group in the dass, the borrowing groups in the entire institution, and the borrowers of the corresponding dass in all institutions. Thus the insurance would come from the dass group, the College group, and the intercollegiate dass group in the case of funds administered by an outside or intercollegiate Organization. If it is a College fund, the intercollegiate element should be omitted. Such a form of guarantee should be more effective than one where there exists no connection excepting the loan connection. It may be said, then, that the group guarantee plan is sound both in principle and practice and is the most effective means to administer funds. As used at present, the only objections are the form of grouping and the allocation of charges for the guarantee fund. The groups should be large and in accordance with already existing groups—the dass, the College, and those of the corresponding dass in the different Colleges and universities. Organizing a certain number of borrowing members of a dass in this manner, they, in conjunction with the business officers of the university, could pass upon the eligibility of other members of the dass who wished to borrow. This should be a most effective manner in which to select the borrowers. The students know the members of their own dass better than the faculty or business officers. It would also eliminate the element of Unfairness which exists under the present group guarantee plan, namely, making students responsible for others when they have had no part in the selection of the risk. If all the members of the group are to be responsible for individual defaults which occur, then they should have a voice in the selection of their fellow members. Thus with a different form of grouping, the giving to the members of a group a voice in the selection of additional members and different allocation of charges for the guarantee fund, the group guarantee should be most commendable. Disposing of the Guarantee Fund After having decided that the guarantee fund is desirable as an assurance and as a source of pressure to force payment, it becomes necessary to provide for the handling of such a fund. The amount required should be sufficient only to cover losses and the remainder should be refunded. It should be possible, after sufficient experience, to make the surcharge for this purpose just enough to cover losses with perhaps a safe margin. 76 A Study of Student Loans Under the plan advanced above, there are two alternatives suggested : (1) to require only the borrowers to contribute to the guarantee fund; (2) to require all the members of the dass to contribute to it. If the first plan is followed, then the money should be refunded. If the second plan is followed, then the sum left over after losses are paid could be turned over to the alumni fund to be disposed of by an alumni committee composed of members who have borrowed in the past. Or it could be left as a surplus guarantee fund. In any case, after experience in administering funds in this manner, the surcharge for this purpose should be such that few refunds would have to be made. CHAPTER V FINANCING THE STUDENT After studying bcrth students and loans from the standpoint of the institution, it is well to look at the student’s problem from his own viewpoint. This problem of the Student has various phases in some of which he has already received aid. However, he has received little systematic assistance in his financial difficulties. This is of great concern to him and in Order that his relation to the institution may be more harmonious it is important that the institution give him assistance and guidance in this matter. The Student’s Problem There is in university life not only the problem of the Student, but the student’s problem as well. The former is the only one which has been receiving due attention. College and university officials and faculties have looked upon the mission of higher education as one which should help the Student along lines intended to develop his character and to mould him into a finished product. In their zeal toward this end the academic side of student life has grown rapidly, while ample provisions have also been made for the social, moral, and physical welfare of the Student. It can be said with certainty that these phases of his College life have received more and better guidance than have what may be called his personal ­ economics. Faculties, ccmsisting of men foremost in their respective fields, have been built up to care for academic training; much religious zeal has been displayed in student guidance; most social activities are receiving increased attention; physical training has certainly not been neglected; but financial instruction has been slighted. Where some attention has been given to such training, and only recently has this been true, it has occupied a very small part in the entire policy of the institution. It has never been properly studied and as a result never been intelligently cared for. This is the phase of the student’s problem which relates itself closely to student loans. It may rightfully be called “personal economics” or “personal finance”. Personal Economics or Finance Education in the management of his personal affairs is of importance in making the student’s training more complete. 38 The institution should 38 “If we really could know our students, in their minds, their temperaments, their economic situations, their health, their ambitions, it is altogether likely that we could admit a freshman dass P^^'tenths of which would graduate. . . _ . We must not only know the level of their native Intelligence . . . but we must learn their biologic and economic background, their significant interest, their ambitions and their characters.” Dean Herbert E. Hawkes of Columbia College in his Annual Report for 1925, p. 17. gC ln 78 A Study of Student Loans and formulate definite policies of this sort and incorporate them with its general educational and administrative policies. President Venable of the University of North Carolina made the Statement in 1905 that “the proper handling of money and the responsibility for it is an important part of education”. This may be held by some to be too personal a matter, but since it is so vital it cannot be neglected. Almost every subject and many varied qualifications have been required at some time for College entrance. It has never been considered impertinent to inquire into a student’s academic record and to train him along definite academic lines to bring him up to a certain Standard; nor has it ever been considered unbecoming to inquire into his religious belief and at times to make certain ­ requirements in this matter. His physical condition and social Standing ­ are also frequently taken into consideration; management of his financial affairs has seldom been considered as a matter of concern to the institution. This is just as important to his weif are, to the institution, and to society as it is that instruction be given in religious, moral, or ethical principles. A course in personal economics could be made a part of College entrance requirements. This would force training along these lines into the high schools and the grades where the need for it is urgent. 39 The higher institutions must lead, however, by guiding and assisting their students in financial matters. There is no better place to do this than in the administration of Student loans. The fear that such a step would place undue emphasis upon the practical side of life is unfounded. It is a self-evident truth that students (and all persons for that matter) who are efficient in the handling of their financial affairs are the only well rounded individuals. Their minds are free from financial worries and instead of becoming more materialistic, they are free to grow intellectually and spiritually. This guidance in personal economics is not planned to teach the Student how to acquire large quantities of material goods, but is simply intended to see that he uses more efficiently the economic and financial resources which he has at his command. Teaching young people how to manage their incomes, directing them how to get ahead financially in life, and helping them to develop a practical economic sense is not necessarily materialism, as some would hold. Nor is it materialism to the detriment of other “isms”. The primary result is to lead the Student to see his responsibilities to himself, to the institution, and to the community in working out his own economic salvation and financial success. 40 It is 30 The author is in part indebted to O. C. Lester, Vice-President of the Bowery Savings Bank, New York City, for this concept. 40 O. C. Lester, “How to Make School Savings Banking Permanent”, News Bulletin of the Savings Bank Association, State of New York, September 18, 1925. Their Relation to Higher Educational Finance 79 urgent that such training be made a part of the College and university education, for it is an essential element in our national life and vital to economic and intellectual advancement. 41 There is no reason to believe that training the Student how to handle his personal finance will act as a drawback to his moral, intellectual, or physical development. In fact, it will act as a Supplement to these in the molding of a well rounded out life. The Student’s Budget The best approach which the institution has for training the Student in personal finance is by way of the budget. The Student has often been asked or told to budget himself, but he has never been taught how to do it. It is even a difficult matter for many mature people. Therefore, it is unreasonable to expect this of young people who have never before been thrown on their own resources and responsibilities. The estimated costs as printed in university and College catalogs are the one guide which the Student has to follow. These as a rule are underestimated and incomplete. They are not sufficient to carry the Student through on the Standard of life that his environment will require. They are based on what he could get along on if his equipment were complete and his self-denial perfect. Seldom are provisions made for clothing and amusements. The students and the parents, for instance, usually forget to plan on these items which are bound to arise. The result is that the amount set aside as necessary to carry through the year gives out and the Student resorts to various means to make up the deficit. Many seek employment who had considered themselves provided for and thus the Situation becomes all the more acute. The Student who plans to work his way through finds he must do more work than he had contemplated. If he does not find the additional work, a rush on the loan office results. The loan office is not prepared to meet the Situation. Large numbers of students become disappointed and discouraged. This then reflects itself in the academic work and on the Situation ­ as a whole. It is discouraging to students and officials alike. Lack of foresight caused in part by ignorance has created this Situation. More loans are not the only remedy, but more reliable figures at the outset should be given the Student. The Announcement and the Student’s Budget It would be well to have the estimated costs given in the announcement ­ cover all expenses which the Student will have for the entire year 41 Ibid., p. 2. 80 A Study of Student Loans and including his transportation to and from the Institution from central points. Items should be provided for liberally, giving as at present a low, average, and high estimate. The low can be the lowest, the high the highest that can be found, and the average should be liberal. 42 Let the estimate be itemized more in detail and no probable expenditure omitted. The student or his parents can then budget, making provision for all necessary items and omitting those that the Student feels he can do without. It would be even better to divide these estimates into necessary and optional items. The latter should be included so that the student may know what he may possibly be called upon to spend due to his new environment. He can then make his decision approximately as to what he will or will not spend. He will then be prepared to govern himself accordingly. His choice will have been made ahead of time and if he departs from it, it is hoped he will realize that something eise upon which he had definitely planned will have to be omitted in the future. The following is a fair sample of expenditures as now estimated by various institutions: (see Tables 10, 11, and 12.) 42 Not necessarily an arithmetical average. TABLE 10 COMPARATIVE COSTS OF EDUCATIONAL SERVICES AND OTHER EXPENSES—(1924-25) Private Institutions Institution Educational Services 1 Eiving Expenses 2 Total Average $294 $597 $908 Columbia Univ 350 990 1,340 Chicago Univ 245 680 925 Lehigh Univ 350 600 950 Notre Dame 275 525 800 Northwestern Univ 250 500 750 Univ. of Penn 305 435 840 Univ. of Pittsburgh 212.50 576 788.50 Princeton Univ 380 600 980 Stanford Univ 335 645 980 Syracuse Univ 260 400 660 Western Reserve Univ 500 714 Yale Univ 615 965 1 Educational Services include tuition, registration fees, etc., and books. 2 Eiving Expenses, exclusive of clothing and amusements. Their Relation to Higher Educational Finance 81 TAB LE 11 COMPARATIVE COSTS OF EDUCATIONAL SERVICES AND OTHER EXPENSES—(1924-25) For non-resident students in State Institutions Institution Educational Services Eiving Expenses Total Average $142 $445 $587 Univ. of Colorado ISO 585 735 Iowa State College 112 o 396 & 508 State Univ. of Iowa 80 366 446 Univ. of Illinois 260 660 920 Indiana Univ 115 472 587 Miami Univ SO 277 327 Univ. of Michigan 165 500 est. 665 Ohio State Univ 190 525 715 Univ. of Oregon 243.75 495 738.75 Purdue Univ 150 400 550 Univ. of Washington 170 400 570 Univ. of Wyoming 22.50 265 287.50 a. Tuition fees only. b. No incidentals included. TABLE 12 COMPARATIVE COSTS OF EDUCATIONAL SERVICES AND OTHER EXPENSES—(1924-25) For Resident Students in State Institutions Institution Educational Services Eiving Expenses Total Average $80 $445 $525 Univ. of Colorado 75 585 660 Iowa State College 72 a 396 b 468 State Univ. of Iowa 40 366 406 Univ. of Illinois 125 660 785 Indiana Univ 80 472 552 Miami Univ 50 277 327 Univ. of Michigan 125 500 est. 625 Ohio State Univ 85 525 610 Univ. of Oregon 130 495 625 Purdue Univ 90 400 490 Univ. of Washington 65 400 465 Univ. of Wyoming 22.50 265 287.50 ci. Tuition fees only. b. No incidentals included. 82 A Study of Student Loans and These figures are the highest estimates made in the announcements. If a canvass were made of former students’ actual expenditures, it is safe to assume that the above estimates, even the highest, would prove insufficient. However, the prospective Student does not understand the true Situation and as a result overlooks many expenditures which he will necessarily make. The above is introduced because it is believed that student loans do not stand alone in the field of student help. Very often loan funds are resorted to because of two reasons; first, because the student is really in financial straits, and second, because he makes unnecessary expenditures. If, in order to avoid this Situation, precautions were taken in the way of guidance in personal financial, self-help, rearranged programs, and so on, the loan phase of student aid could then be adjusted accordingly. Making the Budget It would be a good plan to require each student to accompany his application for admission with his plans for a budget. 43 The budget should be complete, including the expected expenditures and the sources of income to cover such expenditures and should show in the case of inadequate budgets just how much the Student lacked and how he expected to cover this shortage. This, of course, could be done in two ways only: by borrowing and by earning. The institution should know approximately how much a Student will be able to earn in the community and thus be able to see to what extent it will be called upon for loans. If it is not prepared to grant these loans, the student could be discouraged from registering or advised to do part time academic work only. Such a procedure would also throw light on the fact that many students who borrow need not do so. They borrow in order to be able to spend more, thus draining the loan funds and leaving an inadequate supply for the more needy students. Many must then work hard just to keep going. A vicious circle is started which becomes cumulatively worse. Kinds of Student Aid The student has two sources from which to draw in order to bring his budget into balance when it is not balanced at home. He may work. This is commonly called self-help; he may borrow from friends, relatives, organizations, or the institution. He may secure various other forms of help under the label of scholarships and fellowships. All these sources are of concern to the institution and an effort made to bring about a proper 43 The “Institution of Honour Loans” in France requires a tpc certificate from the Maire of the student’s home town in order to ascertain the financial position of his family and thus see whether it is necessary for the student to receive a loan. Their Relation to Higher Educational Finance 83 balance between them would be most beneficial. The extent to which the community offers opportunity for self-help and the amount set aside for scholarships and fellowships are of importance to the loan problem. When the work available to the Student is scarce, more money is needed for loans and more loans should be made. Those who would work and cannot are excellent risks and, if conditions are such that Student work is scarce, it is better to loan money to many of these students than to allow them to leave the institution. If large amounts of money are set aside for unproductive ­ scholars and fellows who never return the money, a smaller number of students are thereby being served than if these funds were placed in revolving loans. An understanding of these various phases of Student help is vital to an institution. Self-Help Self-help is the method used by many students to put themselves through College and in some institutions as many as 80 per cent. of the students finance themselves wholly or in part. It holds a very important place in Student finance. However, Most of the things which have been written of boys without education, like Lincoln, who ultimately became President of the United States, or fellows with only fifteen cents in their pockets who got through College on their nerve and made Phi Beta Kappa are romantic, but quite misleading. 44 As to the advisability of self-help for students, authorities disagree. Dr. Angell of Yale says: It may be hard work and in some cases an undue strain—earning a living and getting an education at the same time, but in the majority of institutions a real taste of economic necessity is a spur to study. The youth who must work his way through College cannot afford to waste time joyriding and jazzing around. 45 On the other hand, the London Times Bducational Supplement takes the opposite view: In the American institutions where “working through” is more common than in England there is beginning to arise a certain doubt about the desirability of the plan., There is a growing conviction particularly in the Eastern universities that this independence is bought at too great a price. 46 It is further argued by some that the function of a College or university is to stimulate study; that anything which reduces the potential amount of study (where there is not even partial Substitution in ways of health or of zest) such as extra-curriculum activities in various spheres of Student undertaking, deducts largely from scholastic achievement. All 44 T. A. Clark, “Discipline and the Derelicts”, p. 93. 45 Quoted in the Alaska Daily Empire, April 18, 1924. 46 “Poor Men at the Universities” quoted in School and Society, Dec. 22, 1923. 84 A Study of Student Loans and these views are no doubt justified. Conditions differ in the various institutions. The fact remains, however, that many students do outside work and a large proportion of these could not remain in College if such remunerative activities were not found. The question, then, is not whether work is beneficial or harmful to the Student, but how much work can and should be done. How can self-help be better managed, how can it be fitted into personal economics and the financial policies of higher education and to what extent can loans relieve the Situation? Management of Self-Help In the management of self-help, the student’s welfare should be held foremost. His health and mental capacity have to be kept in mind. There is no doubt that a large number of students are able to carry outside ­ work and do full justice to their studies at the same time; others require the full time for their studies; while still others can go through with a full academic program, support themselves, and even take part in extra-curricula activities. It depends upon the individual. The extent to which the Student relies upon self-help must also be taken into consideration. An analysis of the Situation along these lines would improve conditions. It is well to aim at a proper balance between all the factors. These factors are the Student, his academic program, his health, and the amount and kind of work open to him. If it is possible for the Student to find work that contains an element of recreation for him, then a part of the time which rightfully belongs to recreation can be given to self-help. It is rather dangerous for a man to support himself entirely in College; something is likely to suffer; either his studies or his health. 4 ' However, some odd job would perhaps be good for all students with an average intellectual aptitude, but it is difficult to defend the view held that students should do outside work regardless of financial need. This deprives those who are in need of the work. Students who have sufficient funds can well use their time more profitably. There are other things they can do to improve their future—browse through books, cultivate a beneficial hobby,—even intellectual loafing may be of benefit to themselves ­ and society. If an institution has a sufficiently high intellectual Standard, the students will be properly equipped and guided to use their time more profitably than doing the work which they are generally able to get. In the administration of self-help, therefore, the above factors should be taken into consideration both for the benefits of the students who must resort to self-help and for those who do not. * 47 C. F. Thwing, “Lending Money to College Students”, Nation, September 7, 1918. Their Relation to Higher Educational Finance 85 Self-Help and Student Finance Many forms of self-help are not of any value in themselves and should not be resorted to by the Student unless it is financially necessary. Nor should the average Student attempt to earn all his expenses and at the same time carry a full academic program. If complete self-help is necessary, the academic program should be re-arranged so that the College course will be covered in five or six years instead of four. The Student needs leisure time for reflection and if he is constantly rushed, there will be certain fundamental values of a College education that will be lost. It is impossible for the average conscientious youth, with the best intent in the world, to do full justice to the purpose of his College days and to himself and at the same time earn all his expenses. He is not fully able to grasp his opportunity; to expand to the full measure of his enlarging scope and vision, and to profit as he might from the larger life of the College or university in the extra-curriculum opportunities. 48 If the Student has no financial source but self-help, that is his only salvation. This type of individual must not be discouraged from going to College for he is a great asset to society. He should be given aid—the kind that will help him to help himself. Sentimental help would be dangerous and vicious. He can be credited with assets that may be of great value in the future and thus deserves a loan. Nor should the Institution wait until a Student comes to apply for help. He is a good risk and a most valuable investment and the fact that money is available should be brought to his attention. Responsible students are extremely reluctant to get into debt. They seem to prefer to spend their valuable time at a job instead of borrowing. They are the ones who would benefit the most by a loan, for the time of such a Student is worth far more at his studies than at outside work. If the job interferes with his study in any way, he loses money even though he earns from fifty Cents to a dollar an hour. A little outside work is sometimes beneficial, but a great deal is almost uniformly fatal. Other means should therefore be found to assist the ambitious and worthy Student who must rely entirely or in large part on self-help. Self-Help and Loans To those students who cannot balance their budget by self-help, loans may be made. Many officials have been unable to see the close connection between self-help and loans. Since the Student can spend his time more profitably than by working at odd jobs, it is important that he be given other assistance than that of finding work. This assistance should take the form of loans or fellowships and scholarships. 48 Editorial, “College Men Who Need Help“, Literary Digest, November 15, 1924. 86 A Study of Student Loans and The point which should be kept closely in mincl is the maintenance of a proper balance in all financial dealings with the Student. When no work can be obtained by the desirable Student, or when he must do outside work to the detriment of his full educational development, it is then that the institution itself or some outside Organization should Step in and give him legitimate assistance in the form of well administered loans. The loan should come in as the final weight to balance his budget provided always that his future possibilities warrant the investment. Loans, therefore, should act as a balance in Student finance and should not be made unless the loaning party is willing to “see the Student through.” When money has once been loaned to a Student, he should not be abandoned unless he becomes financially hopeless. When a loan is made, it is not enough to consider whether the Student will be able to repay; it is also necessary to know how much money in addition he will need before he will be able to “cash in” on his investment and how much of this additional amount he will be compelled to borrow. If he is likely to be a bad business proposition, he should receive no loan; but if he is to get a loan, he should be carried through until he begins to “cash in.” If a man must borrow in his freshman or sophomore year, the chances are that he will have to borrow during the succeeding years of his College course, and unless the loaning party is ready to meet his reasonable demands during these succeeding years, no loan should be made during the earlier years. It is contrary to göod business policies. What reliable financier or bank will put money in an enterprise and then abandon it before the first turnover has taken place? Astonishing as it may seem, it remains true that this fundamental principle of good finance is rarely found in the administration of Student loans. Nothing could be more unbusiness-like. If money is once placed on a Student, he should be assisted to make good until he can be branded as an ultimate failure. The Postponement of Fees The postponement of fees is a form of loan and is here referred to for record only. Some institutions take a note in lieu of fees and tuition. Others extend a loan and then take the proceeds of the loan for fees and tuition. There is absolutely no difference. There may be a certain psychological effect, but in the last analysis, it is merely accounting tactics. The postponement of fees and tuition should be governed by the same principles as loans, for it is in fact a loan. Fellowships and Scholarships Fellowships and scholarships can hardly be said to have been administered ­ more wisely than loans. This is unfortunate since so much money Their Relation to Higher Educational Finance 87 has been disbursed under this brand of Student aid and since tradition has assigned to it so much prestige. The maladministration of these funds is all the more reprehensible when we consider the length of time which this sort of help has been in existence and the amount of thought which has been given to it. But like some social institutions to which dignity has been assigned rather than acquired, this one has peacefully rested under a mass of unclear thinking. The result has been that no wellplanned policy has been established and put into practice. The faults have been two—the purpose for which these awards have been granted, and the selection of the recipients. Unfortunately, these awards have often been given without any justification. Nothing specific has been required of the Student for what he received. 49 In many cases it has practically amounted to paying him to attend classes, and no attention has been paid to the sort of grades received while holding such fellowships. The result has been at times to malce Professional loafers out of otherwise promising young people. On the other hand, many of the holders of these awards have gained prominence in the fields of business, Science, and the arts. This was what could rightfully be expected of them, for the young person who has such an honor conferred upon him should go, in later life, far beyond what was expected of him in College. It is evident, however, that a large number have not reached even the heights to which they were destined by those who conferred the awards, and some have failed miserably to hit the mark. These observations bring to us in a startling manner the faults which have existed in the making of these awards. Young men and women have not been properly estimated. It is, of course, as difficult to forecast the success of an individual ten or twenty years hence or even less, as it is to forecast the future of an individual enterprise or business as a whole. Nor can the individual himself gauge his future with any degree of accuracy. So those who determine the awards cannot in any way be called to task for errors in judgment. But it should be possible before the final selection to require of the candidate something specific in the way of performance which is better than that of the average Student. If it does not seem likely that he will contribute to the Organization ­ or advancement of knowledge, there seems to be no reason to give him financial support, and he should be made to understand that unless he does accomplish something tangible, the aid will be withdrawn or converted into a loan. The high-minded young person will not want to accept such compensation unless he is determined to give something in return. 40 “It is important for a young man to learn that the larger outside worid in which he is to m . a *5 e his fight will not carry him as a helpless bürden, but will demand a fair return in the way labor or Service for all that it gives.” F. P. Venable, President, University of North Carolina address before the National Association of State Universities, 1905. 88 A Study of Student Loans and There is needed, then, a more careful appraisal of the individual; not once but frequently. Better gauging of the individual is as important to society both in its social and economic aspects as it is that the future of business enterprise or business conditions be gauged. This is necessary to social progress and there could be no better place than the university to start this selective process. Some work is already being done along these lines in the way of mental tests for admission to Colleges and of grouping for instructional purposes. Since scholarships and fellowships are awarded to a few who are supposed to be at the top of the scale in the university community, it is most imperative that the selection of these be made with certain fundamental principles in mind. In the past students have received these awards principally on the basis of scholastic ability, with the exception that some scholarships and fellowships were granted to those individuals who were in need. There have been many variations between these two extremes, which makes it difficult to determine the principles which should prevail. That which is of the greatest importance in this consideration of scholarships and fellowships is what part they should play in Student aid; what relation they should bear to self-help; what ratio should exist between them and loans. It is neither possible nor prudent to go into detail here in regard to the administration of such aid to students, but there are certain guiding principles which would go far toward setting matters aright. The first Step is to draw a sharp line between scholarships and fellowships. ­ They do not and they should not mean the same thing. The fellowship ­ should be held by a Student with a high order of scholastic ability. He should be able to push forward into the field of knowledge in an independent ­ fashion. If he is incapable of this, there is no reason why he should be supported while acquiring knowledge to be commercialized later. In a case like this a loan should be made. Appointment as a fellow does not necessarily mean that financial assistance should be given. A fellowship should be formal recognition of intellectual accomplishment. Therefore, universities could establish, for instance, an Adam Smith Fellowship in Economics or a Barnard Fellowship in Medical Research, not necessarily carrying any compensation, but denoting an honor which should be sought by those who are scholastically ambitious. The first considerations are the scholasic attainment and promise of greater future development. These are to be considered regardless of financial need. After the selection has been made on this basis, the financial element should enter in and financial assistance given to those who need it. If the Student is to commercialize his training, he should be given a loan; if not a periodical allowance. Their Relation to Higher Educational Finance 89 A scholarship, on the other hand, should indicate less than a fellowship. ­ The person holding it need not have proved his ability so conclusively, but should have shown signs of promised scholastic ability. The award should be made in the same way as the fellowship, first as an honor and then as a financial aid. The financial consideration should be the same as with fellowships, that is, it should be secondary to other considerations and brought in only when the recipient of the award needs monetary assistance. In both cases the performance of something specific should be required. Actual performance as well as potentialities should be deciding factors in the granting of these awards. However, actual performance should weigh more heavily than potentialities in the question of renewing the funds. There may be established certain guiding principles for the administration of scholarships and fellowships: 1. A fellowship should be an honor awarded for proved scholastic ability with a promise of greater development of that ability. 2. A scholarship should be an honor awarded for promised scholastic ability. 3. The financial consideration should be of secondary importance. Money should be given only to those fellows and scholars who need it in Order to do their best work. 4. If the training received and the work done has an economic value, the financial assistance should be in the form of a loan; if not, it should be in the form of a periodical allowance. 5. The fellowship and scholarship should be retained only so long as the holder produces something specific in the way of advancing or of organizing knowledge. [90] CHAPTER VI THE ADMINISTRATION OF STUDENT LOANS The survey of Student loans made by the Student Loan Information Bureau during the past year and by the Harmon Foundation during the previous year shows that there is no uniformity in the administration of Student loans in the various Colleges and universities. In formulating policies for the administration of loans, it has not been possible to be guided by prevailing methods, for each institution seems to have a procedure peculiarly its own. No two institutions are guided by the same set of principles. There exists no distinguishable trend of thought, no well worked-out policy making for a definite purpose or end. The administration of loans to students has never been given, nor is it given even today, the proper attention and place in the financial policies of higher education. In the working out of a policy for the administration of Student loans, it is desirable therefore to lift all that is best from the various methods in use and with this material construct a workable plan which will approach, as near as possible, the ideal. There is no “yard stick” with which to measure that which is best in the various plans. The selection of the best elements from the different Systems in use must be made judiciously rather than scientifically and supplemented, where necessary, with theoretical conclusions. Methods of Administration Loan funds are administered in two ways: the restricted method, loaning the income from the fund only; and the revolving method, loaning both income and principal. Taking the institutions as a whole, there are many more funds administered under the restricted method than there are under the revolving method. These conditions do prevail notwithstanding the fact that of the 93 institutions which answered an inquiry sent out by the Student Loan Information Bureau, 69 replied that they favored the revolving fund. The replies are personal opinions of the iijdividuals who are familiär with and in most cases responsible for the administration of loans. The replies revealed opinions as follows: 69—favored revolving fund. 5—preferred restricted fund. 1—no experience with revolving fund. 1—doubtful. 16—no answer. A Study of Student Loans 91 As against these opinions there stand the actual conditions as follows: AMOUNT OF FUNDS AVAILABLE 1924-1925 Revolving $187,253 10 funds Restricted 704,754 12 “ Emergency 5,000 2 “ Not specified 3,205,786 288 “ $4,102,793 Revolving $60,000 3,500 28,100 4,300 11,353 10,000 50,000 10.000 5,000 5,000 $187,253 Restricted $1,000 25,000 10,000 25,000 32,000 1,000 2,754 50,000 27,000 25,000 500,000 6,000 $704,754 Ivmergency $3,000 2,000 $5,000 The above data is most illuminating and shows that even though a large number of university officers prefer the revolving loan fund to the restricted, the amount of money administered under the latter method far surpasses that administered under the formen There is only $187,253 in revolving funds as against $704,754 in restricted funds. If the “not specified” funds ($3,205,786) are taken to be restricted, as it is safe to suppose, the proportion becomes even more favorable to the restricted fund. Much of this money was left in the restricted form and must continue to be administered thus. However, it is safe to assume that there are many of these funds that could be placed on a revolving basis. An effort should be made to have future funds established in the same way. Weightier arguments and the sentiment of a large majority of officials favor the revolving fund. It is not well to be guided by unweighted statistics which would lead us to advocate the restricted fund. The revolving fund has in its favor the support of those who have given both Systems a trial. The greater efficiency of the revolving fund is indisputable. If we should take, for instance, a fund of $100,000 and see what can be done with it under the restricted plan and on the other hand see what can be done with it under the revolving plan, the results are most instructive and lead us to wonder why this plan has been so long in coming into practice. One hundred thousand dollars at 5% yields $5,000 annually and would be sufficient to make a loan of $250 to 20 students for each of the first five years, 25 92 A Study of Student Loans and students for each of the following five years, and 30 students for each of the next five years, and so on. Over a period of fifteen years, 375 such loans could be made. On the other hand, $100,000, turned into a revolving fund, allowing $20,000 of the principal to be loaned annually for the first five years, would be sufficient to make 1,475 such loans, which means that it would serve practically five times as many students. It would operate as follows: Number of Number of Interest Students Principal and Students only Served Interest Served Ist year $5,000 20 $20,000 80 2nd “ “ << 24,000 96 3rd “ “ “ 23,000 92 4th “ «( U 22,000 88 Sth “ “ 21,000 84 6th “ 6,250 25 22,000 88 7th “ tl li 25,200 100 8th “ u “ 24,150 97 9th “ u “ 23,100 93 lOth “ u “ 22,050 88 1 Ith “ 7,812 30 23,100 93 12th “ << Ci 26,460 105 13th “ “ 25,357 101 14th “ << it 24,255 97 15th “ << IC 23,152 93 Totad $95,310 375 $348,824 1,475 The above figures should be convincing. One hundred thousand dollars administered as a revolving fund will help 1,475 students over a period of fifteen years, whereas it will help only 375 students during the satne period if administered as a restricted fund. Besides helping a greater number of students, it would attract, where well administered, more money to be handled in this manner, whereas the amount forthcoming when administered under the restricted plan is far from sufficient to meet the needs. If individuals who have money to give can be shown the good that can be derived by the establishment of revolving loan funds, they will be more willing to leave money for this purpose. Speaking of administering money under the revolving method, Mr. G. C. Wintringer of Princeton University said: A fund of this kind makes a particular appeal to me personally and I have a feeling it should find favor with others. If an institution can demonstrate to a prospective donor that any money given for Student aid will be administered in a very business-like manner and can be used over and over - again, perhaps adding to the principal by the collection of interest, this should make a very strong appeal. It will likewise relieve the budget of the institution of the inclusion in it of a certain sum of money each year to be used for this purpose. Some officials and donors fear that if the principal as well as the inconie is loaned, the fund will eventually disappear. This fear is well founded only if we admit inefficiency in the administration of the funds. Their Relation to Higher Educational Einance 93 It is true that some funds in the past have greatly diminished or disappeared entirely when the principal was loaned out. This was due, almost always, to the method of administration and not to the dishonesty of students. Students, as all individuals, are honest if they are made to be. The trouble has arisen because of the lack of a definite agreement with the Student when he first secures a loan,—the “pay when you can” attitude, and lack of a collection System. Those who administer Student loans can well afford to borrow some of the principles from the business world that make lending in small sums successful. The managers of credit departments in concerns in New York City which make small loans and others who seil on the installment plan are of the opinion that 99% of the people are honest. When they do not pay on time, it is either because of circumstances over which they have no control or a fault in the credit department itself. The fault in the credit department may be a slip-up in the selection of the risk, or a failure to handle the customer tactfully. In both the selection of the risk and the collection of the money, cases are to be handled individually and each in accordance with its own peculiarities. Colleges and universities that have tried these elementary principles of business lending have been remarkably successful in administering Student loans. Even where the selection of the risk was not made with any great degree of care, but where the collection of the loans was undertaken systematically the results have been most satisfactory. That it is possible to administer a loan fund not only without loss, but in such a way that the fund will increase of itself, is evidenced by the following figures which represent an actual fund that has grown of its own momentum. Date Principal 1905 $6,927.76 1906 6,899.76 1907 7,059.56 1908 7,714.96 1909 8,319.32 1910 8,455.37 1911 8,692.37 1912 9,048.37 1913 9,702.73 1914 11,622.83 1915 12,612.58 1916 13,414.91 1917 14,587.12 1918 15,478.97 1919 16,255.10 1920 17,185.57 1921 18,480.57 1922 19,049.21 1923 20,010.84 1924 20,885.88 1925 22,038.91 94 A Study of Student Loans and This fund, which is in a state Institution, was originally started in 1874 and in 1905 was merged with other funds. The repayment of loans made previous to 1905 and since has enabled the loan fund to grow as the figures indicate. An experience of this kind should help to convince the most skeptical. It is evident that there is no more risk involved in Student loans than there is in commercial loans where as great care is taken in the selection of the risk and the funds are administered in a firm business-like manner. The figures represent a restricted fund, but the fact that it has been able to grow as it has proves that there is no reason why the principal could not have been loaned out to students as well. The Student has proved himself as reliable a risk as a person in commercial or industrial ventures and so deserves to have like confidence placed in him. Past Experience The experience of institutions in general has not been so encouraging as the individual case discussed above. However, many of the institutions ­ have been successful in the administration of their funds. The following Compilation, jointly prepared by the Harmon Foundation and the Student Loan Information Bureau, shows funds established, amount available, amount outstanding, and amount overdue in various institutions. Amount of Institutions Fund Fstabüslied Available 1923 Outstanding Overdue Total 135 $4.609,088 $944,905 $1,634,795 $386,816 1 672 814 84,821 2 454,390 49,347 130,094 3 345,394 76,878 268,515 4.. 290 000 14,000 5 251,500 13,900 48,928 18,386 6 206,876 9,535 70,231 35,721 7 153,922 8,697 91,830 8 105,656 16,644 53,000 5.000 9 101,000 8,907 6,482 10 100,000 5,000 11 96)821 18,423 25,000 12 96,500 10,000 107,791 78,773 13 88,165 54,265 26,815 11,744 14 76,257 53,565 54,836 10,689 15 68,165 4,000 16 62,503 5)700 17,538 17 55,000 5,897 8,619 1,924 18 54,500 11,500 7,369 19 52,524 2,710 25,027 15,509 20 50,500 6,332 26,435 21 50,000 6,500 22 50,000 2,500 23 45,792 29)320 17,365 24 45,000 2,400 25 45,000 11)300 8,699 500 26 35,000 1,800 3,000 27 34,446 1,722 2,427 957 Their Relation to Higher Educational Finance Amount of Institutions Fund Established Available 1923 Outstanding 28 32,471 8,584 13,656 29 29,332 19,332 30 26,971 6,158 023 31 26,909 1,687 1,700 32 26,669 1,993 5,449 33 26,370 2,271 4,492 34 26,000 1,500 8,600 35 25,559 3,800 17,160 36 24,000 2,000 12,000 37 22,006 2,300 38 21,500 10,000 11,500 39 20,000 (Newly est.) 20,000 40 18,800 12,900 23,850 41 17,250 1,700 4,658 42 17,243 4,890 12,952 43 17,400 5,300 2,400 44 17,055 20,581 18,403 45 16,259 1,760 7,168 46 15,774 8,530 14,864 47 15,580 8,741 7,109 48 15,561 2,000 17,093 49 15,472 5,940 7,669 50 15,350 15,350 5,108 51 15,220 700 4,378 52 15,000 3,750 15,218 53 15,000 4,800 21,427 54 14,575 7,763 8,662 55 13,518 2,942 5,759 56.... 13,205 1,505 4,379 57.. 13,000 2,500 12,500 58 12,700 1,790 1,623 59 12,650 2,100 5,150 60 11,600 4,602 7,738 61 11,500 6,750 11,000 62 11,490 11,548 8,609 63 11,353 695 10,658 64 11,256 23,564 17,304 65 11,100 1,510 1,445 66 11,000 14,000 9,233 67 11,000 6,150 88,823 68 10,900 1,800 9,306 69 10,070 11,776 8,893 70 10,000 8,000 2,000 71 10,000 1,500 17,000 72 10,000 3,500 1,335 73 9,669 1,538 125 74 9,070 2,117 25,310 75 9,040 8,081 8,262 76 8,742 2,831 7,808 77 8,419 3,083 7,713 78 8,378 9,241 6,387 79 8,000 400 100 80 7,853 1,050 6,772 81 7,525 2,295 3,955 82 7,504 1,999 98 83 7,000 5,000 2,000 84 6,900 2,975 7,290 85 6,860 1,800 5,175 86 6,850 4,460 8,921 87 6,776 3,299 1,213 Overdue S.153 1,165 1500 7,000 2,900 16,695 1,866 iöö 4,957 6,695 3,736 768 6,778 1,479 515 1,979 6,766 5,165 1,332 2,376 87 650 126 900 1,300 ' 1,529 907 482 1,900 12,000 12,515 25,3iÖ 89 5,437 ’ 1,872 1,605 5 3,860 775 6,752 96 A Study of Student Loans AND fff Amount of Institutions Fund Fstablished Available 1923 Outstanding Overduc 88 6,000 2,825 365 89 5,906 6,930 6,930 ■ 90 5,700 1,305 3,534 510 1 n 91 5,635 2,459 92 5,300 1,520 2,398 2,019 93 5,300 849 1,365 380 94 5,000 3,000 3,600 350 95 4,965 904 3,300 2,100 96 4,315 6,815 4,711 766 97 4,039 1,870 2,170 927 98 4,000 2,450 1,550 1,150 99 4,000 200 700 100 3,719 4,282 3,675 1,570 101 3,700 942 2,432 102 3,525 3,525 2,705 103 3,474 1,291 1,540 250 104 3,300 1,100 2,200 132 10S 3,250 2,575 17,682 5,249 106 3,189 627 2,563 779 107 3,150 2,600 1,450 108 3,000 3,000 2,550 200 109 3,000 1,450 2,500 75 110 3,000 1,750 1,870 285 111 3,000 3,535 12,134 4,173 112 3,000 3,000 27,890 20,555 113 3,000 1,030 114 2,944 5,089 1,865 115 2,800 2,550 2,937 180 116 2,600 2,600 313 BH . 117 £500 11,344 2,945 118 2,442 2,442 1,590 sh 119 2,220 850 1,370 250 120 2,075 575 575 H ■ 121 2,065 2,792 2,464 450 122 2,000 1,500 1,500 123 2,000 3,100 3,100 124 2,000 2,000 150 40 B 125 1,800 1,800 1,400 126 1,650 1,650 127 1,300 356 1,903 914 128 1,250 285 495 70 129 1,200 252 390 130 1,115 200 1,045 440 131 1,107 1,107 275 132 1,084 3,658 9,399 ■ 133 1,000 805 400 134 1,000 400 400 135 1,000 1,000 4,105 As may be seen from the above data some of the institutions have been most unsuccessful; but as has been saicl before, it is due in general to the administration of the funds rather than the nature of the transaction. On the other hand, a large number of institutions have been surprisingly successful. Taking the entire group, the proportion of funds overdue is far from alarming if the method of administration in many institutions is taken into account, and the fact that these funds that Their Relation to Higher Educational Finance 97 are overdue will eventually be paid in large measure. Sotne institutions have been successful in collecting money after it has been out for as long a period as twenty years. The relative proportions between the columns tabulated above are interesting. The total amount of money overdue in 135 institutions in 1923 was $386,816, which is approximately one-fourth of $1,634,795, the total amount outstanding. To be exact, 23 per cent. of the total amount of funds was overdue. This is not surprising when we consider that most institutions have no systematic method of collecting ­ due and overdue accounts. The total amount outstanding ($1,634,795) is almost double the amount available in one year (1923). In other words, a sum equal to 57 per cent. of the total amount of funds outstanding ­ was available for the purpose of loans in 1923, which is an exceedingly high proportion. It means a very favorable turnover in loans. One-fifth ($944,905) or 20 per cent. of the total amount of funds originally established ($4,609,088) for the purpose of making loans to students was available in 1923, which would indicate a turnover approximately ­ every five years. Taking into consideration that some institutions have been administering their loans very poorly, it means that other institutions must have been most efficient in order to bring the average up to this favorable level. Selecting The Risk Since the selection of the risk is important in the successful administration of loans, it is well that this element of Student loans be fully elaborated here even at the risk of repetition. The supposition is that Student loans will be administered under the same principles as commercial loans with but a slight change in these principles in order that they may be applied to the student’s peculiar problem. No mechanical device can be put forward and no set of rules can be established to guide those who are to decide which students are to be granted loans. The proper selection of the risk is something that can come only as the result of experience in dealing with students. The student’s present needs, future ability, and willingness to pay are the deciding factors. His present needs can be determined by the analysis of his Statement as to his present financial circumstances. His present income consists of what he is able to receive from home without depriving other members of his family of a just share of the family income. If his family is in comfortable circumstances, there is no reason why the Institution should help him financially. If his family is not able or is unwilling to assist him, he is then eligible for a loan, provided that his probable future financial success warrants it. Here lies the difficulty. His future financial success is hard to estimate, but if a Student has a 98 A Study of Student Loans and reasonable amount of intelligence, initiative, good health, and possesses a reputation for integrity and for reliability, there is no reason why he should not get a loan if he needs the money. His intelligence can be judged by his academic Standing; his enterprise by what he is already doing to help himself; his health can be ascertained; and his integrity and reliability can be judged by his past performances both in his home community and the university community. These are the measures which are available to those who must select the risk. They are not fool-proof, but if used with caution and discretion, they are valuable and furnish sufficient data on which to take a chance. There will be misjudgments and consequent losses, of course, but the losses can be reduced to a minimum. There will be further losses due to deaths, but losses due to deaths and the force of circumstances will constitute a very small part of the total money loaned. Notwithstanding such losses, by not loaning more than the Student will be able to repay, by charging a fair rate of interest, and by adopting some form of group guarantee, Student loan funds should not only be kept intact, but should increase of their own momentum. Size of Loan There is at present a wide Variation between the amounts of money that different institutions will loan to one Student. Some will give him a loan during each of his last three years in College, others will make him a loan in both his junior and senior years, and still others will extend a loan but once during his College career. The size of the loan varies with the number of times that the institution is willing to extend a loan to the same Student. The following figures compiled by the Student Loan Information Bureau show the maximum amount which an institution will lend to a Student: Maximum Amount Loaned to One Student Number of Institutions $1,000 (during whole of College career) 2 500 2 450 400 2 350 4 300 14 250 18 200 36 150 17 100 48 50 7 25-50 (emergency loan) 4 No guiding principle can be deducted from this Compilation. If it is possible to loan $1,000 to each borrowing Student in two institutions, no Tiieir Relation to Higher Educational Finance 99 reason can be found for making $100 the limit in 48 institutions, other than a lack of funds. In spite of the fact that only two institutions extend loans to the amount of $1,000 to one Student, this would seem a sound practice. A student who is worth helping at all should be “seen through” and it is not conceivable that anything below $500 would be of much assistance to him during his four years of College life unless it be for emergency purposes. To know how much money should be loaned a Student in accordance with the principles of commercial lending, it would be necessary to ascertain the cash value of his training and what Proportion ­ of such cash value would come to him during the immediate successive years after leaving College. The amount of the loan should also be adjusted to the cost of living and the cost of education in the community. For instance, it will be necessary for the loans to be larger at Columbia University in New York City than at Oberlin College in Ohio. No reliable figures on the cash value of an education are available, but it should be possible to compile them. Such figures, however, could serve as a guide only because they would be averages and the individual cases would still have to be estimated in the light of past experiences and costs in the individual communities. At any rate, it may be said with certainty that if a Student is loaned money at all, the amount should be sufficient to relieve him of his financial burdens to such an extent that he may do justice to his academic work without impairing his health. Two thousand dollars should not be too much of a loan to extend to a Student who has good health, is reliable and ambitious, and shows signs of a promising future. One institution now has plans under way to do this. Other institutions should be able gradually to raise the amount of money loaned to one Student as they become more skilled in the selection of the risk and as experience with their funds proves that additional money can be profitably used for this purpose. Funds will always be forthcoming when it can be demonstrated that a useful purpose is being served and that the money can be used over and over, thus perpetuating an enterprise which is socially profitable. More funds have not been made available ­ for student loans because funds in hand have not been administered so as to show that they served a useful and specific purpose. The only argument therefore which prevents the granting of larger loans to worthy students is the lack of funds and this argument has been met. As has been said, if loans are properly administered, sufficient funds can be obtained eventually and once a student has been granted a loan, he should be “seen through“ to the extent of $1,000 to $2,000 unless it is discovered in the meantime that the estimate made of him at the time of granting former loans is no longer justified. 100 A Study of Student Loans and 101 Interest Rate The Variation between the rates of interest charged on loans is as great as the difference in the amounts of money loaned to one Student. At present the Situation is as follows: RATE OF INTEREST CHARGED Rate Number of Institutions Total 254 8% 2 7% 7 6% 118 5% 36 4% 43 3% 9 2% 13 No interest 26 Thirteen institutions have a progressive rate as follows: 3% Ist term and 6% thereafter 1 No interest unless not paid when due 1 6% and 8% if not paid annually 1 2% Service Charge and 5% after graduation 1 4% from date of note and 5% after graduation 1 4% and 5% while in College and 6% after graduation 1 4% first four years after graduation and 6% thereafter... 2 2% to 4% after graduation and 6% on overdue installments 1 No interest until three years after graduation and 4% thereafter 1 6% or 4% if note is paid before maturity 1 5% before graduation, 6% after graduation, and 8% after maturity 1 5% first year after graduation and 10% after maturity.... 1 It is evident that there is no similarity of practice in regard to interest charges among the various institutions. The time at which interest Starts can be taken into consideration along with the rate charged. The 254 institutions reporting sum up as follows: Interest from date of loan 193 Interest from date of leaving school 35 No interest 26 Total 254 What deductions can be made from present practices? There is no uniformity as to rate of interest nor as to time of starting interest charges. There seems to be no reason for exempting students from paying interest on loans granted. The Student takes out a loan because he thinks it is a good business venture to borrow so that he may have more time to devote to his intellectual pursuits. Not paying interest or paying anything Their Relation to Higher Educational Finance 101 loan without interest he is in fact accepting a gift of $6, in addition to getting a loan without collateral. Six dollars is not a very large sum to add to his indebtedness and still it would change the color and put backbone into the whole transaction. If the interest charged is lower than the commercial rate, the Student is given the difference between what he pays and the commercial rate unless it can be shown that he is a better risk than the average commercial risk. To Charge less than the commercial rate of interest therefore, is the same as to make a gift of the difference and brings in the same objections which can be lodged against making outright gifts. No able-bodied, self-respecting Student wants to receive that kind of help. The experience of the Loan Association ­ of the German Student Body, which has recently come into existence in Germany, has shown that students as a rule prefer to borrow any necessary money rather than to receive it as charity. This sentiment is growing among American students and there are groups of students in some of the American institutions that prefer loans at a commercial rate rather than anything less than that rate. The more enterprising Student almost invariably prefers a loan on a business basis to one made otherwise and also prefers such a loan to a fellowship or scholarship. If such a sentiment is not already ingrained in the Student, the university has a duty to perform in helping him to develop it, for when he encounters the outside world, this quality is one which will help him to succeed. The same reasons hold true in regard to the time at which the interest should Start. There is no reason why the interest should not Start from the time the loan is made. So far as the rate of interest and the time at which it begins are concerned, Student loans should be handled in exactly the same manner as commercial loans. Security for Student Loans The different forms of security required for Student loans has been discussed in Chapter V and is referred to here for the sake of emphasis and completeness. As already stated, the only security which the Student has is himself and the only measure of his ability to pay is an estimate of his future financial success. To arrive at a decision as to whether a student should be granted a loan or not is a difficult task and one which can be efficiently performed only after much experience in judging people and especially in judging young people. Requiring collateral or endorsements is not good because the Student should be placed on his own responsibility; an honor note is much to be preferred to a collateral or endorsed note. In order to insure the loan fund against heavy losses due to poor loans, some form of group guarantee should be brought into use. This will not only decrease the losses, but will give a means of 102 A Study of Student Loans and bringing about pressure in cases where Collection is difficult. If the members of the group are to be responsible for their fellow members, they are entitled to a voice in the selection of those composing the group. This arrangement will be much more effective if it is done arnong groups already in existence, such as the College dass, the callege, the corresponding dass in different Colleges and the alumni. So far as can be seen at present, such a group guarantee plan when well administered is the best and soundest method by which to administer loans. It is the only form of security which lends itself effectively to Student loans. Term of Loan The term for which loans are granted differs widely in various institutions. According to information made available on this point the present policies are in effect: Term of L,oan Total 5 years after graduation 4 i< « ii ^ ii ii ii 2 “ Repayment before graduation 10 years from date of loan.. 9 8 7 6 S 4 3 2 1 Number of Institutions Reporting 110 14 2 4 4 31 2 !.!! 2 i 1 2 1 6 2 6 10 12 The Situation as revealed by this data is astonishing. What is apparently a simple problem is being handled in sixteen different ways in 110 institutions. Regardless of what local conditions are, they ought not to influence greatly the term of the loan. Loans to students are in part investment loans and in part commercial loans. In determining the term of the loan, it is therefore possible to apply the same principles that prevail in investment banking and in commercial banking. Accordingly both long term and short term loans are made to students. The short term loans are for emergency purposes and should constitute a small Proportion ­ of all those made. The long term loans are made to assist the Student to finance himself through school and therefore repayment in the near future cannot and should not be expected. If the loan is to be successful and the terms of the contract complied with, it is necessary that such terms be in conformity with the period of turnover in the business Their Relation to Higher Educational Finance 103 in which the loan is made. The period of turnover in education is neither one nor ten years, but is in fact five years and loans to students must be made on this basis to be successful. The Student must not be given terms with which it may be concluded in advance, he will not be able to comply. Five years from the date of the loan is the best period. What he borrows in his freshman year he will not be able to pay before one year after graduation. On the other hand, if he is planning for a successful career he must manage to pay his freshman loans within two years after graduation. The obligations which he incurs during his sophomore year likewise can and should be paid at the end of three years after graduation. So, too, loans made in the junior year can be paid four years after graduation ­ and those contracted for in the senior year paid five years after graduation. If the Student is planning a College course of more than four years, the term of the loan should be adjusted accordingly. Some will need six year loans, some seven year loans, and perhaps a few will require loans for a longer period. In all cases the term of the loan is not to depend on the institution, but on the number of years that the Student will remain in College and how soon he will begin to “cash in” on his training after leaving College. This will depend on what profession or field of endeavor he enters. By far the largest number of loans are long term loans, but it is also necessary that institutions be prepared to help the students over emergency periods of a few weeks or months. A short term loan can be handled in the same manner as a commercial loan, its duration being no longer than is necessary for the Student to obtain funds to cancel the note. In no case should it extend over one semester. If the money is needed for a longer period than this, it would be well to consider it a long term loan and handle it as such. Methods of Repayment The policy of institutions on the question of repayments has been varied. Much laxity is to be found in this respect and especially is there a lack of definiteness as to how and when the loans are to be paid. Three reasons may be assigned for this: first, sheer neglect of entering into a definite agreement; second, entering into agreements which will be impossible for the Student to carry out; and third, not understanding how collections can best be made, or not making such knowledge efifective. Of one hundred and five institutions answering an inquiry sent out by the Student Loan Information Bureau in regard to methods of making repayments, sixteen institutions reported that payment was required in full when the loan became due, sixty reported the installment method of 104 A Study of Student Loans and repayment, and twenty-nine reported that it was optional with the Student as to which method he wished to adopt. The same may be said of the method of repayment as has been said of the term of the loan. There is no reason for different institutions to adopt opposite methods of repayment. That workable method which is best for one institution is usually best for the others. Students of all Colleges, as a group, go through similar experiences after leaving College and the method of repayment which is the most convenient and effective for the students of one institution is equally practical for the students of other institutions. A Student who must borrow to go through College will not, for several years, be in a position to pay off a note of a few hundred dollars all at once. When an institution requires payment in full at a specified time, it is requiring the impossible unless the note falls due four or five years after graduation. Even then it is a bad policy from the standpoint of the institution because although the student cannot pay the entire amount before several years have elapsed, he would be able to pay small periodical installments. This would keep his interest in the loan alive, would render repayment easier for the student, and would make some of the funds available to be reloaned sooner. The installment method of repayment is by far the best and it need not entail as much accounting as might be supposed. There are, however, several kinds of installment payments, some of which can be adjusted to meet the student’s peculiar needs. The amortized form is no doubt the best. It is peculiarly adopted to the student’s economic progress. After leaving College, the student will be able to work off increasingly larger payments as he becomes better established and his income increases. The interest on the loan can thus be included in each payment and will not fall due in a large amount at an inopportune time. Since the student will be able to make increasingly larger payments, it is right that he be required to do so in order that the money be released sooner to be reloaned to new students. It may be said in passing that graduates who are able to turn their College loans into commercial loans should be encouraged to do so in order to make the money available sooner for more loans. It would not be difficult to carry out such a policy if graduated students were approached in the right manner, individually or through the alumni. The size of the payments should be very small at first and gradually rise each successive month. Monthly installments are perhaps the best. It is a good plan to arrange that payments fall due only during the ten academic months. There are two reasons for this: first, the student is better able to pay during these months since he must provide for vaca- Their Relation to Higher Educational Finance 105 tion during the summer months; second, the loan would be easier to administer in this manner since it could be extended in monthly allowances during the academic year and repaid on the corresponding dates five years later deferring a certain per Cent, of each monthly allowance to the corresponding dates of a later year, the amount deferred being in accordance with the amortized plan for repayment. It may seem involved to attempt such a method but, with the working out of suitable tables, it would become practically automatic and require very little bookkeeping. It would be highly commendable if the amounts loaned were made in multiples of $10 in all institutions. Ten dollars is sufficiently small to meet all requirements. If a Student wants $25 he can either get along on $20 or use $30 to advantage. The adoption of such a unit would simplify matters considerably and institutions could then cooperate in the printing of tables, record blanks, and necessary forms for the carrying out of such a System. Using $10 as the basic unit, ten months as the unit of time and five years as the period of the loan, an almost ideal System could be set up that would be much more practical than any now in use or as yet devised. With the necessary printed tables the System would be simple to operate. Collections It has been found that there exists no consistency of thought in regard to the selection of the risk, the size of the loans, interest rates, security, the term of the loans or methods of repayment. In so far as the Collection ­ of Student loans is concerned, a certainty of System is lacking. Very little attention has been given to this side of the question in most institutions. In general, they have had no collection Systems; those that have attempted to collect have done so only after loans were long overdue and the borrower had grown callous in his attitude toward his College loans. In many cases he has found it good business not to pay his College loan on which he paid little or no interest and instead to put his money into commercial and investment ventures which net him a good return. After the loans have been permitted to lapse for some time without reason, collection is all the more difficult. A sound System must aim not only at collecting loans overdue, but must take the matter in hand soon enough so that loans will be paid when due. This is another side of Student loans where business principles can be taken over bodily. The final stage in a loan transaction is to induce payment on time. Institutions, even where otherwise successful, have not properly analyzed this end of the loan contract and seldom have they undertaken to close the transaction in a businesslike manner. Their appeals for the payment of loans overdue have not 106 A Study of Student Loans and been sufficiently exacting and have often taken an apologetic form. Some institutions have looked upon a rigid System of collection of outstanding funds as below their dignity and strangely enough have seemed to prefer seeking funds from outside sources to collecting debts that are rightfully due to them. So lacking in sound principles is this that under our present economic and commercial Organization it can persist only to the detriment of higher education. It is mockery for an institution to teach principles which it does not practice, for while on the one hand it attempts to instill ideals into youths at the same time it undermines these teachings by its business dealings with the Student body. An effective System must be exacting, precise, and prompt. It must be sympathetic only when the circumstances warrant sympathy. The borrower must be approached at the right moment, which is just before the loan falls due. The longer the payment lapses the more hardened he becomes to his obligations and the more difficult it is to collect. The borrower should be sent a notice that his payment is soon to fall due. This notice should be sent sufficiently in advance so that he may have time to make provision to pay the installment. If he fails to pay and offers no explanation, a second notice should be sent him. Both notices can be printed or in mimeographed form. If these two reminders fail to bring in a payment or an explanation, he can be notified in a personal way which will be suitecl to his peculiar case. This third notice would cliffer in each case, depending on whether delinquency has been characteristic of all previous installments or whether it has occurred after several payments have been promptly made. In any case, the delinquent should be followed up closely in a tactful but firm manner. If the borrower is made to meet his first payments on time, he will find it easier to meet the other payments ­ in the same manner. Organization to Administer Loans Having discussed the administration of loans and the principles which should guide such administration, it is important that something be said as to what Organization can best undertake it. There are four types of organizations that could take up this task and see it to a successful end. Higher educational officials are at variance as to what Organization can best administer Student loans. Some are of the opinion that all loans can and should be administered best by the institution ­ while others believe that an outside Organization can perform the task more effectively. Still others believe that the Organization which constitutes the source of the funds should either take care of them itself or make provisions for their administration. These are poor Their Relation to Higher Educationae Finance 107 methods of approaching the subject because it is not who should administer the funds that must be considered, but which organizations can administer them in the most effective way. The organizations which fall under consideration in regard to Student loans are: the educational Institution itself, the philanthropic and semi-philanthropic foundations, banks and trust Companies, and charitable, religious, and fraternal organizations. ­ Charitable, Religious, and Fraternal Organizations The religious, charitable, and fraternal organizations which have made provisions to grant scholarships, fellowships, and loans to students in most cases administer the funds themselves. This is as it should be. No funds should be accepted for administration by institutions unless they are turned over unconditionally. If numerous restrictions and qualifications are made by those making funds available, Provision should be made for their administration. Where the College or university has a well worked-out System of Student loans, funds turned over to it should be received with the understanding that they will be administered as all other funds in the institution. The numerous funds, with the various provisions that now exist in institutions, are a drawback to an efficient System of loans. They multiply the work and complicate the bookkeeping connected with loans. It would seem a wise policy for institutions to refuse to administer funds from such organizations unless given a free hand in directing them. If organizations refuse to accept such conditions, they should make provision to handle the funds themselves. Banks and Trust Companies Loans may also be administered by banks and trust Companies either as a semi-philanthropic venture or as a purely business proposition. Some banks and trust Companies have been loaning money to students on a purely business basis and have been very successful. In some cases they have required insurance or other collateral, in others organizations or individuals stood ready to make good the losses, but up to date this has not been necessary. The most notable examples of such ventures have been in New York City, California, Texas, and in some European countries. ­ In all four localities it has proven an effective way of assisting students. There is no question but that such a venture on the part of financial institutions is sound. Trust Companies should be well adapted to handle Student loans. Such funds would render valuable Service to students and Supplement well the loan funds handled by other organizations. ­ 108 A Study of Student Loans and There is a question, however, as to whether it would be wise for educational institutions to turn over loan funds to financial organizations for administration. Those who are in doubt as to the wisdom of such a Step believe: first, that the educational institution can handle the matter as well as the financial institution; second, that if the students do not repay, it will reflect on the university and the university will have to make good the defaults; third, since the university would have to make good these defaults the bank or trust Company might not use its utmost efforts to press collection; fourth, that it is questionable whether some financial institutions could administer such funds more efficiently than educational ­ institutions; fifth, that some officials are reluctant to relinquish their power over the administration of Student loans; sixth, that many of the funds are so tied up that provisions must be made to administer them at the institution and since this must be done machinery may as well be developed to administer all of the Student loans. We conclude that: 1. Institutions must make provisions to administer the funds intrusted to them for Student loans. 2. Banks and Trust Companies are well adapted to lending money to students and due to the legal restrictions placed upon them, there is little danger that they will go to extremes in this matter. Their efforts should be a valuable Supplement to those made by the educational institutions. 3. Universities and Colleges must develop higher Standards and more efficiency in the administration of Student loans. Philanthropie and Semi-Philanthropic Organizations The administration of Student loans by those organizations which fall under this dass is much to be desired. Organizations such as the Harmon Foundation, can well administer funds to students and in that way be of great Service to higher education. The Service is of two kinds: first, that actually rendered in the making of loans, which enable young people to finance themselves through College in an independent and business-like way; and second, that of raising the Standards in loan administration since organizations of this type are not hampered by institutional views as are Colleges and universities. The first is a direct benefit, the second is a benefit derived through wholesome influence. Such foundations are therefore of Service in their influence and work and their loans form a valuable Supplement to loans made by educational institutions and other organizations. Their Relation to Higher Educational Finance 109 The Educational Institution Colleges and universities must, therefore, administer at least some of the Student loans, but there exists no unanimity of opinion as to how they can best do this. Past experience does not prove a valuable source from which to draw, so it is necessary to turn to organizations other than the universities and Colleges. The most fruitful fields from which to draw, as this thesis indicates throughout, are those of commercial and investment lending. Higher educational institutions need to work out new policies and develop a System for the administration of Student loans. Such policies and System can be built by taking over the most effective elements to be found in commercial and investment banking; in the Harmon plan; in Systems used in Europe; and also by making use of the principles which are set forth in this study as the results of an inquiry conducted by the Student Loan Information Bureau. [110] A STUDY OF STUDENT LOANS AND THEIR RELATION TO HIGHER EDUCATIONAL FINANCE DIGEST 1. Changing Basis of Higher Education and its Financial Support Throughout the entire development of higher education we find that the purpose for which it existed and its sources of financial support were closely related. There are three reasons for the existence and liberal support of educational institutions: A. Cultural—which seeks the religious or spiritual welfare and also the advancement of knowledge in unremunerative fields. B. Political—which aims at training for citizenship. The cultural aims of education also bear directly on the training for citizenship. C. Economic—which seeks the increase of the physical wealth, comfort, ­ and happiness of the individual and of humanity through the advancement and dissemination of knowledge. 2. Three Sources of Higher Educational Income A. Endowments and gifts, or the philanthropic sources. B. Appropriations and gifts from city, state, and national governments, including land grants. C. Fees and tuition paid by students, or income from students’ fees for tuition and other educational Services. 3. Income According to its Source Compared with Benefits Derived from Higher Education A. Income from Student fees has not risen proportionately to that of income from other sources but has in reality decreased. B. Educational charges in the various schools or higher educational institutions, both public and private, have not been apportioned with due consideration of the differences in the economic value of the training the Student receives from the various schools or departments. C. The financial policies of institutions must be gradually remodeled in accordance with the changing economic conditions and the new purpose for which higher education exists which will necessitate a change of policy in regard to Student finance. D. The general claim that higher education justifies large state appropriations ­ because of the subsequent value to society of the persons it trains, is equally applicable to any form of training, physical, cultural, or vocational. 1 ' \ ' ; A Study of Student Loans 111 E. An attempt should be made to allocate costs of higher education to the various sources of revenue in proportion to the benefits which institutions of higher learning have to offer to the individuals, groups, and organizations front which the revenues are derived. 4. The Allocation of Costs A. The allocation to society, the philanthropist, and the individual who is the recipient of the educational benefits. B. The allocation within the Institution among the various schools, faculties, classes, and individuals attending; these costs to be allocated proportionately with the purposes which such education serves. 5. Assumed Results Under Cost Allocation As Above A. It would place higher education on a sounder financial basis by balancing costs of certain educational efforts against specific sources of income. This would enable those seeking funds public and private, to give specific reasons for asking for financial Support ­ and to point to definite benefits which such a support would produce. B. The financial program of higher education should be such as to enable it to receive support commensurate with its importance. C. If business methods were used in the handling of educational funds and the support of higher education were sought on a definite basis of what it produces, the necessary funds would be obtainable. D. Proper cost allocation would advance the educational aims of institutions ­ by making larger funds available for the carrying on of educational projects, and thereby hasten their realization. E. Such cost allocation would mean higher tuition fees, which present a perplexing but not insurmountable problem. Well administered Student finance would furnish one way to meet these new demands. 6. The Amount of Money Loaned to a Student Should Depend Upon: A. The individual. B. The type of education desired. C. The institution and its reputation for turning out high grade men. D. The known opportunities which present themselves to each group of students after graduation according to type of training. E. The extent to which the training will increase the student’s earning capacity. 112 A Study of Student Loans and 7. Reasons for Lösses in the Past A. Loan Funds have not been properly administered. (1) Lack of definite agreements with borrowers. (2) Student was not made to realize the Obligation he was undertaking—the institution failed to develop a clear-cut sense of responsibility. (3) The risk was not properly selected. (4) There were no systematic collections. (5) The charging of no interest or too low interest. B. The institution failed to “see the Student through”. Loans were made in the early part of the College career and additional loans were refused, which kept the Student from finishing his education. C. The institution failed to realize how a right kind of loan policy can be made a means of character building. 8. Expenses Listed in Announcements There should be a more accurate estimate of what students need to spend so as to relieve the loan office of unexpected demands for loans. 9. Students Should be Helped to Budget More Accurately in Order that necessary provision may be made for loan demands. 10. Fellowships and Scholarships would be Administered most advantageously if the following guiding principles were adhered to: A. A Fellowship should be an honor awarded for proved scholastic ability with a promise of greater development of that ability. B. A Scholarship should be an honor awarded to those who give promise of scholastic ability. C. The financial consideration should be of secondary importance. It should be given only to those fellows and scholars who need it in order to do their best work. D. If the training received and the work done has an economic value, the financial assistance should be in the form of a loan; if not, it should be in the form of a periodical allowance. E. The Fellowship and Scholarship should be held only as long as the holder produces something specific in the way of advancing or of organizing knowledge. Their Relation to Higher Educational Finance 113 previous year shows that there is no uniformity in the administration of Student loans in the various Colleges and universities. In working out a policy for the administration of Student loans, it is desirable to incorporate all that is best from the various methods in use. 12. Methods of Administration Loan funds are administered under two methods. The restricted method, which is loaning only the income from the fund, and the revolving method, which is loaning both income and principal. There are many more funds administered under the restricted method than there are under the revolving method, notwithstanding the fact that of the 93 institutions which answered an inquiry sent out by the Student Loan Information Bureau, 69 replied that they favored the revolving fund. The actual conditions reported show: CHARACTER AND AMOUNT OF FUNDS AVAILABLE 1924-1925 Revolving $187,253 10 funds Restricted 704,000 12 “ Emergency 5,000 2 “ Not specified 3,205,786 288 “ If a large part, the “not specified” funds ($3,205,786), is “restricted”, as it is safe to suppose, the proportion of available funds actually to be classified as “restricted” is overwhelming. Much of this money was left in the restricted form and must continue to be thus administered. However, it is safe to assume that there are many of these funds that could be placed on a revolving basis. The revolving fund has the more weighty arguments in its favor besides having the favorable sentiment of a large majority of officials. The greater efficiency of the revolving fund is indisputable. For example, a fund of $100,000 at 5% yields $5,000 annually and would be sufficient to make a loan of $250 to 20 students. Over a period of fifteen years it would be able to make 300 such loans. On the other hand, $100,000 if turned into a revolving fund, allowing $20,000 of the principal to be loaned annually for the first five years, and revolved for an additional ten years, would be sufficient to make 1,475 such loans which means that it would serve practically five times as many students. Some officials and donors fear that if the principal as well as the income is loaned, the fund will eventually disappear. This fear is well founded only if it is admitted that funds cannot be efficiently administered. Those who administer student loans can well afford to borrow some of the principles from the business world that make loaning in small sums successful. Colleges and universities that have tried these principles of busi ­ 114 A Study of Student Loans and ness loaning have been remarkably successful in administering Student loans. There is no more risk involved in Student loans than there is in commercial loans, where as great care is taken in the selection of the risks and the funds are administered in a firm business-like manner. 13. Past Experience of Institutions with Loan Funds The experience of institutions in general has not been encouraging. However, many institutions have been successful in the administration of their loan funds. Taking the entire group, the proportion of overdue loans is far from alarming if some allowance is made for the inadequate method of administration ­ in many institutions. 14. Selecting the Risk No set rules can be established to guide those who are to decide which students are to be granted loans. The student’s present needs, future ability, and willingness to pay are the deciding factors. His present needs can be determined by the analysis of his Statement as to his present financial circumstances. His future financial success is hard to estimate, but if a student has a reasonable amount of intelligence, initiative, good health, and possesses integrity and reliability, there is no reason whv he should not get a loan if he needs the money. By not loaning more than the Student will be able to repay, by charging a fair rate of interest, and by adopting some form of group guarantee, Student loan funds should not only be kept intact, but should increase as any productive investment. 15. Size of Loan There is at present a wide Variation between the amounts of money that the different institutions will loan to one student. In spite of the fact that only two institutions (out of 153 reporting) extend loans to the amount of $1,000 to one student, this would seem the soundest practice. A student who is worth helping at all should be “seen through” and it is not likely that less than $1,000 will be sufficient to see him through four years of College life unless it be for emergency purposes. The amount of the loan should also be adjusted to the cost of living and the cost of education in the community. Also, if a student is loaned money at all, the amount should be sufficient ­ to relieve him of his financial burdens to such an extent that he may do justice to his academic work without impairing his health. Two thousand dollars should not be too much of a loan to extend to a student who has good health, is reliable and ambitious, and shows signs of a promising future. Their Relation to Higher Educational Finance 115 16. Interest Rate The Variation between the rates of interest charged on loans is as great as the difference in the amounts of loans; 254 institutions report rates of frora no interest to 8%. Thirteen institutions have progressive rates. The time at which interest Starts can he taken into consideration along with the rate charged. The 254 institutions reporting sum up as follows: Interest from date of loan 193 Interest from date of leaving school 35 No interest 26 Total 254 There seems to be no reason for exempting students from paying interest on loans granted. Not paying interest or paying anything below the commercial rate is the same as accepting a gift. No able-bodied, selfrespecting student wants to receive that kind of help. There is no reason why the interest should not start from the time the loan is made. So far as the rate of interest and the time at which it begins are concerned, Student loans should be handled exactly in the same manner as commercial loans. 17. Security for Student Loans The only security which the Student has is himself, and the only measure of his ability to pay is an estimate of his future financial success. The requiring of collateral or signatures is not good because the Student should be placed on his own responsibility; an honor note is much to be preferred to a collateral or endorsed note. In order to insure the loan fund against heavy losses due to poor loans, some form of group guarantee should be devised. The grouping will be much more effective if it is done among groups already in existence such as the College dass, the College, the corresponding dass in different Colleges, and the alumni. It is the only form of security which lends itself effectively to student loans. 18. Term of Loan The term for which loans are granted differs widely in institutions; 110 institutions report maturities from graduation to five years after and from one year from date of loan to ten years after. In determining the term of the loan it is possible to apply the same principles as prevail in investment banking and in commercial banking. The short term loans are for emergency purposes and should constitute a small proportion of the loans made. The long term loans are made to 116 A Study of Student Loans and assist the Student to finance himself through school and therefore repayment in the near future cannot and should not be expected. If the loan is to be successful and the terms of the contract complied with, it is necessary that such terms be in conformity with the period of turnover in the business where the loans are made. The period of turnover in education is five years and loans to students must be made on this basis to be successful. Five years from the date of the loan is the best period. By far the larger number of loans are long term loans, but it is necessary that institutions be prepared to help the students over emergency periods of a few weeks or months. These loans can be handled in the same manner as commercial loans. The term not to be longer than is necessary for the Student to obtain funds to cancel the note. In no case should it extend over one semester. 19. Methods of Repayment Out of 105 institutions, 16 reported that payment was required in full when the loan became due, 60 reported the installment method of repayment, and 29 reported that it was optional with the Student. There is no reason for different institutions to adopt divergent methods of repayment. Any workable method that is best for one institution is usually best for others. When an institution requires payment in full at a specified time, it is requiring the impossible unless the note falls due four or five years after graduation. The installment method of repayment is by far the best, and it need not entail as much accounting as some suppose. There is, however, more than one kind of installment payment plan, and it is necessary to adjust the one used to the student’s peculiar needs. The amortized form is no doubt the best. After leaving College the Student will be able to work off increasingly larger payments as he becomes better established and his income increases. The filterest on the loan can thus be included in each payment and will not fall due in a large amount at an inopportune time. Since the Student will be able to make continuously larger payments it is right that he be required to do so in Order that the money be released sooner to be reloaned to new students. It may seem involved to attempt such a method but with the working out of suitable tables it could become practically automatic and involve very little bookkeeping. It would be highly commendable that the amounts loaned be made in multiples of $10 in all institutions. The adoption of such a unit would simplify matters considerably and the institutions could then co-operate in the printing of tables, record blanks, and necessary forms for the carrying out of such a System. Using ten dollars as the Their Relation to Higher Educational Finance 117 basic unit, ten months as the unit of time and five years as the period of the loan, an almost ideal System could be set up that would be much more practical than any System now in use or as yet devised. 20. Collections Very little attention has been given to this problem in most institutions. A sound collection System must aim not only at collecting loans overdue but must take the matter in hand soon enough so that loans will be paid when due. This is another side of Student loans where business principles can be taken over bodily. The final stage in a loan transaction is to induce payment on time. An effective collection System must be exacting, precise, and prompt. The borrower should be sent a notice, sufficiently in advance, that his payment ­ is soon to fall due. If he fails to pay without explanation a second notice should be sent. Both can be in printed or mimeographed form. If these two reminders fail to bring in a payment or an explanation of his failure, he can be notified in a personal way that will be suited to his peculiar case. If the borrower is made to meet his first payments on time he will find it easier to meet the other payments in the same manner. 21. Organization to Administer Loans It is important to determine what Organization can best administer such funds. There are four types of organizations that could take up this task and see it to a successful end. They are the educational Institution itself, the Philanthropie and semi-philanthropic foundations, banks and trust Companies, and charitable, religious and fraternal organizations. 22. Charitable, Religious and Fraternal Organizations In most cases these organizations administer the funds themselves. No funds should be accepted by institutions to be administered unless they are turned over without conditions attached. Where the College or university has a well worked-out System of Student loans, funds turned over to it should be with the understanding that they will be administered as all other funds in the institution. It would seem a wise policy for institutions ­ to refuse to administer funds from any source unless the institution were given a free hand in their administration. 23. Banks and Trust Companies Banks and trust Companies have been lending money to students on a purely business basis and have been very successful. In some cases they bave required insurance or other collateral, in other cases organizations or 118 A Study of Student Loans individuals stood ready to make good the losses. There is no question but that such a venture on the part of financial institutions is sound. Trust Companies should be well adapted to handle Student loans. There is a question, however, as to whether it would be wise for educational institutions to turn over loan funds to financial institutions for administration. Many of the funds are so tied up that Provision must be made to administer them at the institution and if this is done machinery may as well be developed to administer all of the Student loans. Institutions, ­ Colleges, and universities must make provision to handle the funds intrusted to them for Student loans, and develop higher Standards and more efficiency in their administration. Banks and trust Companies are well adapted to loaning money to students and due to the legal restrictions placed upon them, there is little danger that they will go to extremes in this matter. 24. Philanthropie and Semi-Philanthropic Organizations The administration of Student loans by such organizations as fall under this dass is much to be desired. Organizations such as the Harmon Foundation can well administer funds to students and in that way be of great service to higher education. Also, since they are not hampered by institutional views as are Colleges and universities, they can raise the Standard in loan administration and thus lead the way to more businesslike methods of administering all Student loan funds. Colleges and universities must handle at least some of the Student loans. They need to work out new policies and develop a System for the administration of Student loans. Such policies and System can be built by borrowing the effective elements: in Systems now in use; from the field of commercial and investment banking; in such plans as the Harmon Plan and some used in Europe; and by making use of the principles herein set forth which are the results of an inquiry conducted by the Student Loan Information Bureau. [119] RECOMMENDATIONS Scholarships and Fellowships 1. A scholarship should be awarded as an honor to one who gives promise of scholastic ability. 2. A fellowship should be awarded as an honor for proven scholastic ability with an indication of greater development of that ability for useful work. 3. Financial consideration should accompany such honors only in cases where scholars or fellows need such assistance in order to do their best work. 4. If the study undertaken has an economic value, financial assistance should be given in the form of a loan; when the training received has not this value, needed assistance should be given in the form of a scholarship or fellowship allowance at stated periods during the year. 5. A scholarship or fellowship should be held only so long as the recipient makes specific contribution to the advancement of knowledge or hs co-ordination. Loans 1. Revolving Fund.—A revolving fund, where principal as well as interest is loaned, serves many more students as compared with the restricted fund. 2. Department of Administration.—Loan funds should be administered in the business office of the institution under the direct supervision of the business officer. He should have final authority in granting or rejecting loans, as well as the responsibility for collections. 3. Selection of Risks.—Present need, past performance as an indication ­ of future ability and willingness to repay should be the deciding factors. Preference should be given to former borrowers from the same loan fund after a careful study of their budgets, the principle being to assist them to the point where they can more readily repay. 4. Amount of Loan.—The amount of the loan should be decided only after a careful investigation of the individual applicant, taking into consideration ­ his personal budget, opportunities for self-help, his scholastic rating, general health, and the average yearly cost per Student at the institution. ­ Usually, total loans of not more than $1,000 should be granted. 120 A Study of Student Loans Loans in excess of this amount should be rare and made only after the most careful investigation. 5. Interest.—Interest should be at the current commercial rate, generally six per cent., starting from date of loan. 6. Security.—The borrower should always sign a definite contract. In the case of revolving funds, loans should be protected by a group guarantee. When a large number of loans are made annually, the group should consist of those borrowing in the same year; when only a few loans are made each year, the group may consist of several consecutive classes. Borrowers should be made to understand that it is a business transaction and will be treated as such. 7. Repayments.—The loan should be repaid in installments beginning not more than one year after graduation or withdrawal from the institution. Not more than five years should elapse from date of loan before the first payment is made. An amortization plan can be used which includes interest, guarantee fund and principal, payments to be arranged in installments ­ of not less than five dollars a month or more than fifteen. 8. Collections and Delinquencies.—A prompt and exact follow-up System should be used, with the same ethical considerations that would control a wisely conducted bank. [121] APPENDIX A EXPERIENCE OF THE HARMON FOUNDATION IN STUDENT LOANS Düring the three and one-half years of Operation in Student loans, the Harmon Foundation has passed from the uncertain shoals and depths of a rocky sea-coast of theory, hope and conviction, to the clearly defined harbor of certainty as to the practicahility of making business loans to College students with character as the basis of security. Within this period nearly one thousand loans averaging about $170 have been made to men and women in forty-one affiliated Colleges. Of this number payments on approximately three hundred fifty have become due, which have been or are being liquidated in accordance with the arrangements provided for installment payments of $10 a month. The trend so far has shown conclusively that it is the plan of easy installments that appeals to the average Student borrower. While a few have anticipated payments and made early settlement, thus cutting down the interest, the very large majority pay the required amount month by month. Repayment, of course, is the gauge by which the plan is being, and will continue to be tested. Now, well into the second year of repayments the litmus paper remains essentially blue. The reliability of Student character in connection with financial obligations is fundamentally sound. Experience has shown that the great need at present is systematic training in promptness, and a healthy respect for due dates. Far too many of the borrowers have an idea that paying an installment at the end of the month is as satisfactory as having it in on the first when it is due. The Division of Student Loans considers, therefore, that a very important part of its work is the requirement of strict adherence to all details of the loan agreement as preparation for later contact with business organizations that are operating for financial return rather than education and public Service. The Division of Student Loans was not started in a Superlative expectation that return on all loans would be one hundred per cent. perfect both from the point of view of money and time. Although for the sake of the individual borrower it was hoped that no one would fail to follow the conditions of his agreement, those who have slipped from grace, even temporarily, have unwittingly furnished the working material for the experimental laboratory in which to test and demonstrate the strength of the collection procedure. 122 A Study of Student Loans and At the time of writing, only three per cent. of the money that has become due is ninety days or more in arrears. Toward the end of each month the percentage of the total overdue items is about eight, but a large part of this is delinquent only during the current month and is met at the next pay day. There have been no repudiations of loan obligations. Even in the case of the three borrowers whose accounts have been turned over to the Foundation’s attorney for collection, the debt has been openly acknowledged and the Statement made that the intention is to pay. The difficulty is that the borrowers who have allowed their accounts to fall behind have not taken advantage of the Provision in their contract to arrange for an extension of time, if for valid reasons they are unable to make specified payments. They fail to realize that the Foundation Stands in exactly the same relation toward them as if it were a bank and that negligence or late excuses when they have to be forced, will not be tolerated. Their attitude represents an undeveloped rather than a warped conscience. It is confidently expected that the guarantee requirement will eventually be cut from ten to five per cent. This cannot be done, however, until the course of repayment has been studied for a longer time, and, more important still, until the methods of collection have been more definitely developed, both as to office procedure and tradition of repayments has spread among successive groups of borrowers. The group guarantee has proven the only part of the plan that has not been accepted easily by those who are studying the administration of loan funds. While the Division of Student Loans does not regard its form of safeguarding the fund an ideal feature, it does maintain that this method of handling the problem is the least objectionable, least cumbersome, and by far the most economical to the Student and the administering Organization. It obviates the necessity of a heavy Service charge, property collateral, or the assignment of personal life insurance where the family should properly be the beneficiary. In other words, the Harmon Loan Plan has been arranged in this respect so that the man or woman who borrows may finance his education in part at least, arranging for repayment after graduation in such a way as not to be handicapped too greatly in his business or private undertakings. In the Operation of a Student loan fund, especially where the principai is used, obviously some form of protection is necessary. Where large groups are concerned, some defaults are inevitable. In this Connection it should be emphasized that only a small number, not more than onehalf of one per cent. at most, will occur through death. Insurance may take one of several forms, but owing to the over-head it is relatively expensive in any form. Their Relation to Higher Fducational Finance 123 In developing the guarantee plan the Service Charge was rejected as being not only too expensive for the Student, but also too arbitrary. Collateral and endorsement were not considered for the reason that they are too difficult for the average Student to obtain, and they involve psychological and other elements which are generally less effective for this purpose than either life insurance or group guarantee. Life insurance is applicable only in the case of death, which has been shown will be the reason for only a negligible number of defaults. It can be seen that while the actual risk is almost negligible, the borrower if forced to take out life insurance would have an additional fixed Charge on his loan and at the same time would not be covering the whole gamut of possible losses. The group guarantee as arranged in this plan is insurance at actual cost. No losses, no insurance. Furthermore, the group guarantee is desirable because the borrower is made to feel not only an Obligation to his creditor and himself, but, also, there is the additional check that failure to repay will work a hardship on his fellow borrowers, with the result that he will be openly branded as untrustworthy. If the individual concerned has not within himself moral stamina, the group guarantee, properly administered, can be a vital factor in building up the weak places in his character. Borrowers do not like to have the officials at their Colleges know that they are delinquent, and more particularly the fellow members of their group. Correspondence shows this most definitely. In undertaking its program in the field of Student financing, the Harmon Foundation has three principal objectives toward which it started and is still working: (1) helping needy and deserving students over the top of the educational ladder; (2) cultivating habits of providence and inculcating a proper attitude toward and observance of business principles; (3) making a comprehensive and progressive contribution to our educational ­ System by proving that it is possible in equity to place on the shoulders of the Student an increasingly larger proportion of the institutional cost of his education than now prevails, particularly among those whose earning power is greatly increased because of the training. The fact that Philanthropie organizations, men of means, newly established funds, clubs, fraternal groups, civic bodies, etc., are not only watching the progress of this experiment, but are seeking helpful suggestions and ad vice in the light of experience for the constructive administration of their own Student aid along business lines, gives some idea of the value of demonstrating the soundness of Student paper, not only* for the sake of students as a dass, but as an aid to the College in solving at least a part of its financial problem. With a workable System of making Student loans in harmony with business principles, and yet without bürden- 124 A Study of Student Loans and ing the borrower with too great a load of responsibility in meeting the Obligation after graduation, it is encouraging to consider the vastly greater service over a restricted fund that the revolving fund will render worthy boys and girls throughout the country in their struggle for an education. This view of the business loan makes a strong appeal to the potential donor of a fund who wishes, quite naturally, to see a given amount serve a maximum degree of usefulness. There has come to be a general realization that the casual administration of Student aid is all too likely to have a bad effect on the Student who is allowed to slack in the payment of his first loan, and that the real responsibility for the resulting character disintegration, however subtle, falls upon the group dispensing the assistance. In the creation and development of its unique theory and System of making loans to students, the Harmon Foundation has been working in virgin soil and has turned up and brought to light many curious facts, starting with the widely diverse attitude of educators and others toward the forms that Student aid should take, and ranging from a balanced judgment to pure sentimentalism. The unusual and unexpected has been found in the widely varied intellectual group of prospective borrowers, varying from the normal Standard to be expected of juniors, to a level very little above that of the grammar school. The uses to which borrowed money has been put have also been most curious, as well as many other qualities totally unexpected in a homogeneous group of College men and women. Nothing has been more marked than difference in the concept of Obligation which develops at the time repayment should begin. This ranges from a most admirable attitude, comparable to that of experienced business men, to utter childishness—a Situation which indicates that this side of education has been completely neglected among some, leaving many a young man in the kindergarten age as far as his knowledge of what is and will be expected of him by society is concerned. It is an arraignment of the influences, or lack of them, somewhere in the young man’s career—negligence perhaps— that makes progress unnecessarily difficult, and doubtless results in very many unnecessary wrecks of reputations. A single illustration is here given of the flippant attitude of a young man who had borrowed, completed his course, and received his degree. He had had a year in which to get a foothold, had received repeated requests to remit, and only when he was informed that the matter would be turned over for legal attention was the following letter received: If you know of any way to get money where it isn’t by legal process your attorney is a genius. I will pay as soon as I am able but I cannot do the impossible. Their Relation to Higher Educationae Finance 125 This borrower had not even asked for an extension of time. The Foundation ­ is confident that fundamentally this man is all right, and that the debt will be paid. This letter is a grave reflection on some one or some institution, or perhaps the social System under which the young man grew up. In Belgium, Switzerland, and Holland, and other European countries, it is often the practice of young men to Start in business on borrowed Capital ­ raised on unendorsed paper, but these men have been trained in business ­ ethics that apparently have not been a conscious part of the American System of education. In looking toward the future development of its loan System, the Harmon Foundation extends honorary membership to all its borrowers who repay their loans satisfactorily according to agreements. With this goes a character certificate on the reverse side of which is set forth the estimation of three leading New York bankers of its value. The Division of Student Loans maintains that the Student who through his own initiative borrows to obtain an education and then repays, has established a credit rating that should be of immediate and continued use to him in obtaining banking accommodations. As the plan becomes better known and its Services extended, as the number of borrowers grows and their records become known, this should have an increasing value. Ninety-eight certificates have thus far been granted. The Honorary Certificate is taking on a surprising significance—as shown by letters written in acknowledgment and appreciation of its receipt. The primary result of education is not learning, which of itself is a lifeless thing, but that inspiration which vitalizes the forces created or developed through study. The Foundation’s Honorary Members have caught that inspiration and are, because of it, approaching life’s problems on their toes. The change in the mental attitude of the graduate who has not yet paid his Obligation to that of the man who has won his spurs, from the point of view of the Division of Student Loans and his own, is most marked. The Foundation is beginning to harbor the hope that these young men and women have acquired something through their loan experience that will translate itself in other activities throughout their lives. Fach of us can probably look back on some minor experience or spontaneous bit of advice that has colored our whole career. The Honor Certificate is working that way with gratifying uniformity. PRINTED FORMS IN CURRENT USE BY THE DIVISION OF STUDENT LOANS OF THE HARMON FOUNDATION 1. Rules for the administration of Harmon Loan Funds. 2. Application for Loan. 3. Confidential reference. 4. Agreement. 5. Statement of interest. 6. Statement of first installment due. Notice regarding receipts for installment payments. 8. Bankers’ Endorsement. 9. Certificate of Honorary Membership. The Division of Student Loans will he glad to send copies of any of these forms to those wlio request them. A Study of Student Loans 127 L Original Sieb, 8A x II Form 1.—Page One RULES FOR THE ADMINISTRATION OF HARMON LOAN FUNDS AFFILIATION WITH COLLEGES I— Procedure It is first necessary for the President of a College to apply to the Division, of Student Loans for affiliation. If accepted, the-College signs an agreement to co-operate with the Foundation in the administration of the loan fund. A stated appropriation is granted for loans to students during the ensuing school year, according to the following rules prescribed by the Harmon Foundation. II— Basis of Selection Colleges are chosen to participate in the Harmon Student Loan Fund because of their: 1. Need 2. Educational Standards 3. Type of School 4. Geographical distribution 5. Desire to co-operate in loan experiment III— Student Loan Committee 1. A committee of three faculty members, one preferably a business officer, shali be appointed by the president who shall also designate one as chairman. 2. It shall be the duty of this committee: (a) to investigate all applications for loans and forward those recommended to the Harmon Foundation for formal approval. (b) to assist the Harmon Foundation in the general administration of the fund. IV— Forms Uniform blanks and other necessary papers will be furnished by the Foundation. Applications made out on other forms will not be considered. SELECTION OF BORROWERS I— Applications 1. A detailed application is required from all students. It must contain pertinent facts such as the personal history, grades, indebt'edness, school activities, and a careful budget of receipts and expenses. 2. All applications must be submitted through the Student Loan Committee of the College, on the form provided by the Foundation. 3. Each aoplication shall be carefully investigated by the loan committee, and its recommendation shall be required before acceptance by the Harmon Foundation. 4. The Foundation will not consider applications which are not made through the above channels. 5. Three references, at least two of which should come from the applicant's home town, are necessary. II— Eligibility 1. Loans are limited to students of junior grade or above in courses leading toward a degree in the liberal arts or one of the professions. 2. Loans are made without regard to race, religion, sex, or age. If the borrower is a minor at the time the loan is made, the endorsement of an adult is required, it being understood that upon reaching majority the borrower will sign an affirmation of his agreement and thus relieve his endorser. 3. All borrowers must be either citizens of the United States, or Have taken out their first papers. A Study of Student Loans and 4. No Student may become a borrower o£ the fund whose means of education are. not dependent either in part or whoily upon his own efforts. Preference will be given to the marginal Student: (a) The one whose course will be interrupted or terminated i£ he cannot obtain a. loan«. (b) The one'who will not make the loan a complete substitute for outside work. (c) The one whose health or College grades are likely to suffer if further assistance- is not obtained. Scholarship of the highestrank will not be a definite requirement for acceptance. The Harmon Foundation does not wish to lend to inferior students but is not opposed to making loans to those whose grades are fair or low due to the heavy bürden of seif support. LOANS I— Agreement Each borrower is required to sign a contract in which is set forth the terms of his loan. II— Amount The maximum loan to any Student in a given school year is Two Hundred and Fifty Dollars ($250). All loans granted to any borrower may not exceed a total of Five Hundred Dollars ($500). The loan to a Student may be sent to him in one check, or, if he desires, in two installments. III— Interest Interest at the rate of six per cent. (6%) per annum is charged from the date the check is issued. IV— Group Guarantee 1. Each agreement provides for the payment of a guarantee fund of ten per cent. (10%) of the amount of rncne}' borrowed. In no case shall any of this ten per cent. (10%) be used to augment the funds of the Foundation, or to cover administrative expense. It may be used only to make up defaults in the repayment of loans within the group to which the borrower belongs. 2. Four-fifths of the guarantee fund may be used to make up defaults in the borrower’s own College unit for the year in which he borrowed. The remaining one-fifth may be used to make up defaults which occur among the entire group of borrowers in a given year, in excess of the liability of the individual College unit. 3. After the loans of any given College group have been repaid together with interest and guarantee fund, or charged off as defaulted, all of the four-fifths of the guarantee fund remaining ­ after deducting losses, will be retumed to the members of this group pro rata with interest at six per cent. (6%) for the time the guarantee fund has been held by the Foundation. 4. After all loans made in any one year have been repaid together with interest and guarantee fund, or charged off as defaulted, any guarantee fund remaining will be distributed among the borrowers in that year pro rata with interest at six per cent. (6%) for the time it has been held by the Foundation. 5. In order to provide for a better functioning of the group guarantee plan the Foundation requires that a school must have at least five eligible borrowers in order to be granted a loan fund. TERMS OF REPAYMENT -Accumulated Interest Borrowers are required to Start payment of accumulated interest at the rate of Five Dollars ($5) a month beginning December first after graduation and continue until all interest which has accrued up to the following June first has been paid. If all of such interest is not paid by the Five Dollar ($5) monthly payments at the time the Ten Dollar ($10) installments as described below begin, then the Ten Dollar ($10) installments shall be applied against interest until all of the interest accrued to the above June first has been paid. Note: (<j) In the case of students graduating in February, payment of accumulated interest at the rate of Five Dollars ($5) a month shall begin June 1 following graduation and shall continue until all accumulated interest up to December 1 following graduation has been paid. Installments of Ten Dollars ($10) a month shall Start March 1, one year after graduation. If by this date all accumulated interest up to December 1 preceding has not been paid, such Ten Dollar ($10) installments will be applied against the above stated interest until it has been fully paid. (6) In the case of graduate students commencing repayment three years from date of loan at the rate of Ten Dollars ($10) a month, such payments will apply against accumulated interest until all such interest has been fully paid. Their Relation to Higher Educational Finance 129 Form I.—Page Three H—Ins tallments 1. Liquidation of the loan begins one year after graduation at the rate o£ Ten Dollars ($10) a. month irrespective of the size of the loan. Tfais payment shall apply toward the reduction of Principal, interest, and the payment of the required guarantee fund as set ferth in the section orr Group Guarantee. 2. In no case.is the repayment of a loan to Start later ihan three years from date of loan. 3. If a Student leaves school before graduation, monthly payments of Ten Dollars ($10) each shall begin three months after date of leaving school, and these installments shall apply. toward the reduction of interest, principal, and guarantee fund. 4. In case of illness or loss of eir.ployment due to unavoidable causes, the time of payment of installment ­ may be extended by appücation made in writing to the Harmon Foundation at least ten days prior to the date upop which the installment becomes due, and provided that the written consent of the Harmon Foundation has been obtained. 5. If the borrower has paid the first three installments promptly when due, he may thereafier at the discretion of the Harmon Foundation, make payments quarterly. COLLECTIONS AND DELINQUENCIES I—Student Representation When all borrowers of the fund bave been chosen in a College for a given year, they shall meet and elect from their number one representative for every five borrowers or part thereof. It shall be the duty of these representatives to act with the Student loan committee to assist the Harmon Foundation in following up delinquents among the borrowers of that year, and bring all influence to bear upon them so that the group will not suffer unnecessarily from the default of any of its members. IX—D elinquencies 1. If a Student fails to make monthly or quarterly payments promptly when due, the Foundation will wait five (5) days before notification. The first delinquent notice will be a formal one, such as a bank would send out. 2. If the borrower remains delinquent for a period of fifteen (15) days thereafter he will be reported to the chairman of the Student loan committee in his College who shall immediately send out the second notice. The form of this will be left to the discretion of the writer but should be personal in character. The Foundation expects to be notified of the date of this letter or have a copy of it. ... Simultaneously, one of the representatives of the group m which the dehnquency occurs will be notified by the Foundation with the request that he, or some one designated by him, who might have influence over the delinquent, write directly to the individual in arrears, calling attention to the latter's Obligation to his College as well as to his fellow borrowers, rather than to the Foundation. 3. If the Student still is in arrears thirty-five (35) days after his installment is due, the Foundation ­ will send out a third notice. .Within a reasonable time this notice will be followed by such legal proceedings as a bank or business house would institute for the collection of a delinquent account. 4. In the event that it becomes necessary to employ legal aid in order to collect an account, the charges for such service shall become and remain an Obligation against the borrower concemed until liquidated. 5. While the foregoing will be the general practice the Foundation will be guided by the circumstances in individual cases, especially where the borrower has failed to meet his first installment. III—Reports 1. Borrowers shall respond within six days after the receipt of all Communications regarding their loans which call for a reply. 2. The chairman of the Student loan committee and the group representatives shall reply promptly to the Foundation regarding all delinquencies of which they are notified. 3. The Harmon Foundation will make annual reports to the chairman of the Student loan committee ­ of all payments received. CERTIFICATE OF RECOMMENDATION All borrowers who discharge their obligations according to the terms of agreement, and whose character record has been satisfactory, become Honorary Members of the Harmon Foundation. This is evidenced by a certificate stating briefly the facts of the loan. On the reverse side the Statements ­ of three New York bankers are printed giving their opinions as to the character evidenced or established by a record entitling one to such a certificate. Form 1.—Page Four 130 A Study of Student Loa ns and 1t is expected that the Student Loan Committee supply each prospcctive borrower with a ccpy of these rules. and shall satisfy itself that they havc been read and understood by the Student before his applicaiwn is considered. ( contract ) The foregoing rules and regulations become a part of the j extension agreem ent ) between thc HARMON FOUNDATION, Inc., and made under date of the same as if incorp'orated therein as attested by the signature of the HARMON FOUNDATION, Inc., and .... Harmon Foundation, Inc. By (College) Date By Their Relation to Higher Educationae Finance 131 132 A Study of Student Loans and Form 2.—Page Tvvo 15. For what business or Professional occupation are you preparing? 16. Candidate now for Degree and expect to receive it in (Month) {Year) 17. Do you expect to enter upon post-graduate work? When? Where? For how long?. 18. College grades last year: Subject Hours or Point* Grade Subject Hours or Points Grade 19. List below real and personal property, if any, owned by you or held in trust for you: Description Market Value Income Do you have the Income Name of Trustee and other Information 20. Do you carry life insurance ? (Amount) (Kind) (Company) (When taken) 21. Have you ever been refused life insurance? Why? 22. What is the total amount of your present indebtedness? $ Itemize below. (Fill in each column) Name and address of Creditor Amount Date Contracted Due Date Interest Rate Was a Promissory Note given State Relationship of Creditor 23. List any notes you have given and paid: Name and address of Creditor Amount Due Date When Paid Remark* Their Relation to Higher Educational Finance 133 24. Fill out your budget for the last school year and your estimated budget for the entire present school year. If you live athome, or if you are eaming board or room, the monetary value of these items should be gioen ander the proper headings on both the Receipt and the Expense side. “Advances from other sources” and “Incidental expenses” exceeding $25.00 should be explained. Explain any items which might othenvise not bc clear. If necessary, use a separate shect of paper. RECEIPT S Last School Year Present School Year EXPENSES Last School Year Present School Year Savings from previous eamings Tuition Net earBtngs during school year Fees Advances from parents (Gift) (Explain) 44 “ “ (Loan) Advances from guardian (Gift) Board «* 44 41 (Loan) Room Advances from friends Books {Stete from whom and whcther gift or loan) Clothing Recreation or amusements Health Organizations Advances from College (Gift) Traveling expenses " 44 44 (Loan) Lau n dry *' 44 44 (PostponedTuition) Insurance “ 44 44 (Free Tuition) Instruments " 44 44 (Scholarship) Incidental expenses (Itemize and explain) Advances from other sources Expense for dependents, if -any (Itemize and explain) 25. Give three personal references (not relatives), who are mature persons, householders or property owners, or busmess and Professional men or women, of good standfng in the community, who haye known you well for several years. At least two of them should be from your home town. Your banker and your family physician would be desirable references. Name Age Address Present or most ncmt ocetipetion Form 2.—Page Three Form 2.—Page Four 134 A Study of Student Loans and 26. Give a brief resume of your College activities—in athletics, Student organizations—or any real efforts-you have made toward fprthering the interests of the College or your Community 27. Give your reasons for seeking assistance from the Harmon Foundation in preference to other sources ( $5.00 payment be due? 28. According to your understanding when v/ill your first ] ( $10.00 payment be due? I solemnly affirm the correctness of the foregoing answers, and prom ise to us6 the Loan granted me for no other purpose than the necessary expenses of continuing my education. 1 have read and understand the rules for administration and the terms of repayment of the Harmon Foundation Student Loan Fund and agree to conform to the same. If the Loan is made to me, I further promise: To answer promptly letters relating thereto. To keep the College and the Harmon Foundation informed of my address as long as any part of my indebtedness to the Harmon Fund remains unpaid. To repay the Loan according to the terms of my agreement. This promise to answer promptly all letters relating to tlie Loan and to keep tlie College and Foundation advised of address is fundamentally important, and tbe pranting of a loan is contingent thereon. Signed.. Date.. (This spt.ce is rcserved for the comment or endorsement of the Sfudeiit Loan Committee) I have .investigated the above answers and so far as I can ascertain they are correct. , I believe that this Student is entitled to this Loan. Signed.. (Chairman of the Student Loan Committee) 3000—9, 24. 25—P642S Their Relation to Higher Educational Finance 135 Original, Size, 8J4 x 11 Form 3. CONFIDENTIAL REFERENCE REGARDING STUDENT APPLICANT FOR A LOAN FROM THE Harmon Foundation INCORPORATED ,*who is a Student at has applied to the Student Loan Committee for a loan from the Harmon Fund. Loans are awarded only to worthy students of proved ability whose means of support are dependent wholly or in part on their own labor. Preference is ^iven the deserving Student who will not make the loan a complete Substitution for outside work, the one whose heaith or College grades may be in danger if extra aid is not obtained. He has referred to you as one who knows the pecuniary cifcumstances of his family. Will you therefore be good enough to furnish the Information asked for below ? Applications will not be approved until the replies from references are returned. Your answers to the following questions may be given on this sheet if you desire but we should appreciate an estimate of the applicant’s character on your own letterhead. Kindly send your reply to the Chairman of the Student Loan Committee in the enclosed, self-addressed envelope. The information you furnish us will be treated as strictly confidential. Sincerely yours, Chairman, Student Loan Committee College 1. How Iong have you known the applicant? 2. ln your opihiom, does this Student come within the dass of students mentioned in paragraph one above? 3. What is your judgment of the applicant’s character and financial reliability? 4. Do you consider this Student thoroughly dependable and the sort of a person to whom you might lend money yourself with confidence? Signa Iure of Reference Date. OJhcial Position or Occunation 136 A Study of Student Loans and Original Size, 854 x 14, Cap Folio Form 4. (ÜJjis Agmmpttt, made this day of A. D. 19 by and between HARMON FOUNDATION, Inc., a membership Corporation duly organized and existing under and by virtue of the Iaws of the State of New York, party of the first part, and hereinafter designated as the party of the second part; 3Far Halu# SUrftOfft, the party of the second part hereby agrees to pay to the party of the first part in lawful money of the United States the following items: 1 - Dollars ($ ), being the principal sum.advanced by the party of the first part. 2. Interest on the above principal sum or on any unpaid balances thereon at the rate of six per cent. (6%) per annum from the date of the loan. 3. A guarantee fund of Dollars ($ ), which is ten per cent. (10%) of the principal sum and which is explained more fully in section First following. And the party of the second part further agrees to the conditions and terms of payment of prindpal, interest, and guarantee fund as follows, to wit: 1. The sum of not less than Five Dollars ($5.00) on the first day of each and every month accounting from the first day of December which sum shall be applied against such interest as may have accrued. 2. The sum of not less than Ten Dollars ($10.00) on the first day of each and every month accounting from the first day of July which' sum shall be applied against the remaining interest, if any, which may have accrued prior to the first day of June ; after which time the Ten Dollar installments shall be applied against principal, interest and guarantee ­ fund until all such items have been paid in full. Anö U 18 füutualllj AgrfPÖ by and between the parties hereto as follows: FIRST. That in consideration of the fact that the party of the first part shall not proceed against the estate of the party of the second part in case of default due to death of the party of the second part, and for the protection of the principal of the Student Loan Funds administered by the Hormon Foundation, lnc., against voluntary or involuntary defaults, this agrcement is for ten per cent. (10%) in excess of the actual amount of money borrowcd. It is understood and agrecd that four-fifths of said ten per cent. (10%) can be used only for the purpose of making up defaults in the repaymcnts from. other students in during the College year and one-fifth can be used in making up defaults in the repaymcnt of loans made to students in other Colleges afliliated with the Hormon Foundation, Inc., during the said College year, which are not covcred by the guarantee required from the College groups in which the losses occur, and that if and when the funds actually loancd during said College year shall be. rcpaid with six per ccnt. (6%) interest thereon, all excess money receivcd by said party of the first part, after deducting all losses due to defaults oi any of said borrowcrs in said College year, including any legal costs connected therewith, shall be distributed among the borrowcrs of said funds during said College year in proportion to their respective interests in said excess as determined by the Harmon Foundation, Inc., together with interest at the rate of six per cent. (6%) per annum on said excess from date of final payment. SBCOND. That if the party of the second part leaves school before graduating, monthly payments of Ten Dollars ($10.00) each shall begin three months after date of leaving school, which payments shall be applied against the reduction of interest, principal, and guarantee fund. TH1RD. That all sums of money payable to said party of the first part hercunder shall, unless otherwise provided, be paid at the Office of the Hormon Foundation, Inc., in New York, N. Y. FOURTH. That prompt performancc and time are of the nature and essence of this agreement and each of its conditions, ­ and, therefore, if default be made in any one of said monthly installments for a period of thirty (30) days after it becomes due, the balance of the principal sum then remaining unpaid together with interest as set forth herein above shall immcdiatcly become due and payable. It is understood and agrecd, however, that in case of illncss or loss of employment due to unavoidablc causes the time of payment of said installment may be extended by application made in writing to the Harmon Foundation, Inc., at least ten (10) days prior to date upon which such installment becomes payable, and provided that the written consent of the Harmon Foundation, Inc., has been obtained. In the event that it shall bccome neccssary to employ legal aid to collect said principal sum or interest or any part thercof, any Charge for samc shall become and remain an Obligation against the party of the second part until Iiquidated. FIFTH. That the mailing of a written notice by depositing it in any post-office Station or letter-box, enclosed in a postpaid cnvelope, addressed to the party of the second part at the last address actually furnished in writing to the said party of the first part, shall be sufficient notice in any case under this Agreement. That no modification of this Agreement, nor waiver of any term or condition hereof shall be of any force or effect, unless the same is in writing, signed by both of the parties hereto, and all contracts and agreements hcretofore made with respect to this transaction by the parties hereto, or their agents, are merged into and superseded by .this Agreement; and th'at no waiver of the breach of any such term or condition shall bc construcd as a waiver of any other or subsequent brcach of the same or any other term or condition. SIXTH. That if the party of the second part receives a communication from the party of the first part calling for a reply, he shall respond within six days after the receipt of said lettcr. SBVENTH. That the rules of the party of the first part for the administration of loan funds, hcretofore gubmitted and read and approved by the party of the second part, are made part of this contract as if fully set forth herein. 3Jn $Uitn?ßa JSIfprpnf, HARMON FOUNDATION, Inc., has caused these presents to be signed in its corporate name by its .... and the party of the second part has hereunto set hand the day and year first above written. HARMON FOUNDATION, INC. (President, Vice President, Treasurcr) Party of the first pari (Witness as to Borrowcr) Party of the second part Endorser (Endorsement of adult required only if borrowcr u a tninor) Their Relation to Higher Educational Finance HARMON FOUNDATION INCORPORATED 140 NASSAU STREET NEW YORK SchooL Statement of Interest Accrued interest on Roan Agreement to Ress payments on account Balance unpaid Plea»e return this notice with your remittance 11-2-2 5—lOOO—P6 673 Obverse Money Order Enclosed find i check ( Exchange in payment of Name Present address. Former address Remittance should be made preferably by Check, Post Office or Express Money Order, payable to Harmon Foundation, Inc. and mailed with this notice to 140 Nassau Street, New York, N. Y. The Foundation must be notified pfomptlv of anv change of address Original Size, 6% x 3J4 (over) Form 5. 138 A Study of Student Loans and HARMON FOUNDATION INCORPORATED 140 NASSAU STREET NEW YORK, N.Y. 0College) The first installment on your account will be due and Statement Amount of installment Unpaid interest accrued the The Foundation must be notified promptly of any change of address (over) Obversf. Date l Money Order ■\ Check ( Exchange Enclosed herewith is> Check in payment of Name Present address Former address. Remittance should be made preferably by New York or Chicago excliange, Post Office or Bxpress Money Order, payable to Harmon Foundation, Xnc. and mailed with this notice to 140 Nassau Street, New York, N. Y. This notice of due date of first installment is sent merely for your convenience. No notice of further installments will be mailed. 1000—5-1-24 (over) Reverse Original Size, Form 6. Their Relation to Higher Educational Finance 139 Original Size, 3 l A x S K Form 8. NOTICE Conforming to a business practice that has become almost general, on January 1, 1925, we discontinued sending receipts for installment payments on Loan Agreements unless especially requested to do so. We recommend that remittances be made by check, Post Office or Express Money Order. HARMON FOUNDATION INCORPORATED 11-2-25—lOOO—P6 6 73 Original Size, 6 x 2^4 Form 7. For Certificate of Honorary Membership See Page 140 Bankers’ Endorsement OF THIS Certificate ** In my opinion the ownership of a Certificate ­ of Honorary Membership in the Harmon Foundation would constitute substantial evidence of good character in establishing the moral Standing ­ of an applicant for banking accommodations, if other qualifications were equally satisfactory. Lewis L. Clarke President, American Exchange National Bank, New York Harry A. Kahler President, American Trust Company, New York In my estimation the ownership of a Certificate ­ of Honorary Membership in the Harmon Foundation constitutes substantial evidence of good character, in that such a person having worked his way through College has developed the capacity to perform work. Having by his own efforts liquidated loans made to him, he has demonstrated thrift and integrity. Work, integrity and thrift are three essential traits that lead to success in life. Edward Townsbnd Former President and Chairman of the Board of the Importers and Traders National Bank, New York [141] SAMPLE TYPES OF COLLECTION LETTERS IN USE BY THE DIVISION OF STUDENT LOANS OF THE HARMON FOUNDATION * 1. First notice after interest installment becomes delinquent. 2. First notice after regulär $10 installment becomes delinquent. 3. Notice to College Loan Committee regarding delinquent borrower. 4. Notice to sub-chairman of College group regarding delinquent borrower. 5. Second interest notice from Flarmon Foundation to borrower. 6. Second notice from Harmon Foundation to borrower who has become delinquent on his regulär $10 installment. 142 A Study of Student Loans and l. (First notice after interest installment becomes delinquent) Mr. John Doe 140 Nassau Street New York, N. Y. My Dear Mr. Doe: According to our records the installment payment of accrued interest due the first of this month on your Student loan agreement has not yet been received. If your remittance has not already been mailed, we shall expect it to be sent immediately.. Each of our borrowers has entered into a business contract to which we shall require strict adherence. Very truly yours, Division of Student Loans 2. (First notice after regulär $10 installment becomes delinquent) Mr. John Doe 140 Nassau Street New York, N. Y. My Dear Mr. Doe: According to our records the installment payment due the first of this month on your student loan agreement has not been received. If your remittance has not already been mailed, we shall expect it to be sent immediately. Each of our borrowers has entered into a business contract to which we shall require strict adherence. Very truly yours, Division of Student Loans ' HEB Their Relation to Higher Educational Finance Mr. John Smith, Chairman Student Loan Committee Alpha College New York, N. Y. My Dear Mr. Smith : According to our records the installment due the first of on the above account has not yet been paid, nor have we received a response to our recent notice. Will you please call this borrower’s attention to the responsibility assumed, not only to the Harmon Foundation but also to the College and to other members of the group, and either send us a copy of your letter or advise us of the date you wrote? We thank you for any assistance you can give us in making collection. Very sincerely yours, Division of Student Loans 144 A Study of Student Loans and 4. Mr. James Brown Tarrytown, New York My Dear Mr. Brown : (Notice to sub-chairman of College group regarding delinquent borrower) Re: John Doe 140 Nassau Street New York, N. Y. Since you were selected as a representative of your group of Harmon borrowers at y° u know that one of your duties is to follow up students within the group who have become delinquent in their payments. We regret to advise you that the installment due the first of on the above account has not yet been paid. Will you please communicate with this borrower, calling attention to responsibility both to the College and fellow borrowers? It is our intention that no group will suffer for any default if it can be prevented. We thank you for your Cooperation. Very sincerelv yours, Division of Student Loans Memorandum to Harmon Foundation erom Sub-Chairman I communicated with the above borrower in the following manner: By letter (Please give date of letter) By interview Remarks: Their Relation to Higher Educational Finance 145 5. (Second interest notice frorn Harmon Foundation to borrower) Mr. John Doe 140 Nassau Street New York, N. Y. My Dear Mr. Doe: You have already been notified that \ve have not received the first payment on the accrued interest of your loan contract which was due December Ist. Up to the present time we have neither received your remittance nor the courtesy of a reply to our letter, although you promised when making application for a loan that you would answer promptly all letters relating to the Obligation as long as any part of the account remained unpaid. We cannot understand your neglect, especially since your contract provides that if on account of illness or loss of employment you cannot pay an installment, you may request an extension of time by writing to the Harmon Foundation ten days before the payment becomes due. No banking Organization would keep your account open unless you gave some indication of your good faith. The Harmon Foundation has the same relationship toward you that a bank would have. We shall expect payment of at least part of your account immediately. Very truly yours, Division of Student Loans 146 A Study of Student Loans 6. (Second notice front Harmon Foundation to borrower who has become delinquent on his regulär $10 installment) Mr. John Doe 140 Nassau Street New York, N. Y. My Dear Mr. Doe: While you were a Student at the Harmon Foundation had faith enough in you to grant you a loan so that you could continue your education. You signed a Statement that you had read and understood our terms for repayment, and also signed an agreement to make payment of $10 each month beginning the first of until your entire contract had been paid. We find that we have not yet received your remittance due the first of although we called it to your attention on and we believe your College and the sub-chairman of your group have also communicated with you regarding it. Your installment has also now become due. Your carelessness seems inexcusable since there is a clause in your contract that if on account of illness or loss of employment due to no fault of your own, you cannot meet an installment on time, you may request an extension by writing to the Harmon Foundation ten days before the installment becomes due. We cannot allow an item to remain delinquent without the borrower at least paying something on account. If you are not in a Position to pay the entire amount at this time, we shall expect you to send at least part payment and advise us when you will send the balance of it. This will show your good faith toward the Obligation and keep your account alive. If, however, we do not hear from you before your account will be placed with our attomey for collection and any legal costs will constitute an additional charge against you. Very truly yours, Division of Student Loans [147] APPENDIX B THE LOAN ASSOCIATION OF THE GERMAN STUDENTS Introduction “The Loan Association of the German Students which forms now a necessary part of the economic measures of the German Student body was established as a registered Corporation June 22, 1921 in Berlin.” Although this association is of recent origin, its forerunners had been carrying on similar work in local communities for some time past. 1 All these local helps were entirely insufficient to meet the demands. The need of economic or financial help for students became so pressing in 1921 that the Göttinger Student Congress passed the following resolution: “The need of students in consequence of the present rise in prices has achieved such a scope that it is necessary to procure economic help.” It was also resolved to ask the state, university authorities, and private and municipal circles to help in the establishment of the Student loan assodations. Through the establishment of these loan associations it was hoped to aid those students who because of the war and changed circumstances had not been able to continue their studies. The First Central Plans In May, 1921, soon after the founding of the Economic Help of the German Student Body, Dr. Fudikar presented a plan for the establishment ­ of a loan and help association for students over the whole German empire which was to cooperate with the Economic Help of the German Student Body. The Cardinal proposals as worked out took into account the experience of similar organizations in the United States and Denmark. The Loan Association of the German Student Body was established in June, 1922; the final registration of the Corporation took place on Feb. 16, 1923. The Organization of this association presents a “turning point on the way to the practical realization of the idea of economic self-help of the German students.” 2 The reasons why this Loan Association was established as a separate entity rather than as a part of another Organization such as the Economic Help of the German Student Body are as follows: 1. Need of uniform and similarly organized local units or branches with control exercised by a central office. 2. Declaration by the states, universities, and countries of their willingness to cooperate as members of this association. 1 Leipzig Loan and Help Association in 1919, Albertus Magnus Verein, and others. _ 2 Business Report of the Loan Association of the German Student Body, June, 1921-Feb., 1925. 148 A Study of Student Loans and The general economic importance of the association is due to the fact that it enables the students to finish their studies without being troubled by money cares. The money is at his disposal on favorable terms and thus the Student is prevented from falling into the hands of usurers as was the case previously. 3 The work of the association is built mainly on the thought that the Student is able to get means enough for his first Semester, but to the end of his university work he is not able to do so and must be accorded help which enables him to use the future returns of his Professional work of the next decade in the finishing up of studies.* This idea of self-help and especially of the Student as a worker was the basic one in the establishment of the association and in all its measures. The way proposed by the Loan Association was the only way which would enable every upright man to work up with the help of his own forces and with the complete security of his inner freedom and independence. Organization and Administration The association is managed by the Executive Committee which consists of the President, two vice-presidents, and a treasurer; the Managing Board which is made up of representatives of the governments of the German Empire; representatives of the Association of German Universities, representatives of the German students, and representatives from the business world; and the General Assembly. At the outset it was decided that the regulations concerning the management of the branches were not final, but that changes ccruld be made later on the basis of future experience. Although the control of the funds was to be centralized, the granting and payment of loans was to be local, handled by the branches. The management of each branch is taken care of by representatives of the faculty of the university where the branch is located, representatives of the Student body of the university, and a practical business man (preferably a banking specialist). The purpose of the branch is the carrying on of local activities: 1. The distribution of means received from the central office among students chosen after careful and impartial investigation of the incoming applications. 2. The continuance of connection with the borrowers until repayments have been completed. 3. The receiving of repayments on loans as well as interest. 4. The transfer of these payments to the central office. * 1 8 Und. 1 Ibid. ? i'-' Their Relation to Higher Educational Finance 149 The branch is divided into two parts; a management division which directs all the activity of the branch, and a decision board which decides on the proposals of the committee and, after a personal conversation with applicants, as to the extension of loans. Method of Granting Loans In general, loans are extended only to students finishing their academic studies, that is, those who are within a year of their final examinations in a German University. Proof of successful scientific work and scholastic achievement are often required. Those students who have earned a large part of their funds through work during vacations or at other times are usually given preference when loans are extended. If a Student wants to secure a loan, he must file an application for it with the branch. In this application he must submit his complete vita including a review of his past educational training, his experience in working, his health, his family relations, and his economic position. As a rule there is a personal conversation with the borrower in regard to his prospects in academic and Professional life. If all the necessary requirements are fulfilled, the central office remits, upon request from the branch, the full amount of the loan. The loan made is never lower than the minimum amount of funds necessary for subsistence in the community where the Student is located. The borrower signs a contract with the branch in which he obligates himself to present security, repay the loan in installments and interest semi-annually, and to send in to the branch a yearly report of his economic and Professional Status. The interest payment on the loan is two per cent for the first five years, after which it is five per cent. Repayment begins in the fifth year after the loan is issued and runs in installments ­ for five years. In case of premature repayment three per cent interest is discounted after the fifth year. Origin of Funds and Uses The money used in loans is derived from three sources; the contributions of the members and donations, which are to be distributed in loans; the payments of the students in German universities, which constitute an insurance fund to cover losses through non-payment; and the interest from these two sources, which is used to pay the expenses of the business management of the association. Internal Organization The original plan was that the capital of the Loan Association should be increased to a sum large enough to provide for loans over a period of 150 A Study oe Student Loans i' ten years. It was to be a revolving fund, since in the ten-year period the loans would be repaid and thus funds made available for new loans. The interest on the Capital and interest payments of the borrower were to be used to raise the insurance fund against non-payments. A form of group guarantee is used by the association. Every Student in a German university is taxed one mark each session for the purpose of building up the insurance fund. _ This general tax as well as the activity of the Loan Association would fix in the minds of all well-off students that they have obligations toward their comrades who are in need. 5 Early Difficulties of the Association The currency disaster in Germany which took the form of inflation hindered the plan of building up a big Capital. Later with the introduction of a stable currency, the financial Situation improved. The difficulty which first presented itself was the depreciation of the money that had been loaned. The continual depreciation of paper marks and the rise in prices made it difficult for the Student to be free from care and need. The loans extended were thus mostly gifts to the borrower and the Capital was practically destroyed by inflation. Loaning on the gold mark plan was then adopted and many of the paper mark borrowers were asked and consented to pay back a larger amount, even though they had no legal Obligation to do so. Future Prospects The possibilities of the Organization, as set forth by its business management, ­ are very great, provided there is a just application of the disposable funds. It is hoped by the association that the German students will help to realize these possibilities by their cooperation. The work of the association will be able to prosper only if the Spirit of self-government and self-help will be strengthened in the students at present and in the future. 6 5 Ibid. • Ibid. [151] BY-LAWS 1 The Association is called the “Loan Association of the German Student Body, Inc.” Its residence is in Dresden and it will be registered in the Corporation register. 2 The purpose of the Association is giving out loans to needy students of all the universities of the German Empire and of the Technological Institute of Danzig; ­ upon personal and scholastic identification and to the exclusion of all political, religious, or point of view criteria. The participation of separate universities is to take place according to the rules indicated in Paragraph 3, section 1 A (the contributions of the students) and in paragraph 8 (the organization of the branches). The Association has for its purpose the furthering of common welfare. 3 Sec. 1. Members are admitted to the Association: a. Through the written application to the Executive Committee without regard to the amount contributed; the state, the countries having universities, the Association ­ of the German Universities, “The Economic Help of the German Student Body,” and all economic organizations of students of separate universities that are endowed with a legal personality; on the condition that in those universities the students should contribute every session at least one gold mark each to the Association, ­ transmitted to a place indicated by the Executive Committee. b. Through the President and with the approval of the Executive Committee; ­ individuals and legal entities who either contribute at once at least 2,500 gold marks or obligate themselves to pay annually at least 100 marks for a period of not less than 3 years. Sec. 2. The general assembly can elect honorary members, persons proposed by the managing board, but who need not be members of the Association. All the honorary members have the right of the actual members without their obligations and have the right to vote. 4 Sec. 1. The General Assembly. The members under paragraph 3 (Sec. 1 A) have each one vote without regard to the amount contributed. SEC. 2. The voting power of the other members is as follows: a. According to the annual contribution: each 100 marks for contributions within 100 to 1,000 has one vote. For every further amount, each 200 marks yield a vote up to 2,000 marks. For every further amount within 2,000 to 5,000 marks, every 500 marks yield a vote. For further amounts of every 5,000 marks each 1,000 marks gives an additional vote. b. By contributions paid in once only. (Sec. omitted.) 152 A Study of Student Loans and 5 The contributions to be paid at once as well as the first annual payment have to be paid within a quarter of a year after the subscription. In case of very large amounts, the Executive Committee can permit payments in installments. The annual amounts have to be paid not later than March 31 st, the payments to be made at the place indicated by the Executive Committee. 6 Membership ends through the death of an individual, or witli legal entities, upon dissolution, or: a. Through the written application to the President which can be made out only to the end of the business year. b. When, in spite of reminders, the payment of dues does not follow within six weeks. The Executive Committee can extend this term in separate cases. The exclusion from membership can be decided upon by a three-quarters majority vote of the managing board. The investigation in a legal way of the grounds for exclusion is not permissible. 7 The funds of the Association are to be formed of: a. The contributions of the members and of donations. b. The payments each session of the students in German universities and in the Technological Institute of Danzig. c. The interest on a. and b. The fund that is formed by the contributions of the members and of donations ­ is to be distributed in loans in such a way as to keep this part intact. The payments of the students go to form an insurance fund out of which losses through non-payment of loans are to be covered. The interest goes to pay first the expenses of the business management and the remainder will be divided into two equal parts: the first to be added to the insurance fund, the other to the Economic Help of the German Student Body as the main agent of the economic activity of the German students. 8 The management of the funds is to be centralized. The granting of loans and their payment to individual students is to be local. For this purpose in every university a branch will be organized with the title “The Loan Association of the German Student Body, Branch ” As a rule the faculty, the Student body of the respective university, and practical business men (among those of the latter group there should be if possible a banking specialist), will take part in the management ­ of the branch. In those universities where there is already a definite economic association of students, it ought to send in an application for the establishment of a branch. This application should be approved by both the Student body and by the university officers. Their Relation to Higher Educational Finance 153 9 The Association is to be managed by: a. The Executive Committee—Der Vorstand. b. The Managing Board—Der Verwaltungsrat. c. The General Assembly—Die Hauptversammlung. 10 The Executive Committee consists of the President, two vice-presidents, and a treasurer. It is to be elected by the Managing Board for three years. A reelection is permissible. In case a member of the Committee retires before his term is up, the Managing Board is to elect a substitute for the remainder of the period. 11 The President is the legal representative of the Association. Written or oral declarations which involve a pecuniary Obligation of the Association or a disposal of fixed property are to be approved by another member of the Executive Committee. ­ The Executive Committee is to carry on its activities in accordance with the by-laws and the decision of the General Assembly and the Managing Board. It is to work out its own procedure. 12 The President carries on current business and proposes the report for the assembly in the meetings. The Treasurer takes care of the treasury either directly or indirectly through banks and is responsible for it. The business management is to be connected with that of the management of the "Economic Help of the German Student Body”. 13 The Managing Board is to consist of: a. Five representatives of governments of the German Empire, which means of the countries that are nominated to send a representative by the Union of some of them. b. Three representatives of the Association of German Universities selected for a period of three years; re-election of a representative is permissible. Out of these three one retires every year; the first retirement to be determined by casting of lots. c. Seven representatives of the German students are nominated by the “Economic Help of the German Student Body” for a period of two years; the re-election of these representatives is permissible. Out of the six, three retire every year; the first retirement to be determined by casting of lots. d. Nine representatives of the business world who are elected by the General ­ Assembly out of the members or their representatives for the period of three years. Three are retired annually and re-election is permissible. The first retirement ­ to be determined by casting of lots. 154 A Study of Student Loans and The election of members under (6) and (c) must take place before the annual meeting of the General Assembly, otherwise the election will be taken over by the General Assembly. In case of members retiring before their term expires, a replacement election for the rest of the period is to take place. 14 The Managing Board decides as to the budget and as to the establishment of local branches. It can also propose by a two-thirds vote a change in the by-laws, to be addressed to the General Assembly. If this majority cannot be obtained, the Managing Board can by a simple majority call another meeting four weeks later, at which again a two-thirds vote can decide on proposing a change in the by-laws. Generally the Managing Board decides all cases which are not dealt with by the Executive Committee and by the General Assembly. It has to work out the number of loans distributed, to determine the rate of interest and the terms of paying back the loan, and to prepare all the matters that are to be decided upon by the General Assembly. It has also to make preparations for the elections. The Managing Board has at least one meeting annually and besides that, at the invitation of the President, can be called together at any time. Upon the written application of at least one-third of the members of the Managing Board, a meeting must be held within six weeks’ time. In pressing cases a mailed or wired decision is possible. 15 A quorum of the Managing Board is twelve members. Matters are decided by a simple majority. In case of a tie vote, the President decides the issue. The members of the Managing Board with the exoeption of those under (c) receive no compensation. The Managing Board decides its own procedure and fixes the compensation for the members. 16 At least once a year the General Assembly has a meeting. Its date and agenda are to be communicated in written form to the members at least ten days ahead of time. An extraordinary meeting can be called by the President. It has to be called by him within six weeks if at least one-fifth of the members require it through a written application indicating the topics to be discussed. 17 The General Assembly listens to the annual report and receives the annual accounts and votes approval of the Executive Committee. It has to choose members ­ of the Managing Board indicated in Paragraph 13 d and two representatives of accounts. It has to decide by a two-thirds majority as to the proposals of the Managing Board to change the by-laws. 18 Legal bodies, business firms, partnerships, and individual firms can be represented in the General Assembly by an executive member or by their own member. It is also permissible to transfer their representative and voting power to another member of the firm or to another representative of the legal body, business firm, etc. Their Relation to Higher Educational Finance 155 19 In elections and decisions, if not otherwise specified, matters are decided by a simple majority of the metnbers present. In case of a tie vote, the proposal is considered to be rejected. In election it is decided by casting lots. 20 In every meeting of the General Assembly minutes have to be taken and to be signed by the presiding officer. 21 The business year of the Association extends from April 1 to March 31. 22 The dissolution of the Association can be decided only by the General Assembly following a proposal by the Managing Board. In both bodies there must be a four-fifths majority. In case of dissolution, the General Assembly decides on the disposal of the funds in existence according to the main purposes of the Association. 23 For the first business year, the members of the Managing Board, under section 13 b, were chosen by the meeting which founded the Association. The members under section 13 o, b, and c were nominated according to the rules of the by-laws. The present Managing Board of the first business year has its powers, even though the indicated maximum number of members is not yet reached. It has a right to complete itself and to elect the Executive Committee. The present Managing Board has the right to change the by-laws by a unanimous vote in the presence of at least one-half of its members. The proposal to change the by-laws must be communicated in written form to the members at least fourteen days before the decision. 24 The by-laws are in effect from June 2, 1922. Registered—June 17, 1923. [156] THE INSTITUTION OF HONOUR LOANS—FRANCE The Students National Union at its annual Conference in 1922 proposed that a National Fund for Honour Loans should be created in Order to help the poorest among the students, requesting that the state participate and help with two million francs during a period of ten vears to assist in the inauguration of the fund. This proposal of the National Union was passed only after a long parliamentary discussion on the principles and applications of Honour Loans. Administration and Distribution of Funds An Administrative Committee meets twice a year at the Board of Education, Paris, to administer the funds of the Institution and distribute them among the different French Universities. This Committee with the Minister as Chairman, is composed as follows: The Director of Higher Education The Rector of a Provincial University A Dean of the Paris University A Dean of a Provincial University A Senator, a Deputy, a Member of the Council of State A member of the General Council A member of the “Cour des Comptes” Three heads of the great Technical Schools One important contributor President of the Students’ National Union President of a Provincial Students’ Association One Student front each of the Paris Faculties, chosen by the Minister. Local Committees A local committee meets to study the requests and distribute the loans in each university two or three times a year. This committee is formed of professors and students in equal number, and each committee in the different universities has as one of its members the President of the Students’ General Union. Method of Granting Loans A loan is made without interest and normally does not exceed 3,000 francs, but in exceptional cases may be raised to 5,000 (for Doctorates). The Student binds himself in honour to repay the loan. The repayment does not have to begin until the second year after his studies are finished. A Study of Student Loans 157 In making an application for a loan the Student must send to the Rector of the University: 1. A request, explaining his Situation; 2. A school certificate; 3. A certificate from the Dean or head of his school; 4. A medical certificate (in order to judge whether he is able to continue his studies) ; 5. A tax certificate, by the Maire to ascertain the financial Position of his family; and 6. A report of the work accomplished during the last few years. Since the establishment of the Institution, fifteen hundred honour loans of one thousand to four thousand francs have been granted. Summary bascd on a Report of the last annual Conference of the International Student Service, Geneva, Switserland, September, ip2j. Studies on Student Loans Harmon Foundation Study—Student Loan Funds, 1924 Oregon Agricultural College Study—Student Loan Funds, 1923 Correspondence and Interviews Universities and Colleges Name Location Adelphi College Brooklyn, New York Agnes Scott College Decatur, Georgia Akron, Municipal University of Akron, Ohio Alabama, University of Tuscaloosa, Ala. Albion College Albion, Michigan Allegheny College Meadville, Pa. American International College Springfield, Mass. Antioch College Yellow Springs, Ohio Arizona, University of Tucson, Ariz. Arkansas Agri. & Mech. College Monticello, Ark. Arkansas Baptist College Little Rock, Ark. Arkansas, University of Fayetteville, Ark. Atlanta University Atlanta, Georgia Aurora College Aurora, Illinois Bates College Lewiston, Maine Baylor College Beiton, Texas Beloit College Beloit, Wisconsin Benedict College Columbia, South Carolina Berea College Berea, Kentucky Berkshire School Sheffield, Mass. Bethany College Bethany, W. Va. Birmingham-Southern College Birmingham, Ala. Boston University Boston, Mass. Bowdoin College Brunswick, Maine Bradley Polytechnic Institute Peoria, Illinois Brigham Young University Provo, Utah Brown University Providence, Rhode Island Bryn Mawr College Bryn Mawr, Pa. Buckneil University Lewisburg, Pa. Buffalo, University of Buffalo, New York Butler College Indianapolis, Ind. California, University of Berkeley, California Carleton College Northfield, Minnesota Carnegie Institute of Technology Pittsburgh, Pa. Case School of Applied Science Cleveland, Ohio Catholic University of America Washington, D. C. Chattanooga, University of Chattanooga, Tenn. Chicago, University of Chicago, Illinois Cincinnati, University of Cincinnati, Ohio Clark University Worcester, Mass. Colorado College Colorado Springs, Colorado Colorado, The State Agri. College of Fort Collins, Colorado Colorado School of Mines Golden, Colorado Colorado, University of Boulder, Colorado Colorado, Western State College of Gunnison, Colorado Columbia University New York, New York Connecticut Agri. College Storrs, Conn. [158] A Study of Student Loans 159 Name Connecticut College for Women Cornell College Cornell University .. Dakota Wesleyan University Dana College & Trinity Seminary Dartmouth College Davidson College Delaware, University of De Pauw University Des Moines University Downingtown Industrial & Agri. School... Drexel Institute Dropsie College Drury College Earlham College Ellsworth College Elon College Elmira College Etnory and Henry College Eureka College Evansville College Fisk University Florida Agri. & Mech. College Florida State College for Women Floi'ida, University of George Washington University Georgia School of Technology Georgia, University of Gooding College Goucher College Grand Island College Hamilton College Harvard University Hastings College ITaverford College Hendrix College Huron College Idaho, University of Illinois, University of Indiana, University of Indiana State Normal School International Y. M. C. A. College Iowa State College of Agri. & Mech. Arts Iowa State Teachers College Iowa, State University of Iowa Wesleyan College Jamestown College ..... John B. Stetson University John Tarleton Agri. College Johns Elopkins University Kansas State Agri. College Kansas State Normal School Kansas, University of Kentucky, University of Keuka College Knox College Lafayette College LaVerne College Location New London, Conn. Mt. Vernon, Iowa Ithaca, New York Mitchell, South Dakota Blair, Nebraska Hanover, New Hampshire Davidson, North Carolina Newark, Delaware Greencastle, Ind. Des Moines, Iowa Downingtown, Pa. Philadelphia, Pa. Philadelphia, Pa. Springfield, Mo. Richmond, Ind. Iowa Falls, Iowa Elon College, North Carolina Elmira, New York Emory, Virginia Eureka, Illinois Evansville, Indiana Nashville, Tenn. Tallahassee, Florida Tallahassee, Florida Gainesville, Florida Washington, D.. C. Atlanta, Ga. Athens, Ga. Gooding, Idaho Baltimore, Md. Grand Island, Nebraska Clinton, New York Cambridge, Mass. Hastings, Nebraska Haverford, Pä. Conway, Arkansas Huron, South Dakota Moscow, Idaho Urbana, Illinois Bloomington, Ind. Terre Haute, Ind. Springfield, Mass. Ames, Iowa Cedar Falls, Iowa Iowa City, Iowa Mt. Pleasant, Iowa Jamestown. North Dakota De Land, Florida Stephenville. Texas Baltimore, Md. Manhattan. Kansas Emporia, Kansas Lawrence, Kansas Lexington, Ky. Keuka Park, New York Galesburg, Illinois Easton, Pa. LaVerne, California 160 A Study of Student Loans and Name Location Lehigh University Bethlehem, Pa. Lindenwood College St. Charles, Mo. Louisiana College Pineville, La. Louisiana, Centenary College of Shreveport, La. Loyola University Chicago, Illinois McGill University Montreal, Quebec Macalester College St. Paul, Minnesota Maine, University of Orono, Maine Marietta College Marietta, Ohio Marquette University Milwaukee, Wis. Maryland, University of .College Park, Md. Massachusetts Agricultural College Amherst, Mass. Massachusetts Institute of Technology Cambridge, Mass. Michigan, University of Ann Arbor, Michigan Milwaukee-Downer College Milwaukee, Wis. Minnesota, University of Minneapolis, Minnesota Mississippi, University of Oxford, Miss. Missouri, University of . Columbia, Missouri Montana State College of Agri. & Mech. Arts.. Bozeman, Montana Montana State School of Mines Butte, Montana Montana, University of Missoula, Montana Morningside College Sioux City, Iowa Mt. Union College Alliance, Ohio Muskingum College New Concord, Ohio Nebraska, University of Lincoln, Neb. New Hampshire, University of Durham, New Hampshire New Mexico College of Agri. & Mech. Arts.... State College, New Mexico New Rochelle, College of New Rochelle, New York New York State School of Agri Morrisville, New York New York University New York, New York North Carolina State College of Agri. & Eng... Raleigh, N. C. North Carolina, University of Chapel Hill, N. C. North Dakota Agri. College Fargo, N. D. North Dakota, University of Grand Forks, N. D. Northwest Nazarene College Narnpa, Idaho _ Northwestern University Chicago, Illinois Norwich University Northfield, Vt. Notre Dame, University of , Notre Dame, Ind. Oberlin College Ohio Northern University Ohio State University Ohio University Ohio Wesleyan University Oklahoma Agri. & Mech. College Oklahoma City University Oklahoma, University of Olivet College Omaha, University of Oregon Agri. College Oregon Normal School Oregon, University of Otterbein College Ouachita College Oberlin, Ohio Ada, Ohio Columbus, Ohio Athens, Ohio Delaware, Ohio Stillwater, Oklahoma Oklahoma City, Oklahoma Norman, Oklahoma Olivet, Michigan Omaha, Nebraska Corvallis, Oregon Monmouth, Oregon Eugene, Oregon Westerville, Ohio Arkadelphia, Ark. Pacific, College of the Stockton, California Pennsylvania State College State College, Pa. Pennsylvania, University of Philadelphia, Pa. Pittsburgh, University of Pittsburgh, Pa. Pomona College Claremont, California Their Relation to Higher Educational Finance 161 Name Porto Rico, University of Pratt Institute Princeton University .... Purdue University Location Rio Piedras, Porto Rico Brooklyn, New York Princeton, N. J. Lafayette, Ind. Radcliffe College Cambridge, Mass. Randolph-Macon College Ashland, Va. Rensselaer Polytechnic Institute Troy, New York Rhode Island State College Kingston, Rhode Island Richmond, University of Richmond, Va. Rochester Athenaeum & Mechanics Institute.... Rochester, New York Rochester, University of Rochester, New York Rutgers College New Brunswick, N. J. St. John’s College St. Lawrence University St. Mary’s College St. Stephen’s College Sioux Falls College Skidmore College Smith College South Carolina, University of Southern California, University of Southwestern Presbyterian Univ.. Stanford University Stevens Institute of Technology... Stout Institute Swarthmore College Annapolis, Md. Canton, New York St. Mary’s, Kansas Annandale, New York Sioux Falls, S. D. Saratoga Springs, New York Northampton, Mass. Columbia, S. C. Los Angeles, California Clarksville, Tenn. Stanford University, California Hoboken, N. J. Menomonie, Wis. Swarthmore, Pa. Temple University Texas, Agri. & Mech. College of Texas, University of Thiel College Tufts College Tulane University Union College. Utah, University of Vassar College Vermont, University of .. Virginia Polytechnic Institute... Virginia Union University Wake Forest College Washington College Washington College Washington Missionary College. Washington, State College of... Washington, University of Washington University Weaver College Wellesley College Wells College Wesleyan College West Virginia University West Virginia Wesleyan College Western Reserve University.... Whittier College Willamette University Williams College Wilson College Wisconsin, University of Philadelphia, Pa. College Station, Texas Austin, Texas Greenville, Pa. Medford, Mass. New Orleans, La. Schenectady, New York Salt Lake City, Utah Poughkeepsie, New York Burlington, Vt. Blacksburg, Va. Richmond, Va. Wake Forest, N. C. Chestertown, Md. Washington College, Tenn. Washington, D. C. Pullman, Washington Seattle, Washington St. Louis, Mo. Weaverville, N. C. Wellesley, Mass. Aurora, New York Macon, Ga. Morgantown, W. Va. Buckhannon, W. Va. Cleveland, Ohio Whittier, California Salem, Oregon Williamstown, Mass. Chambersburg, Pa. Madison, Wis. Yale University New Haven, Conn. fr Hi ■ i i I 1 * j i, i»' ' 1 1 | (: üi . A Study of Student Loans and Educational Foundations and Organizations Alice Walker Shinholser Memorial Loan Fund 445 College Street Macon, Georgia American Association of University Women National Headquarters, 1634 I Street Washington, D. C. Carnegie Institution of Washington Washington D. C. Chemists’ Club 52 East 41 st Street New York, New York Dartmouth Educational Association 414 National Shawmut Bank Building Boston, Mass. Darlehnskasse der Deutschen Studentenschaft Dresden Germany Darlehnskasse der Deutschen Studentenschaft Berlin Germany Hebrew Free Loan Society, Inc. 108 Second Avenue New York, New York The Henry Strong Educational Foundation 50 S. LaSalle Street Chicago, 111. The Institute of International Education 522 Fifth Avenue New York, New York Institution of Honour Loans Board of Education Paris, France Lewis H. Beck Mother’s Memorial Fund Wesleyan College Macon, Georgia Mary C. Jackson Emergency Loan Fund Women’s Educational and Industrial Union Boston, Mass. The Massachusetts Society for the University Education of Women 688 Boylston Street Boston, Mass. Mayo Clinic Rochester Minnesota National Research Council B & 21 st Streets Washington, D. C. Their Relation to Higher Educational Finance i 163 National Student Council of the Young Women’s Christian Associations 600 Lexington Avenue New York, N. Y. North American Student Friend Association Kansas City Kansas Presser Foundation Middle City Post Office Philadelphia, Pa. Rhode Island Society for the Collegiate Education of Women Providence Rhode Island The Santa Barbara Educational L,oan Fund Santa Barbara California The Schmidlapp Bureau for Women and Girls Cincinnati Ohio The Wellesley Students’ Aid Society, Inc. Wellesley College Wellesley, Mass. Wieboldt Foundation 3166 Lincoln Avenue Chicago, Illinois Woman’s Educational and Industrial Union Boston Massachusetts Church Boards of Education The Christian Church, Christian Education Department C. P. A. Building Dayton, Ohio Congregational Education Society 14 Beacon Street Boston 9, Mass. New York Baptist Union for Ministerial Education 910 Union Trust Building Rochester, N. Y. The Northern Baptist Education Society Ford Building Boston, Mass. Northern Baptist Convention 276 Fifth Avenue New York, N. Y. Ohio Baptist Education Society Granville Ohio Pennsylvania Baptist General Convention 1701 Chestnut Street Philadelphia, Pa. 164 A Study of Student Loans and Seventh Day Baptist General Conference Salem West Virginia United Lutheran Church in America 437 Fifth Avenue New York, N. Y. Board of Education of Disciples of Christ 122 Downey Avenue Indianapolis, Indiana Norwegian Lutheran Church of America Minneapolis Minnesota Methodist Episcopal Church ISO Fifth Avenue New York, N. Y. Methodist Protestant Church 613 W. Diamond, N. S. Pittsburgh, Pa. Primitive Methodist Church in the U. S. Billerica Center Mass. Board of Christian Education of the Presbvterian Church in the U. S. A. 822 Witherspoon Building Philadelphia, Pa. The National Council, Protestant Episcopal Church 281 Fourth Avenue New York, N. Y. The Executive Committee of Christian Education and Ministerial Relief of the Presbyterian Church in the U. S. 410 Urban Building Louisville, Ky. Society for the Increase of the Ministry 650 West Main Street Hartford, Conn. Board of Education of the Church of the United Brethren in Christ 1208 U. B. Building Dayton, Ohio American Unitarian Association 25 Beacon Street Boston, Mass. Miscellaneous Organizations American Bankers Association 110 East 42nd Street New York, N. Y. American Y. M. C. A. Czecho-Slovakia American Y. M. C. A. Warsaw, Poland Their Relation to Higher Educational Finance 165 Association of University and College Business Officers of the Eastern States Association of University and College Business Officers of the Western States Chamber of Commerce of the United States of America Washington, D. C. Denver Chamber of Commerce Denver, Colorado The Christian Work 70 Fifth Avenue New York, N. Y. Curtis Publishing Company Independence Square Philadelphia, Pa. The Duke Endowment Sil Fifth Avenue New York, N. Y. Feild Co-Operative Association Berryville, Clarke County Virginia Florida Educational I,oan Corporation Gainesville Florida General Federation of Women’s Clubs 1734 N Street, N. W. Washington, D. C. Intercollegiate Branch of the Y. M. C. A. 2 West 45th Street New York, N. Y. International Committee of the Y. M. C. A. 347 Madison Avenue New York, N. Y. Massachusetts State Grange Pittsfield Mass. The Morris Plan Company 469 Fifth Avenue New York, N. Y. P. E. O. Sisterhood Educational Fund 3231 Fulton Street Chicago, 111. Student Friendship Fund 347 Madison Avenue New York, N. Y. United Daughters of the Confederacy Americus Georgia 166 A Study of Student Loans and Knights Templar—(Educational Loan Funds) Grand CommanderiES Arkansas North Carolina Colorado Ohio Illinois Oregon Indiana Pennsylvania Iowa South Dakota Louisiana Vermont Massachusetts and Rhode Island Virginia Missouri Washington Nebraska Wyoming Rotary Clubs Athens, Pa. Monroe, Louisiana Atlanta, Georgia Rome, New York Battle Creek, Michigan Redlands, California Beiton, Texas St. Petersburg, Florida Boston, Mass. San Antonio, Texas Casper, Wyoming Temple, Texas Dallas, Texas Tucson, Arizona McKinney, Texas York, Pa. Missoula, Montana Individuals Amick, T. C Bus. Manager, Elon College. Armand, Miss B Bursar, Wesleyan College. Arnett, T Bus. Manager, University of Chicago. Baker, H. C Asst. Pur. Agent, University of Missouri. Ball, R. N Treasurer, University of Rochester. Bartlett, W. W Asst. to the President, Carleton College. Barrett, G. H Asst. Treasurer, Columbia University. Bates, W. H Secretary, State University of Iowa. Blackwell, E. E-, Jr Adm. & Asst.. to the President, Principia Junior College. Bostwick, C. D Comptroller, Cornell University. Bowen, A. F Treasurer, North Carolina State College. Bradshaw, F. F Dean, University of North Carolina. Brewer, T. W Treasurer, Wake Forest College. Brockman, E. W Bus. Manager, Furman University. Brooks, E. C President, North Carolina State College. Brown, E. E Bus. Manager, University of Missouri. Browne, A. S Bus. Manager, North Carolina State College. Brownlee, R. C Bus. Manager, Erskine College. Buckley, P Asst. Secretary, University of Michigan. Burlingame, E. A Comptroller, Brown University. Carlson, T. C Bus. Manager, University of Arkansas. Cain, J. H Secretary to the Administration, Catholic University of America. Carruthers, E. I Bursar, University of Virginia. Cassat, P. C Comptroller, Vassar College. Chaddock, R. E Professor of Statistics, Columbia University. Christensen, J. C Asst. Secretary & Pur. Agent, University of Michigan. Cobb, W. H Auditor, State University of Iowa. Coleman, H. S Bus. Manager, University of Pittsburgh. Coughlin, E. M Bursar, Hamilton College. Their Relation to Higher Educational Finance 167 Danielson, C. S Bursar, Columbia University. Davis, J. K Treasurer and Bus. Manager, Wofford College. Derby. Miss M Bursar, Elmira College. Dew, W. B Treasurer & Bus. Manager, Sweet Briar College. Dewey, H. F Asst. Treasurer, Union College. Doggett, R. L. S Asst. Treasurer, University of Pennsylvania. Earnshaw, E. B Bursar, Wake Forest College. Edgerton, H. C Treasurer, Dartmouth College. Egbert, J. C Director, School of Business, Columbia University. Ellsworth, R. C Secretary, St. Lawrence University. Ely, R. T Director, Research Institute of Land Economics and Public Utilities. Ford, H. S Bursar, Mass. Institute of Technology. Frantz, A. C Bursar, Temple University. Füller, E. O Fiscal Agent, University of Wyoming. Haig, R. E Professor of Business Administration, School of Business, Columbia University. Harmon, W. E President, Harmon Foundation, New York City. Harwick, H. J «Manager, Mayo Foundation, Rochester, Minnesota. Held, A President, Amalgamated Bank of New York, New York City. Holmes, C. W Treasurer, George Washington University. Hüll, T Sec. & Pur. Agent, University of Utah. Hunter, J. R Trustee, Wake Forest College. Hurst, S. L Comptroller, Bryn Mawr College. Hyde, G. P Treasurer, Smith College. Ingalls, H. B Bursar, University of Illinois. Jackson, F. L Treasurer, Davidson College. Johnson, A. S Comptroller, University of Wisconsin. Johnson, F. B Bursar, Yale University. Jordan, J. R Accountant, University of Missouri. Kayser, W. H Bus. Manager, Wellesley College. Kehoe, F. W Asst. Comptroller, University of Vermont. Kellum, J. G Treasurer, Florida State College for Women. Kidder, H. W Treasurer, Amherst College. Kimball, L. E Comptroller, New York University. Kinsey, W. A Asst. Purchase & Stores, University of Missouri.. Klouz, K Chief Clerk, University of Kansas. Kuntz, C. A Comptroller, Ohio State University. Lambdin, A. B Bus. Manager, Connecticut College for Women. Lane, L. W., Jr... Treasurer, College of William & Mary. Lersner, V. A Vice-President, Bowery Savings Bank of New York City. Lester, O. C Asst. Vice-President, Bowery Savings Bank of New York City.. Lindsay, S. M. Professor of Social Legislation, Columbia University. Lobb, A. J Comptroller, University of Minnesota. Long, Miss E Asst. Bus. Adm., University of Delaware. Lowes, J. W Bus. Manager, Radcliffe College. McCaffrey, M. E Sec. Board of Regents, University of Wisconsin. McCrea, R. C Hepburn Professor of Economics, School of Business, Columbia University. McKenney, M. F Financial Secretary, University of Maryland. Mather, W. J Asst. Cashier, University of Chicago. Mew, G. H Treasurer, Emory University. Miller, W. O Comptroller, University of Pennsylvania. Murtoff, W. G Treasurer, Pennsylvania State College. Orbin, F Bus. Manager, Carnegie Institute of Technology. 168 A Study of Student L,oans and Pearce, T. J Auditor, Brenau College. Phillips, J. D Bus. Manager, University of Wisconsin. Plimpton, N. C Auditor, University of Chicago. Pittenger, N. O Comptroller, Swarthmore College. Poteat, W. L President, Wake Forest College. Rogalsky, G. F Treasurer, Cornell University. Rogessan, F. B Auditor, University of North Carolina. Rupp, G. S Auditor, University of Pittsburgh. Saxon, R. B Asst. Pur. Agent, University of Nebraska. Seager, H. H Professor of Political Economy, Columbia University. Schneeweiss, H. P Treasurer, Rutgers College. Shaw, L. E Veitch, Shaw & Remsen, New York City. Sheers, G. F Auditor, Carnegie Institute of Technology. Sieg, P Treasurer & Bus. Manager, Renoir-Rhyne College. Skinner, L,. T Adm. & Asst. to Pres., South Dakota State Coli, of Agri. & Mech. Arts. Smith, F. E Sec. Board of Trustees, University of Wyoming. Smith, R. H Comptroller, Pennsylvania State College. Smith, S. W Secretary, University of Michigan. Snow, M. E Accountant, Connecticut College for Women. Spencer, A. E Treasurer, Presbyterian College of South Carolina. Sproul, R. C Vice-President, University of California. Stauffer, G. Ö Accountant, Goucher College. Steeb, C. E Bus. Manager, Ohio State University. Stockder, A. H Asst. Professor of Business Administration, School of Business, Columbia University. Tabb, B. W Vice-President & Treasurer, University of Richmond. Thwing, C. F President Emeritus, Western Reserve University. Turby, F. L Auditor, Drake University. Wagenseller, W. R Comptroller, Drexel Institute. White, L. F Deputy Fin. Sec., University of Nebraska. Wilkinson, A. G Bus. Adm., University of Delaware. Wilson, S. S Treasurer, Western Reserve University. Willis, H. Parker Professor of Banking, Columbia University; Editor, New York Journal of Commerce. Winfree, R Treasurer, Randolph-Macon Women’s College. Wintringer, G. C Controller, Princeton University. Youngs, F. S Treasurer, University of Maine. SECONDARY SOURCES Books Clark, T. A Discipline and the Derelict. Macmillan Co., New York, 1922. Culbertson, W. S International Economic Policies. D. Appleton and Co., New York & London, 1925. Monroe, Paul History of Education. Macmillan Co., New York, 1908. Thwing, C. F College Administration. The Century Co., New York, 1900. Westerfield, R. B Banking Principles and Practice, Vol. I. The Ronald Press Company, New York, 1921. Their Relation to Higher Educational Einance 169 Miscellaneous Arps, G. F State Supported Universities and Public Education, School and Society, 19:503-10, Feb. 16, 1924. Butler, N What a Man Gains in Going to College, Saturday Evening Post, 193:35-6, Feb. 5, 1921. 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Two New International Fellowship Foundations—Guggenheim Memorial Foundation ­ and Commonwealth Fund Foundation. School and Society, 21:262-4, Feb. 28, 1925. Use of Character as Collateral. Educational Review, 67:212-3, April 1924. Views pro and against Question of Need of College Men. Commercial and Financial Chronicle, 115 : 2236, Nov. 18, 1922. Working through Yale. Alaska Daily Empire, April 18, 1924. THE EVEN1NG POST JOB PR1NT1NG OFFICE. INC. 154 FULTON STREET NEW YORK. N.Y. Their Relation to Higher Educational Finance 113 Image Engineering Scan Reference Chart TE263 Serial Na "*us year shows that there is no uniformity in the administration of i t loans in the various Colleges and universities. : l working out a policy for the administration of Student loans, it is ; Die to incorporate all that is best from the various methods in use. *i I Oethods of Administration sv oan funds are administered under two methods. The restricted i: d, which is loaning only the income from the fund, and the revolving j: i, which is loaning both income and principal. There are many more administered under the restricted method than there are under the v ing method, notwithstanding the fact that of the 93 institutions answered an inquiry sent out by the Student Loan Information v x, 69 replied that they favored the revolving fund. *; he actual conditions reported show: 1: ARACTER AND AMOUNT OF FUNDS AVAILABLE 1924-1925 Revolving $187,253 10 funds Restricted 704,000 12 “ Emergency 5,000 2 “ Not specified 3,205,786 288 “ : a large part, the “not specified” funds ($3,205,786), is “restricted”, j : s safe to suppose, the proportion of available funds actually to be v ed as “restricted” is overwhelming. Much of this money was left V restricted form and must continue to be thus administered. How-;; t is safe to assume that there are many of these funds that could be £ ; on a revolving basis. The revolving fund has the more weighty l: ents in its favor besides having the favorable sentiment of a large £: jty of officials. _he greater efficiency of the revolving fund is indisputable. For le, a fund of $100,000 at 5% yields $5,000 annually and would be ä i: {nt to make a loan of $250 to 20 students. Over a period of fifteen ; it would be able to make 300 such loans. On the other hand, äi 00 if turned into a revolving fund, allowing $20,000 of the principal i: oaned annually for the first five years, and revolved for an additional 2[_ars, would be sufficient to make 1,475 such loans which means that ld serve practically five times as many students. i: ome officials and donors fear that if the principal as well as the ä :i; is loaned, the fund will eventually disappear. This fear is well ' : ;d only if it is admitted that funds cannot be efficiently administered. i: who administer Student loans can well afford to borrow some of the Tjles from the business world that make loaning in small sums sucj. 1 Colleges and universities that have tried these principles of busi-8