Friday, October 9, 2009

Why Funding a Scholarship is the Worst Charity You Could Donate To

When you fund a scholarship (usually by donating to your college or to a charity) you are making terrible use of your charity dollars. Here's why:
  • You're probably NOT enabling a kid to attend college who otherwise wouldn't. Contrary to the sales pitches that many fundraisers use or imply, very few students would be unable to attend an appropriate college in the absence of your money. You're merely substituting your money for the government's or college's. (The college's money heavily comes from such sources as tax dollars and government- or corporate-paid overhead payments.) The kid would have attended college, probably the same college, and almost certainly an equally appropriate college without your money.
  • Usually, your donation makes college only minimally more affordable to a student. The amount of your scholarship dollars is usually deducted dollar-for-dollar(!) from the financial aid the student would otherwise get from the government or the college.
Usually, the best a student can hope for is that the college will convert his taxpayer- or college-subsidized low-interest loan into a grant. So, for every dollar you donate, only a few cents actually gets to the student. We'd never donate to a charity that had even 30% overhead, yet here, you're donating to a charity that is almost all overhead!
  • A student's receiving your scholarship reduces his or her motivation to select the most cost-effective college.
  • You incur a huge opportunity cost. There are so many uses of charity dollars more likely to lead to greater societal good. For example, I have given money to a blue-collar school district that provides little or no special programming for its high-ability elementary school kids. (The funding and attention in most schools has been diverted to low achievers, to meet the government's No Child Left Behind mandates.) That donation enables those kids, with so much potential to make a difference in the world, to get appropriate education and co-curricular experiences they otherwise would not get. I've also donated money to the Population Council, which makes birth control and reproductive education available to third-world women, and to The National Organization for Rare Diseases, which funds research on diseases too rare for the drug companies to invest in.
Think three times before saying yes to your college's or charity's highly sophisticated pitches for your money to fund scholarships. Your charity dollars will do much more good elsewhere. Besides, you've already paid your college a fortune for an education that many thoughtful people conclude does not yield sufficient benefit for all the money and time.


Anonymous said...

Excellent article, Marty!

Additionally, many arts colleges lure students into schools they can't afford by promising scholarships. Often, these scholarships are only for a limited time -- maybe they pay 1/2 of the first year and then are no longer available. By then, students are emotionally invested in the school and take out huge loans to pay for the remainder of the degree.

This exact scenario happened to a relative of mine. Luckily, the student dropped out without finishing the program -- though with considerable disappointment AND is still paying off loans 11 years later!

Anonymous said...

“You're merely substituting your money for the government's or college's.” – Yeah, that’s the whole point. And isn’t this a good thing (subsidizing tax dollars and thus relieving even a little bit the burden on the tax payer)? Isn’t this the point of a charity overall?

“Usually, your donation makes college only minimally more affordable to a student.” – Um, yeah, isn’t this another point? As a student, every little bit counts and even “minimally more affordable” gives the student time away from, say, working at fast food to pay for school, or only eating once a day to save on money, or it may shorten the amount of time a students has to pay off student loans. Or, as is often the case, students combine several smaller scholarships and grants to afford an education, so “minimally affordable” becomes “affordable” when all moneys are combined.

“A student's receiving your scholarship reduces his or her motivation to select the most cost-effective college.” Well, I’d ask you to prove this somehow – show us some data that supports this statement. And shouldn’t a student go to the college that best fits his or her needs, not necessarily the one that is cheapest? After all, most of us chose colleges that match our interests and career objectives – Perhaps making college “minimally more affordable” makes the difference between a college less suited but less costly and a college that suits a student better but is more expensive – you make it sound like going to college is a trip to WalMart. There is more than just cost to think about when going to college, Marty, you of all people should know this. Why would you ask people to withhold moneys that could allow a student a shot at her or his dream school? Do you really only worry about cost effectiveness in your own dreams and desires?

“You incur a huge opportunity cost. There are so many uses of charity dollars more likely to lead to greater societal good.” – Okay, sure, I think any reasonable person could agree that money could be better spent elsewhere…but one could also assert that education is the best investment for all sorts of reasons. So, while in principle I think this statement is viable, it is also extremely subjective – where one person sees Catholic charities as the best place to donate money, another sees the local food bank, another sees the ACLU, another sees Planned Parenthood, etc. “Opportunity cost” varies with the person and the situation. It is equally easy to assert that education is one of the most important aspects of living in a free world, etc. and therefore scholarship money is the best investment for the future, etc. This is simply a very personal decision about where to put one’s “opportunity costs.”

I do, by the way, donate regularly to my alma maters. And I think it is a great use of money.

bill said...

I respectfully disagree with this post, Marty.

I came from a humble beginning. I got 3 scholarships to help me get through UC Berkeley. They were tremendously helpful.

All three scholarships were rewarded to me after I accepted the offer from UC Berkeley.

I applied the scholarships via private foundation, not from the school. All 3 organizations had created a supportive community for the reward recipients. It was very helpful to me as I started my college career then.

I think the key is to make the donation to the right scholarship organization that will spend the money wisely.

Now, 16 years later, I still remembered my donors. I'm forever grateful for the financial support, and encouragements I received from them.

For me, their donation was wise and impactful.

Shawn said...

Good points.

My plan is to tell the fundraisers that I will not commit any money as long as the college continues to support racial preferences and the imbalance of political viewpoints. I never once had a professor identify as being conservative.


Anonymous said...

There's a computer training school advertising on the radio, and I had to laugh one day when they were really pitching the school and how graduates can start making more than $55K a year, and THE VERY NEXT commercial on the radio appealing to hiring personnel telling them their graduates will accept as low as $45K a year. I couldn't believe my ears.

Marty Nemko said...

Dear Anonymous of 10/9 at 11:17 AM.

Do you really believe that the wisest use of your charity dollar is for it to result in 80 to 90% of the money simply going to a colleges' massive endowment or into the government's general tax revenue fund?

All donors want maximum bang for their buck. As I said, those who solicit for you to fund a scholarship state or imply that you'll be enabling a student who otherwise couldn't afford to attend college to do so. Nothing could be further from the truth. Compare your bank for the buck when donating to a college for anything compared with, for example, the charities I mention, and I daresay it's impossible to justify donating to a college.

You ask for "proof" that receiving a scholarship makes you less likely to be a good shopper. No one has done studies on this because it's too complex to empirically prove. But logic is a powerful indicator. And if someone is subsidizing a product you're shopping for, on average, you are less likely to worry about whether the selected product is cost-effective.

Anonymous said...

I must say, Marty, before I say anything else, that I admire your willingness to post unfavorable comments on your blog. Kudos to you for bravery and engagement.

That said, we may have to agree to disagree.

Most scholarship donations can be directed by a simple note to a development officer. "Please use this money to fund basket weaving" or "Please give money to the marshmallow department" etc. So money need not go into a college's "massive endowment," that which is often stretched to the penny to keep the hypothetical university running. And even if it does, or even if the donation does go into the general tax revenue fund (not sure what you are referring to here) it is still the same principle - you, the donor, have given to a worthy cause which relieves the pressure on other parts of society...or at least a cause the donor deems worthy. Apparently that's not you, Dr. Nemko (why did you get your education PhD when you denigrate education so much?).

As to the relative worthiness of college vs. charity, I'm not sure how you come to the conclusion that "it's impossible to justify donating to a college." No, it's possible. I did in the my last Oct 10 riposte. One might not buy that reasoning, but it is possible to justify college donation.

And I have to take issue with your "logic" here. First, if no studies have been done to justify the statement that scholarship money creates but college attendance decisions, how can you possibly make that claim? How do you know you are not completely misguided? Which college a person attends is a very personal decision and, again, a very subjective one, costs notwithstanding. How can you reduce the choice to cost and cost alone?

In fact, I have to disagree with the "logic" itself. People chose colleges for a number of reasons: some simply want a middle class lifestyle and see college as the easiest rout to middle class employment - they will most likely go to nearest, cheapest State U; another group has a particular skill they want to develop such as engineering or journalism or such - these people will look for the best program, cost be damned; still another group have big dreams associated with education - they will do almost anything to get into Julliard or Yale or NYU film school and the like, cost be damned. These sweepingly generalized groups will choose and attend college whether or not they have scholarship money. This, I suggest, is the actual logic behind college choice - not the fact of scholarship money. Donated money simply makes it easier for students to pursue their goals, whatever they may be.

If we followed your advice, Marty, we would be using the almighty dollar to tell a student, at least implicitly, that she or he should only attend the college that is the cheapest - we, the consumer with relative wealth, would control the life of the college -bound. Does that sound equitable and moral to you? Are you or any of us that wise? Because this is what you are suggesting with analogy to a "selected product." In fact, you would have us donors deny students access to any college that is not "cost effective" or the like. When you write about this subject, you sound like an investment broker. College is not a "selected product," it is an education. Big, big, big difference. Again, one does not buy an education at Walmart.

Marty Nemko said...

Most recent Anonymous:

1. This article was not criticizing university donations, just scholarships. Your first objection therefore isn't relevant. That said, I do strongly assert that one should think 3x before donating to a college for any reason--They often are highly inefficient in their use of our money and, unless you really are careful, they'll use your money for "overhead." The universities get so much money from the taxpayer, tuition, fees, their zillion profit-making enterprises (e.g., retaining profits from any ideas generated by their faculty, rock concert tickets, etc), and from the overhead that entities must pay when they contract with the university for everything from rental space to consulting to research. Your chrrity dollars are likely to add far less value to humankind than the charities I offered as alternatives.

2. Re the question of requiring data. In so many cases, assessing veracity by rigorous study is infeasible. Logic has enormous value in rendering decisions. Anecdote can help too--and I've heard many stories of students who were awarded a scholarship yet got no extra money--it merely converted some loan to a grant. Again, the key thing is that most people fund a scholarship thinking it will allow a kid to go to college who otherwise wouldn't. That is very rarely the case. Do YOU have solid data supporting that funding a scholarship yields more societal benefit than donating to the charities I touted?

It is incontrovertibly logical that when one pool of people must pay a larger share of college costs themselves, they will be more careful in making a cost-effective choice than if someone else is paying.

And finally, I never asserted that people would simply choose the cheapest college. Only that scholarships deter students' motivation to choose a cost-effective one.