Harvard's self-interest

Harvard is free to parents who earn less than $60,000. Now "it promises that families making up to $180,000 will pay no more than 10% of their annual income to finance the $45,600 that a year in Cambridge now costs."

Harvard might claim it is acting altruistically, but I suspect Harvard is actually taking steps to maximize its wealth.

First, as the WSJ$ points out the Senate is starting to look into forcing colleges to "spend a higher percentage of their endowments each year." Harvard's actions might be designed to forestall such activity.

But more importantly, Harvard gets huge donations from its graduates. Harvard, therefore, has a strong incentive to attract students who are likely to have huge future incomes. By reducing its price, Harvard has a better chance of attracting this kind of student away from other elite colleges.

The highest paying jobs a graduating student can get are in finance and management consulting. Given that Harvard's deans and faculty are on average very left-wing you might expect the university to try to admit students not interested in chasing wealth soon after they graduate. But in fact for members of the Harvard class of 2007 who are entering the workforce next year 58% of the men and 43% of the women will take jobs in finance and consulting. These astonishingly high numbers provide strong evidence that Harvard seeks out the type of high school student willing and able to enter these two extremely high paying industries. My guess is that by cutting tuition Harvard calculates it will attract a few more future investment banking superstars and so will increase its future donations.