UW-Madison's Average Family Income is $90,000?

Friday, April 29, 2011
Based on the tweets from today's student conversation with Chancellor Martin, there's a big myth running around campus:

No, the average family income of UW-Madison students isn't $90,000.

That number came from reports like these that were discontinued back in 2008. Why were they discontinued? Because the data they are based on is a train wreck. The information comes from students' self-reporting of their parents' income when they were in high school (reporting is done on the ACT questionnaire) and according to UW-Madison's office of academic planning and analysis 30% of UW-Madison students left the question blank (and that percent has been rising over time).

Is it a high estimate? A low one? Well, what we know is that a study done by two La Follette professors using Census blocks to estimate income (better than student self-report most likely) finds that family income at UW-Madison for Wisconsin residents isn't very out-of-whack with Wisconsin family incomes as a whole. For example, families of Wisconsin applicants to Madison have incomes that are 1.2 to 1.3% higher than the state average.

Why don't we have a really accurate measure of family income? Because UW-Madison doesn't ask students to report their family income on their application (for obvious reasons) nor does it require them to complete a financial aid application (otherwise known as a FAFSA). So we only know family income--according to parents--for those who apply for aid. And less than 50% of UW-Madison students apply. That doesn't mean less than 50% are needy; many needy kids don't apply every year because the application is insanely onerous and difficult to complete correctly. In fact, upper-income folks are more likely to complete it, and to do it correctly, because they're hoping to get a loan.

If we really want to promote affordability at UW-Madison we should make FAFSA completion an "opt out" rather than "opt in." This is the kind of nudge behavioral economists love, since it makes the default option less painful (people tend to resort to inaction over action).

Why aren't we doing it now? This did, after all, come up during debates over the Madison Initiative for Undergraduates and I made the proposal directly to Chancellor Martin over lunch in spring 2009.

I can think of a few possible reasons, see which one you think fits:

(1) We are worried about privacy. But remember, you can opt out.

(2) We are worried about deterring students who don't want to complete the form. But remember, we'd only require it after you applied and were accepted, and were able to enroll. Even then, you could opt out.

(3) We are worried about undocumented students. But remember, you can opt out.

(4) We are worried about the increased paperwork and staff time. But think about all of the financial aid $ our students would get at no cost to us (e.g. federal $)

(5) We are worried about our institutional aid costs. The more you identify as needy, the more you have to "hold harmless."

I'm willing to bet that requiring all entrants to complete the FAFSA or opt out would increase the percent receiving Pell by a fair bit, and increase retention rates by getting more students the financial aid they deserve. And once we have more accurate family income information for more than 90% of our population, we'll likely find out that right now our average Wisconsin family income is much lower than $90,000. Under NBP, I'm willing to bet that will change drastically because of (a) an increased perception of elitism, (b) disjuncture from the System, (c) sticker shock, and (d) insufficient discounting over time.

But of course, who am I to make such judgments? We are told, after all, we have nothing to worry about.