According to the Giving USA Foundation’s 2007 report, "U.S. charitable giving reached a new record in 2006, an estimated $295.02 billion[1]." And individual donors made up a majority of that total, contributing an estimated $222.89 billion (75.6%) in 2007[2].
In the area of education, many Americans each year contribute financially to postsecondary schools, in addition to various scholarship foundations around the country. Charitable contributions to colleges and universities in the United States were over $28 billion in 2006, and over 50% of those contributions came from individuals. Princeton University alone, for example, successfully raised $196 million from alumni and other donors in 2004[3]. And of course, this target market does not include the number of individuals who give to scholarship funds and other educational foundations each year.
But despite all of this giving, there currently is not an easily accessible way for donors to make direct donations in support of individuals’ educations. Private donors who would like to improve educational quality in this way are forced to choose from a host of imperfect options. Generally speaking, there are four main ways that a donor can make a contribution to help students:
- Contribute to a school
- Contribute to a pre-existing scholarship fund
- Endow a scholarship of one’s own
- Seek out and fund students who fit the donor’s desired characteristics
While many philanthropic donors contribute money to multiple of the above options, none of these choices provide an easy means to accomplish the goal of helping students in need. We believe that the transparency and other advantages of DiscoverScholars.org will appeal to the increasing number of charitable donors who wish to know that their money is being directed where they would prefer.
For the reasons mentioned earlier, donating to an individual school provides only an indirect means of helping to pay for students’ education. While donations to a school are easy to make, it is unclear what percentage of donors’ contributions trickle down to a school’s financial aid office. Donations end up spent in many hundreds of ways, with portions taken out to cover administration costs along the way.
Of course, some schools allow donors to earmark contributions for specific purposes, and so it may be possible to donate directly to a school’s financial aid office. However, even donors who choose this option have little ability to know how their contributions are allocated to individual students. Moreover, college financial aid offices are influenced by many factors that may not be congruent with the wishes of donors, including the need to satisfy internal political concerns, adequately promote legacy students, or sufficiently fund applicants who are athletes, just to name a few.
At most schools, a small committee of administrators weighs these various concerns, and finally reach a decision on how they believe financial aid money should be distributed. Of course, the decisions that would be made by individual donors may differ significantly from those made by financial aid administrators.
Each individual donor is motivated to give towards student education for different reasons. Some may wish to support exceptional students interested in majoring in a particular field. Others may want to see money allocated to students who experienced undue financial, racial, or familial hardship, and succeeded in spite of it. Still others may want to support students who are dedicated to specialized extracurricular pursuits. Unfortunately, the lack of transparency in the financial aid process offers donors little assurance that their individual motivations are being satisfied.
Contribute to a pre-existing scholarship fund
Giving to an educational foundation, scholarship fund, or corporation that distributes money to college-bound students is a seemingly more direct way of aiding students’ educational financing than donating to an individual college. And unlike that alternative, donors gain the piece-of-mind that a significant percentage of their contribution (assuming reasonably low overhead) is directly funding students’ tuition and other matriculation costs.
However, many of the same problems that exist when giving to a college also plague giving to scholarship funds. Donors necessarily leave the allocation decision up to a small board, which often is prone to similar political concerns as schools’ financial aid offices. As an example, corporations that award scholarships may be biased towards awarding scholarships to kin of employees.
But one additional problem with donating to scholarship funds is that they entail much greater search costs for donors. Whereas many people give to their alma maters instead of other colleges, most potential donors have little knowledge of the various scholarship funds to which they can contribute. Finding foundations that allocate money in accordance with an individual donor’s wishes can be difficult, particularly considering that most foundations, like financial aid offices, are not sufficiently transparent. As an example, consider how few undergraduate scholarships exist, if any, to award money to students studying Russian literature.
Endow a scholarship of one’s own
The option always exists for donors to create scholarships of their own. Endowing a scholarship has the most immediate advantage of giving a large amount of financial assistance to the cause that the donor is passionate about. Donors are free to lay out the principles that they value, and then to hire staff to search out those students. But naturally, starting such an organization is very time-intensive, time which most donors do not have. This is particularly true of donors who are interested in giving smaller gifts.
Seek out and fund students who fit the donor’s desired characteristics
The final option for donors who wish to give financial aid to students is to seek out those students on their own, or with the help of a philanthropic advisor. Obviously, this option is the most specialized, and as a result will accomplish most fully the goal of awarding money to students whom the donor cares about. However, like endowing a scholarship, searching for students is extremely time-intensive. Employing a philanthropic advisor to do so lessens the time cost to donors, but merely replaces it with the need to pay the advisor for his services. And of course, identifying students who best meet the donor’s criteria has the potential to be extremely difficult.
[1] http://www.aafrc.org/press_releases/gusa/20070625.pdf
[2] Ibid.
[3] http://www.guidestar.org/FinDocuments/2005/210/634/2005-210634501- 025f57b1-9.pdf