In Deal With Starbucks, Arizona State U. Kicks In Substantial Aid

June 17, 2014

Starbucks and Arizona State University unveiled more details about their new scholarship partnership on Monday—and in doing so corrected some misinformation that company officials had given in advance of the announcement. They also revealed the limits of the financial contribution Starbucks is making and gave a greater sense of the value of the discount ASU Online is providing.

First the misinformation: Last week a Starbucks spokeswoman said that the Starbucks College Achievement Plan would be available only to company employees who enrolled full time and said that was because such students were more likely to complete their degrees, which is a goal of the program. But on Monday that same spokeswoman, Laurel Harper, said Starbucks employees could take advantage of the program whether they attended full time or part time. She said she had given the earlier information in error.

Starbucks also had said that the program would include an upfront "partial tuition scholarship," thanks to an "investment" from Starbucks and ASU. Ms. Harper on Monday said she was "not able to disclose the specifics of the financial arrangement" of that investment.

But according to Arizona State’s president, Michael M. Crow, "none" of the funding for the upfront scholarships is coming from Starbucks. It’s coming from ASU.

The university said that, for each third- or fourth-year student, it would provide College Achievement Plan scholarships of $2,420 per semester, based on a student enrolled for 12 credits. Prices vary for ASU Online’s degree programs, but that CAP scholarship would cover about 40 percent of the cost of several of the lower-priced programs. Depending on their financial need, students could also be eligible for need-based university grants of up to $1,000 per semester, plus Pell Grants and other government student aid.

Under that example, high-need students would incur out-of-pocket costs of only about $500. Those with no need would have out-of-pocket costs of about $3,500. That’s where the Starbucks contribution kicks in. The company said it would reimburse third- and fourth-year students for their out-of-pocket tuition costs. The upperclassmen would become eligible for the reimbursement, provided to them on their paychecks, each time they completed 21 credits.

Lower-division students enrolling from Starbucks would receive CAP scholarships from ASU of only $1,267 each, and no reimbursement on the gap between their student aid and their costs. That makes it a less attractive program, financially, for such students, but Mr. Crow said the university expected few such students, based on the projections.

‘A Price Reduction’

Mr. Crow said funding for the CAP scholarships would come from university resources, which in this case means primarily from revenue the university generates from other programs. (Less than 15 percent of its current annual financial-aid budget of about $300-million comes from philanthropic sources, he said.)

In effect, that means ASU is discounting the tuition, although Mr. Crow said that "we don’t use that term" and that the university provides scholarships for other groups of students it aims to attract as well.

"We have not agreed to a price reduction," he insisted. "We’ve agreed to a financial-aid package."

Still, semantics aside, ASU will be providing a price break to every Starbucks student, regardless of their financial need. That’s what college-finance experts call a tuition discount.

Mr. Crow said the deal would still be good financially for ASU. Based on the financial models and cost structures that ASU has developed, he said, "we will not be taking a loss."

He said ASU could afford to offer the CAP scholarships because the university generates surpluses from the higher tuition it charges to students coming from out of state and overseas, and because ASU Online's prices also allow it to generate an operating profit margin.

Also, he noted, the program will bring in thousands of new students without costing the university anything in marketing to pursue them. At a certain size, he said, income from the new students would exceed the marginal extra costs of serving them online.

In broad terms based on current projections of the expected student profile, Mr. Crow said that, for every 1,000 upper-division students, the program would cost ASU about $24-million per semester and Starbucks about $11-million per semester. An additional $7-million would come from Pell Grants.

Mr. Crow said ASU had decided to pursue the arrangement to prove that this kind of financial model, with a corporation covering some of the costs at the tail end, could improve college completion. While he acknowledged that the contribution from Starbucks was small compared with ASU’s, he said, "They’re putting up the incentive to finish, which is not trivial."