You are here

Professional Opinion

Are the rich universities too rich?

Calls for reform and new rules as biggest endowments get bigger
University Business, October 2015
Donald J. Farish is president of Roger Williams University in Rhode Island.
Donald J. Farish is president of Roger Williams University in Rhode Island.

On Aug. 19, The New York Times published an op-ed titled “Stop Colleges from Hoarding Cash,” written by Victor Fleischer, a law professor at the University of San Diego.

Fleischer’s primary point is that very wealthy universities (he focused on Yale, and its $24 billion endowment) spend more money compensating their fund managers than they do on student scholarships and institutional grants—and even with this enormous endowment, Yale charges its students a total of almost $300 million (net of scholarships) for tuition, room and board.

As a remedy, he advocates requiring universities with endowments larger than $100 million to spend a minimum of 8 percent of their endowment annually. He believes that such a requirement would cause tuition increases to slow, and perhaps even reverse; would permit faculty to receive more research support; and would allow university facilities to be improved.

There is no guarantee that any of those things would happen. Wealthy universities would be spending more under his proposal, but whether that spending would go to the things Fleischer thinks are worthy may be wishful thinking.

Endowments vs. exemptions

Fleischer’s article prompted Scott Simon to focus on the topic of huge university endowments on his Aug. 22 Weekend Edition broadcast on National Public Radio, with Malcolm Gladwell as his program guest. Gladwell had been tweeting in support of the Fleischer op-ed, stating his view that very wealthy universities should not have tax-exempt endowments.

His reasoning was interesting. Gladwell cited a study that calculated the value of taxpayer-supported allocations, grants, and other forms of direct subsidy, as well as money that institutions don’t pay because of their tax-exempt status.

He noted that the annual amount of taxpayer support per student is $3,000 to $4,000 at community colleges; about $10,000 at public institutions; and $105,000 at Princeton, a figure he called “obscene.” Gladwell also said, “I don’t see why I should be subsidizing the $26 billion endowment of Yale so they can afford to spend half a billion dollars each year paying their hedge fund managers.”

Abby Jackson, in an article in Business Insider on Aug. 20, noted that Yale’s endowment has risen by 10 percent annually over the past five years, while operating expenses have risen at less than half that rate (4.43 percent).

During that same time period, however, tuition and fees have risen by 4.78 percent annually. It is astonishing that Yale would choose to raise tuition so much at a time when its expenses were rising far more modestly than its endowment.

Addressing inequality

Wealth inequality among universities is promoting precisely the same reaction as wealth inequality has among families: envy, followed by anger.

Hillary Clinton has already made wealth inequality an issue for her 2016 presidential campaign, and she (and other candidates) are also seeking a solution to the rising costs, and associated debt, of a college degree.

Whether among families or among universities, wealth inequality is an issue that must be addressed if America is to continue to have a strong and growing national economy. (See my blog for more on this subject.)

We are in danger of creating an environment where the “best” (meaning the wealthiest) colleges and universities are perceived to be reserved for those with sufficient status, money and influence.

Everyone else is effectively relegated to struggling institutions that cost too much yet that cannot provide sufficient financial aid to meet the needs of their students.

The belief that ambition and hard work will result in success is ingrained in the American psyche. We toy with that belief at our peril.

Donald J. Farish is president of Roger Williams University in Rhode Island.

Taxonomy: 

Register now for UBTech 2018

Register now for UBTech 2018, June 4-6 at the Mirage, Las Vegas. At UBTech 2018, you’ll network with a dynamic community of higher ed leaders who are shaping the future of campus technology and explore topics like cyber security, distance learning, campus learning space design, communications, personalized learning and more. Your UBTech registration also includes a free pass to the InfoComm exhibit hall.

Register now>>