Monday, January 07, 2008

On Funding Public Higher Education, Part II: Harvard's Endowment

A belated Happy New Year to Blogoramaville! Time for Part II in this CitizenSE series.

Check out this Dec. 31st op-ed by Steven Roy Goodman in The Boston Globe on Harvard's endowment. Taken together with Herbert Allen's Dec. 21st op-ed in The New York Times, which also makes Harvard the poster child for endowment disparities in the U.S., Goodman's piece helps turn up the heat on the wealthiest colleges and universities in the country. In it, he asks why universities are exempt from the federal law that non-profit organizations must spend 5% of their endowments each year or lose their tax-exempt status. And he raises other tough questions:

Why does an institution of higher learning have $35 billion in its back pocket anyway? Why has it become customary for universities to spend only a small fraction of their interest income--and not even the endowment funds themselves--for daily operations? Why do American taxpayers continue to subsidize schools that increasingly operate like for-profit companies--and less like tax-exempt educational foundations that are charged with educating the next generation?

Although Goodman and Allen disagree on how much Harvard's endowment grew in the past year (by $5.7B or $7B?!), they agree that there's a problem when so much capital is tied up in so few institutions of higher learning--a perspective obviously not shared by the Harvard, Princeton, and Yale administrations, as reported by their universities' student newspapers back in October '07. Yet even people at relatively well-off institutions--like Bard College President Leon Botstein--think the problem is real.

Is there a problem when the 62 colleges and universities in the Billion Dollar Endowment Club (according to NACUBO's most recent study; figures for 2007 should be out in a couple of weeks) are on average a thousand times greater than the endowment at my home university, which recently rose to $17.41M? It's a question I'll come back to in a couple of weeks, so let's say for the sake of argument that there is. How should it be solved?

Allen and Goodman help steer discussion of solutions away from reducing tuition and increasing financial aid at those institutions in the Billion Dollar Endowment Club and toward the funding of higher education more generally. Allen's proposed revenue-sharing solution--to tax the capital gains of institutions with endowments greater than $500K/student and distribute the proceeds pro rata to the institutions with the lowest per-student endowments--is more carefully thought-out than Goodman's rather vague closing line: "it might be time for our elected officials to rein in financial benefits for those institutions that can't manage to spend 5 percent of their tax-exempt wealth." I have a few ideas that Harvard and other private institutions in the BDEC could do with their endowments right now that don't require any Congressional action.

1) Support your graduate students better--at least give them a real apprenticeship experience if you won't recognize their unions.

2) Hire more full-time, tenure-track faculty members, not enough just to do most of the teaching the graduate students are now doing, but enough to reduce class sizes significantly.

3) Put aside 1% of your capital gains each year to be gifted to the endowments of universities your institution thinks deserve the funding. That's right: invest in U.S. higher education.

So what do you think, Blogoramaville? Any other suggestions?

[Update 1/8/08: College affordability is, of course, an important issue, but the point of my #3 is that targeted investments by the BDEC in capital-starved U.S. higher ed institutions can have an immediate effect on the quality and cost of education for more students, rather than simply a symbolic or trend-setting one.]

No comments: