Universities are rich, right? So why don’t we take their money and give it to students?
Higher education is big business. Just look at the amount of money some universities have sitting in the bank.
Harvard’s endowment? $36.4 billion. Yale? $23.9 billion. Stanford? $21.5 billion. Princeton? $20.5 billion. MIT? $12.4 billion.
That gives the five US universities with the biggest endowments a total purse of $114.7 billion. I’m obliged as a journalist, at this point, to point out which countries have a similar GDP. Morocco ($110 billion) is in the right ballpark.
At the same time, the cost of student life is on the up.
All this cash slushing around in university pockets makes quite a noise, and – unsurprisingly – that noise has attracted the attention of Congress. In particular, Representative Tom Reed.
The New York Republican wants the richest colleges to devote 25 per cent of their annual endowment income to financial aid, or risk losing their tax-exempt status.
In short, those with endowments worth more than $1 billion would be required to give a quarter of income from that pot to lower college costs for middle and low-income students. If they fail for three consecutive years, they could lose their nonprofit status.
It’s an interesting proposition. Does this mean that if universities put 25 per cent into access programmes every three years they would avoid penalty?
That’s maybe nitpicking. In fact, I think that universities in the US are doing a lot more than people realise to look after poorer students. I’ve written about it before.
Sure, if you compare the elite US universities’ fees of $50,000 per year to somewhere like, say, Germany (where tuition is free), it doesn’t look good.
But there is a case for saying – as Felipe Fernández-Armesto, a professor of history at the University of Notre Dame, does in this excellent article – that the poor are better served by universities in the US than in most of the UK (despite the fact that fees in England are a measly £9,000 ($13,000) a year).
The average fees at publicly maintained universities in the US (according to Department of Education data) is $7,716 (about £4,900). You can also do the first two years of your study at community college at a typical annual cost of a little over $3,000.
You don’t get the prestige of an Ivy League logo on your certificate, but you do get a college education.
Any US universities that aren’t doing enough to cater for disadvantaged students don’t have far to look for some inspiration.
The Social Mobility Index, for example, rejects the idea that “prestigious” university characteristics – high income, low applicant acceptance rate and popular reputation – are reliable marks of successful universities.
Instead, it gives weight to things like low tuition fees, the percentage of economically disadvantaged students in the student body, and graduation rate.
Significantly, it also penalises universities for hoarding endowments, reasoning (perhaps as Mr Reed does) that a university that sits on a large pile of cash may be prestigious, but it is not using its resources as efficiently as it could to help poorer students.
Here’s what the top 10 looks like:
However, these institutions (and the community colleges I mentioned earlier) are not the target of Reed’s proposed legislation. He is targetting the elite group of billionaire institutions who, it seems, he feels cannot be doing all they can to widen access.
It’s an easy, if simplistic, argument to make. Not everyone can afford to go to university, and yet the universities themselves have oceans of cash. You do the maths.
But while imposing a financial penalty on universities that fail to devote enough money to improving access will almost certainly result in a higher spend, this does not necessarily mean that more effective processes will be the result.
What you want to avoid is forcing institutions to spend for the sake of spending. You cannot measure how effectively a university is widening access just by counting how many dollars it has spent on the problem.
That said, there is something perverse about institutions that charge hundreds of thousands of dollars for a degree taking that money and simply putting it in the bank.
Any business needs a war chest. Money for a rainy day. But do the five richest US universities really need to have the GDP of Morocco sitting in the bank – particularly when there are talented students who are being priced out of studying?
It is an uncomfortable situation.