Image, not altruism, defines endowment

By Kurt Wilson | For the Thresher

Just recently, the Senate Finance Committee mailed out letters to every university, public or private, with endowments over $500 million. The letters requested information about endowment growth, spending rates and financial aid policies from each respective college. Before this is written off as another publicity stunt by a Congress more content to tackle steroids in baseball than real issues, allow me to examine causes for concern.

The past decade has witnessed stratospheric growth in both the endowments and the tuition of elite universities. Harvard University endowment now stands at near $35 billion, more than the annual state budget of Massachusetts. For the sake of my column, I will use Harvard synonymously to describe trends affecting all elite, private institutions.

Although Harvard should be applauded for its fundraising efforts, much of this enormous wealth has been achieved through tax breaks on capital gains for non-profit institutions. Even more alarming, Harvard, unlike most non-profits in the United States, has no mandate on the spending rate of this endowment. Harvard is not legally required to spend any of this money on anything, let alone for the purpose of reducing the tuition burden on students. Sensing the growing scrutiny, Harvard, in an act of either astounding coincidence or clairvoyance, announced an overhaul of its financial aid policies a little more than a month before the congressional inquiry.

Harvard’s new “middle income” initiative eliminates loan burdens for students with household incomes under $60,000 and reduces costs for those with incomes of $120,000 to $180,000. In a prime example of one-upmanship, Yale University went so far as to include incomes up to $200,000. Never mind that the median income in the United States is $48,000 and that an income of $180,000 puts a household solidly within the top 5 percent of the entire country, Harvard is now helping out the “middle class.”

Charging a price so incomprehensible to the average person allows Harvard to maintain an exclusive image while at the same time tout its generous aid policies. A full two-thirds of students at Harvard are already on financial aid of some sort, and this was prior to the new initiative.

The impetus for the recent drastic increase in tuition prices is twofold: Revenue growth and brand loyalty. On the surface, the first reason appears simple enough. Charging a higher cost brings Harvard more money, right? Wrong. Remember, the majority of students at Harvard are already beneficiaries of aid. For every student able to pay the increased cost, there are two who cannot. So, Harvard actually loses revenue by raising costs? Wrong again. To truly understand what is at work here, a closer examination of the financial aid system is needed.

Take for example, your average Johnny Farmer. Johnny is just a country boy, born and raised in south Des Moines, Iowa (cue Americana music). Johnny excels in school, and receives a letter of admission from Yale. Through a complex methodology involving his household income, assets, and the value of his grandmother’s antique collection, Yale ascertains that Johnny can afford to pay $35,000 a year to attend. This is also the cost of attendance, so he does not benefit from aid this year. The following year tuition increases costs to $42,000 and Johnny is hopeful of finally benefiting from aid. His financial package arrives and he is shocked to find that Yale has offered him a work-study opportunity and a loan. Although rarely publicized, the first portion of aid offered almost never comes in the form of grants. Yale has essentially extracted another $6,000 beyond what they calculated Johnny could afford. By ensnaring a larger proportion of their student population into its aid programs, institutions expand outside revenue sources.

Even more revealing, many top students, particularly minorities, are beneficiaries of outside scholarships such as the Gates Foundation that promise to meet the entirety of a student’s demonstrated financial need. Financial need is, of course, the difference between whatever price the school chooses and what the student can reasonably afford. Additionally, federally subsidized work-study programs and Pell grants squeeze money from taxpayers, allowing schools to spend endowment revenue on more important things, such as luring that Nobel laureate away from a rival institution or financing debt for construction, as is the case for Rice.

The second reason for higher costs is far more surreptitious and likely much more controversial. By churning out graduates feeling personally indebted to its aid program, schools increase alumni loyalty. Although I do not have statistics, I would bet that these graduates are more likely to donate in the future, particularly to scholarship programs, freeing up more endowment revenue for the school.

Outlandish tuition and endowments are uniquely American phenomena. Cambridge and Oxford, granted they are public schools, have tuition costs capped at $6,000 a year. The Level of federal funding to top private schools in this country for student aid alone, however, brings any university’s claim to complete private status into question. The time for change is now, before current trends become irreversible. What will Harvard do with $50 billion? $100 billion? Will the entering class of 2050 be such that only one student, Bill Gates’ grandson, pays full freight, with the remainder of students subject to aid schemes?

One of the greatest ideals of this country is the ability and freedom to make a living on your own. The great American writer, William Faulkner, captures this message in a powerful scene in Intruder in the Dust. The novel’s protagonist, Lucas Beauchamp, is a black man wrongfully accused of murder in the American south. After being acquitted, Lucas is insistent on paying his white lawyer, a man reluctant to represent him in the first place. After much prodding, Mr. Stevens, the lawyer, sets the bill for the entire trial at two dollars. In the last scene, Lucas unravels a bandanna of spare change in the lawyer’s office and Mr. Stevens hesitantly accepts the payment. The book closes with Lucas still standing in the office and Mr. Stevens visibly annoyed. In the final line, Lucas explains that he is waiting on “my receipt.”

Although I am not suggesting a racial connotation, many parallels can be drawn from this story. Even an uneducated man recognized the value of a simple economic transaction to destroy decades worth of subjugation. Not too long ago, middle class students had no place in elite education. By employing aid programs that subject the vast majority its students to forms requiring information down to the slightest financial detail, Harvard and other universities reinforce this stereotype by suggesting that most students can attend only at the school’s benevolence.

Harvard’s recent announcement is certainly a step in the right direction, but it seems more of a publicity stunt intended to diffuse a rising tide of public opinion. The United States is home to the best universities in the world. These top institutions, despite their massive endowments, charge sticker prices that are unreasonably high and continue to raise costs at a faster rate than inflation. Congressional inquiry is need and should help raise the level of transparency and dialogue in the debate surrounding affordable higher education.

Kurt Wilson is a sophomore at Sid Richardson College.

February 8, 2008

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Image, not altruism, defines endowment

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