Is Higher Education Price-Gouging?
By Chris Wondra • May 15th, 2008 • Category: News, Quick HitsGlen Beck, a commentary writer for CNN and radio talk-show host, wrote an eye opening piece recently entitled Tax-free hypocrisy from higher education. This is interesting. I had no idea.
The top five college and university endowments reported a combined value of over $100 billion at the end of 2007. That’s five funds, a hundred billion in cash. Not a nickel in tax. Not an ounce of outrage.
Harvard University, which has the largest endowment in the country, has a total of $34.6 billion. To put into perspective just how much money that is, consider that the largest charitable foundation in the world, the Bill & Melinda Gates Foundation, has a total endowment of $37.3 billion.
But while their financial statements may look similar, their missions aren’t. The Gates Foundation is working to cure malaria, develop new tuberculosis vaccines, and stop the spread of AIDS. Most of our colleges and universities are only working to spread the radical political views of some of their professors.
This point was particularily interesting:
For what’s been estimated to be about $300 million a year (less than 1 percent of their endowment’s value) Harvard could completely waive tuition, room and board for every single one of their students. Instead, they announced an increase in those fees of about 3.5 percent for next year. Being a student at Harvard will now cost a staggering $47,215 a year.
Now I’m starting to get mad.
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I came across your blog on Technorati. Nice site layout. I will stop by and read more soon.
Mike Harmon
Great! Nice to meet you Mark.
Chris
An endowment is a bunch of money sitting in a bank account. Of course it doesn’t pay tax — you don’t pay tax on your savings account, either. The interest isn’t taxable because they’re nonprofit organizations — if we ask them to pay tax on the interest they earn, then we’d be asking the same of Greenpeace, soup kitchens, and churches. Which we as a society could certainly choose to do, but Congress specifically exempted nonprofits from paying that tax to help them succeed in the social benefits they’re conveying to all of us.
Harvard could spend 1% of its endowment and provide free education to its students, but then, of course, its endowment would shrink. Endowments, by design, are not meant to be spent — you spend only the interest you earn on them, or else you threaten the institution’s longevity. To be complete, this article should mention that Harvard does spend a good deal of money from its endowment’s interest on financial aid for those needing it.
Also — “Most of our colleges and universities are only working to spread the radical political views of some of their professors” — well, that’s just ridiculous on its face. Without a progressive and active system of higher education, America is doomed to fall even further into the morass of the second-class: great schools and universities are a hedge against the rest of the world overtaking us in talent and research. Without them, we’ll just continue to import everything we need until our money runs out and we’re in debt to the rest of the world.
Doodaddy,
Great points. You offer a much needed perspective on this issue, which, I have to be honest with you I’m pretty ignorant. I agree with you that endowments shouldn’t be taxed. We don’t want them to shrink–I get that. And I’m certainly not endorsing free tuition. It would sure be nice–but it’s too far away from reality to be–well, realistic.
But that last quote I listed in the article really bugs me. I’m assuming that Harvard is able to make more than 1% interest on its endowment. For less than 1% they could pay full tuition? That’s a staggering number for me. So what would be the percentage needed in order to keep tuition stable?
This article makes it sound like the university is choosing to pad the endowment rather than keep tuition affordable–not that $40,000 a year is “affordable.”
I’d like to see how the university responds to that.
Chris
Well, like I said, I suspect that Harvard does spend a great deal on financial aid for those who can’t spend that kind of money on their education. Understand, too, that much of an endowment’s earnings are earmarked, as well. I might, for example, donate $2 million (of all the spare billions I have around the house) for an “endowed chair,” which essentially means that I’m funding a permanent professorship (and possibly additional expenses, like the costs of running a science lab) off the interest from the endowment. I’d be surprised if most of Harvard’s endowment’s earnings weren’t earmarked in this way.
Remember, endowments are typically invested, so while they might make 20% in good years, they can also drop in value during financial crashes. They’re a hedge against recessions.
Incidentally, I went to a state school myself and always considered the Harvards and Stanfords of the world to be a big waste of money for undergraduates. You can get a fantastic education for little money (well, more and more money these days) in many states. But if that’s where rich people want to go to school, then let ‘em — as long as they’ll still fund research and financial aid, that is.
Thanks for that Doodaddy,
I honestly was totally ignorant on this topic. What you said about earmarks totally makes sense. And I couldn’t agree with you more when you say you can get a “fantastic education for little money.” I can’t believe that there are secrets only known and taught by Ivy League professors. I went to a UW-Eau Claire. ‘Course I’m no genius but it worked for me.
Oh, and hey–it’s nice to “see” you again. I’m sort of thrilled and humbled that you still stop by. I saw your blog listed on Alltop. Pretty cool.
Chris