Development/fund-raising

University of Queensland signs controversial $50 million agreement to fund undergraduate programs in Western civilization

Section: 

University of Queensland says fixed-term gift will provide rare infusion of support for humanities, but professors and students have concerns about academic freedom and the donor's political agenda.

Michael Bloomberg's gift to Johns Hopkins raises questions about the role of endowments (opinion)

Michael Bloomberg recently made a big splash by promising to make a gift of $1.8 billion to his alma mater, Johns Hopkins University. The primary purpose of this gift -- the largest in history to any university -- is to make the endowment large enough to ensure that Hopkins can maintain need-blind admission and meet full financial need for all students indefinitely into the future. The gift has generated a lot of commentary regarding the wisdom of using endowments to keep college affordable by providing enough financial aid to keep up with exploding tuitions.

While Bloomberg’s goal is laudable, the unprecedented size of the gift and its chief intent tends to perpetuate two related notions about the evolving role of endowments in higher education financing. One notion is the now entrenched belief that augmenting endowments to provide more funding for student financial aid while letting tuition rise unchecked is the best way to increase the numbers of low-income and minority students who enroll and graduate from well-endowed institutions. The other notion is that endowment size is the best way to measure the value of America’s college and universities. Both notions merit further discussion and debate.

The Role of the Endowment in Paying for Financial Aid

In recent decades, college fund-raising campaigns have increasingly focused on promoting the use of endowments to provide more financial aid so that financially needy students can afford to attend increasingly expensive institutions. The problem with this approach is that it ignores the fact that rapidly escalating tuition and other charges have increased faster than most Americans’ ability to pay them. In this regard, it is instructive that the announcement of the Bloomberg gift makes no mention of the growth of tuition at Hopkins. It is as if the decision to raise tuition is totally divorced from the decision to award financial aid to students when, in fact, tuition and financial aid discounts are the two essential sides of the same coin.

This fund-raising focus on using endowments to pay for financial aid fails to acknowledge that institutions with endowments use them for two purposes. One is indeed to provide financial aid discounts from the sticker price. Yet the other primary use of endowments is to keep tuition below what is spent per student by endowing faculty chairs, subsidizing operations and helping to offset the costs of research not funded by other sources.

Recently, many campus administrators have come to believe that the only way to achieve greater diversity on their campus is to raise tuition to bring in more revenues to pay for more financial aid for needy students. But that view ignores the arithmetic reality that limiting tuition for all students also relieves the pressure on institutions to provide more discounts because needy students would require less aid to fully meet their need. Restraining the growth of tuition revenues net of aid also can have the beneficial effect over the long term of limiting how much institutions spend on other things that may not be central to their core mission.

The fact is that when tuitions continue to increase faster than parents and students can afford to pay, it puts added pressure on the endowments to provide more and more financial aid in order to keep up with such tuition growth. With every dollar increase in tuition, 50 cents, 60 cents or more must be devoted to financial aid discounts in order to just stay even. Conversely, keeping tuition growth in check or reversing it is a way to relieve pressure on endowments to carry the full burden of advancing the equity agenda.

The Role of Endowments in the Rankings of Institutions

Another important aspect of the publicity over Bloomberg’s gift is that it furthers the idea that the size of an endowment is the best way to measure the value of an institution and that building the endowment is the best way to increase the value of a college or university. In recent decades, many private institutions have engaged in aggressive tuition, fund-raising and endowment management strategies combined with conservative endowment payout rates. The result has been historically high endowment levels that have raised the question of whether these institutions can reasonably be considered charitable entities. In effect, such record high endowment levels reflect the decision of private college officials to protect the interest of future generations of students at the expense of current ones -- many of whom must pay prices that are unaffordable without enough financial aid, often forcing them and their families to rely heavily on loans.

This focus on endowments as the key measure of value also is unfortunate because, objectively, the worth of an institution is also very much a function of the quality of its human and physical resources as well as the “brand” of the institution. The human resources include faculty members, administrators and other staff members. The physical resources are the buildings, equipment and campus itself. Moreover, the value of an institution is also a function of its brand and goodwill built over many decades.

Another way to think about this is, if an institution were to put itself up for sale, what would be the price? Undoubtedly, the price would include the contracts for the faculty and other employees, the depreciated value of buildings and equipment, and the value of the institution’s brand -- at least if the college or university were sold to another institution.

So how did endowments get to be so dominant in the valuations of an institution? Three reasons come to mind. First, it is much easier to place a value on endowments than to measure in objective terms the value of human resources, physical resources or the brand of the institution. Endowments are easily measured in terms of their market value -- you can look it up at any date -- whereas human resources would require a valuation of the contracts of faculty members, administrators and other employees, and the physical resources would require an appraisal of the campus. None of these other valuations is easily done.

Second, in this age when fund-raising has become king, boards of trustees typically include large givers who often come from financial backgrounds like Wall Street, where a premium is placed on the value of a dollar as opposed to more intangible values. Moreover, people with a financial background tend to think that the worth of an endowment is simply the best way to gauge the value of the institution.

Third, and perhaps most important in the current environment, the size of an institution’s endowment per student is by far the best influencer of the position that an institution achieves in the various consumer rankings of colleges and universities now popular. To the extent that such rankings have become crucial in in determining the attractiveness of institutions to prospective students and donors, presidents and college officials are following a natural instinct to put the institution in its best light by building their endowments.

We should be concerned with the growing dependence on using endowment size as the value of an institution for several reasons. One is that an excess accumulation in the endowment may lead to an underinvestment in human and physical resources. Consider the case of an institution that has deferred maintenance on various buildings or has put a freeze on pay or new hires while raising tuition and building large endowments. Implicit in those decisions is that it is more important to have a big endowment than to have excellent facilities, faculty members and other employees.

Or consider the case of an institution that has a science lab building that has outlived its useful life. The typical scenario is to find a donor who will make a large contribution to get the process going. But if one knew that there would be a recession in the next several years that would wipe out 20 percent of the endowment’s value, a better decision might be to invest some of the endowment’s assets now into making the science lab into a reality rather than wait for a name contributor to make a big donation.

Another issue is how this valuation technique may lead to institutions being inaccurately compared. Consider two institutions: College A has a large endowment, but its inner-city campus has outdated facilities, which makes it difficult to recruit quality staff. College B has a small endowment but a beautiful bucolic campus with highly dedicated faculty and staff members. Under current procedures, College A may well be more highly ranked than College B. But to prospective students and faculty, College B may be much more attractive and worthy of their involvement.

In sum, the Bloomberg gift reminds us that some current views on the use and value of endowments should be reconsidered. It would be healthier if the futility of using endowments to provide more financial aid to keep up with ever-rising tuitions was more widely recognized. It would be good to consider the possibility of lowering tuitions to relieve the pressure on financial aid to help needy students. And the higher education sector would also be wise to develop a more holistic value of an institution -- one that goes beyond the size of the endowment to include some estimate of the human and physical resources, as well as the name brand.

Arthur M. Hauptman is a public policy consultant who specializes in higher education finance issues.

Image Source: 
Getty Images
Image Caption: 
Michael Bloomberg
Is this diversity newsletter?: 
Disable left side advertisement?: 
Is this Career Advice newsletter?: 

Unusually Large Gift for Philosophy at UCLA

While $20 million gifts for business or medical schools are common, they are rare for philosophy departments, where seven-figure gifts are generally considered exceptional. In January, philosophy scholars cheered a $75 million gift to the philosophy program at Johns Hopkins University. And on Monday, the University of California, Los Angeles, announced a $25 million gift for the humanities, of which $20 million will support the philosophy department. A statement on the department's website said in part, "This gift will have a profound, positive impact on our ability to generate leading philosophical research and offer a world-class education in philosophy for undergraduates and graduate students alike. It will allow us to recruit and support the best students from around the country and the world, to provide substantial new support for faculty research, and to enrich our undergraduate curriculum. We also look forward to richer offerings of talks, colloquia, and conferences and to hosting a wide array of distinguished visitors throughout the year."

The gift is part of UCLA's $4.2 billion fund-raising campaign. For updates on college fund-raising campaigns, see the new Inside Higher Ed database.

Is this diversity newsletter?: 
Disable left side advertisement?: 
Is this Career Advice newsletter?: 
Smart Title: 
Unusually Large Gift for Philosophy at UCLA

Update on capital campaigns

Starting Off:

  • Rochester Institute of Technology is starting a campaign to raise $1 billion by 2022. Top priorities include scholarships, endowed chairs and diversity efforts. RIT has already raised $530 million.

Finishing Up:

UVA's latest fund-raiser marks a new trend of early public announcements

Many colleges used to wait for the official campaign launch to reveal the campaign target. No more.

New scrutiny on donor influence in Australian higher education

Debate follows failed attempts to set up Western civilization programs.

Colleges announce campaign starts and completions

Starting Off

Roundup of colleges starting or finishing fund-raising campaigns

Starting Off

Roundup of colleges starting or finishing fund-raising campaigns

Starting Off:

UT Austin rejects funding from Chinese government-linked foundation

Section: 

UT Austin says it will not accept funding from a foundation after concerns were raised about its connections to the Chinese Communist Party.

Pages

Subscribe to RSS - Development/fund-raising
Back to Top