When Harvard University’s endowment fell by more than $10 billion during the 2008 financial crisis, it was a blow to the institution. But a lot of college presidents across the country considered the loss -- and the remaining $26 billion in Harvard’s endowment -- and thought that perhaps there were worse problems to have.
Harvard’s endowment has since rebounded. The university has cash and investments of nearly $43 billion, and is the wealthiest college in the country by more than $10 billion. Harvard is part of a prestigious pack of the 40 wealthiest universities in the country, which hold two-thirds of all the wealth among the 500 colleges rated by Moody's, which rates institutions that are financially sound enough to trade in public markets.
The rest of the pack have median cash and endowments of $273 million, or just 4 percent of the median $6.3 billion in cash and endowments at each of the wealthiest institutions, according to an April Moody’s report. The other 4,000 or so universities and colleges in the U.S. not rated by Moody's generally have even less liquid wealth.
These 40 richest universities have increased their assets by half since the recession, more than double the increases experienced by the least-wealthy universities rated by Moody’s.
And while many of the wealthiest colleges offer need-based scholarships for their poorest students, they enroll a relatively small percentage of low-income students compared to their less wealthy peers.
The 10 wealthiest private colleges hold cash and endowments that, combined, total nearly $180 billion. A median 16 percent of their 2012-13 enrollees received Pell Grants, a form of federal aid only available to low-income students, according to an analysis of federal data.
“We are spending the most money as a society educating the wealthiest people.” -- Ronald Ehrenberg, director of the Cornell University Higher Education Research Institute
Yale University and the University of Notre Dame have $25.4 billion and $9.5 billion in cash and investments, respectively, but had the lowest portion of Pell recipients among this group, at 12 percent. Columbia University, with cash and investments of $9.9 billion, enrolled the highest number of Pell recipients, at 30 percent. Harvard, with its $43 billion in wealth, trailed behind at 19 percent.
Meanwhile, 36 percent of undergraduates in the U.S. received Pell Grants that year.
The Century Foundation found in 2013 that for every 14 wealthy students at the most elite and selective colleges, there was one low-income student.
In short, the wealth gap not only creates inequities among universities, but also among the students they serve.
“The students who are able to go to these wealthy institutions will have extraordinary resources devoted to them, relative to the students who are everywhere else,” said Ronald Ehrenberg, director of the Cornell Higher Education Research Institute.
“We are spending the most money as a society educating the wealthiest people,” he continued. “The people who need help the most are the most disadvantaged. They end up going to the universities that spend the smallest amount per student.”
The gap between wealthy colleges and the rest of the pack is clearly wide, and getting wider each year, leading some to question if these rich universities need much of the public aid they receive. And if they are receiving public money, should they be doing more to enroll a higher percentage of low-income students?
Too Much Public Support?
Nexus, a higher education research group, in an April report found that wealthy universities receive millions in public support through their endowment gains and land holdings, neither of which are taxable because colleges are nonprofit institutions.
For America’s 10 most endowment-rich colleges, that advantage is $41,000 per student, according to Nexus. (The report measures endowment levels by the amount of endowment per student, making its list of endowment-rich colleges slightly different from Moody’s, which ranks endowments by sum.)
“It’s entirely reasonable to ask whether federal subsidies should flow -- actively in the form of student aid, and in terms of tax benefits as well -- to places that are so flush.” -- Andrew Kelly, higher education reform proponent
Princeton University’s endowment tax advantage was $105,000 per student in 2013, a sum that far surpassed the $12,300 in per-student public appropriations received by Rutgers University or the $2,400 per student received by nearby Essex Community College, according to Nexus.
“It’s entirely reasonable to ask whether federal subsidies should flow -- actively in the form of student aid, and in terms of tax benefits as well -- to places that are so flush,” said Andrew Kelly, director of the American Enterprise Institute Center on Higher Education Reform. “Federal subsidies should help people attend college that wouldn’t attend otherwise.”
The Nexus report suggested taxing the endowments of private colleges with investments of more than $500 million, and curbing such a tax based on the financial aid investments of each university.
“The concentration of wealth in this small number of campuses was even surprising to me,” said Mark Schneider, vice president of the American Institutes for Research and a co-author of the Nexus report. “I understand these are wonderful schools, that we need schools like this for our competitiveness… but at some point it’s too much.”
He continued, “We need to focus on a fix. Just to say that Princeton is rich… what do you do with that? You get outraged. You get angry, but we have to talk about some fixes.”
It’s not the first time such a suggestion has been made. In 2008, Iowa Senator Chuck Grassley and supporters threatened to require that wealthy universities spend a certain amount of their endowments each year -- preferably on financial aid -- instead of “hoarding” the money. The proposal received a lot of attention -- Grassley, a Republican, was chairman of the Senate’s Health, Education, Labor and Pensions committee at the time -- and a lot of pushback. It was dropped during the recession. Yet the debate led to some of the best-endowed colleges raising their levels of need-based financial aid.
“You saw institutions responding to that jawboning,” said Catharine Bond Hill, president of Vassar College and an economist who specializes in higher education.
“Just to say that Princeton is rich… what do you do with that? You get outraged. You get angry, but we have to talk about some fixes.” -- Mark Schneider, vice president of the American Institutes for Research
Equity in Education
F. King Alexander, president of the beleaguered Louisiana State University System, which is facing nine-figure funding cuts from the Louisiana Legislature, has long been a critic of plush colleges, saying they can do more to educate low- and middle-class students. He suggests colleges should have low-income students be at least 20 percent of their total enrollment, or have their federal aid reduced.
“These institutions want to be independent. They say they don’t want any strings attached to the federal money they're getting, yet they’re getting more public subsidy than most public universities in the country,” he said. “If you created an incentive for those institutions to use their wealth to enroll and serve and graduate more low-income students, that incentive could turn around what’s going on now.”
In addition to federal student aid, the 10 wealthiest private institutions received more than $6.4 billion in federal grants and contracts -- mostly earmarked for research -- in 2011-12.
Stanford University, in 2013, received $68,600 in federal grants and contracts per student, accounting for a higher revenue source than tuition or donations. The only higher revenue source was its endowment return, which totaled $163,300 per student.
In some states and municipalities, elected officials have considered requiring payments in lieu of property taxes from colleges with vast nontaxable landholdings. In Maine, Republican Governor Paul LePage this year called for nonprofits, including colleges, to begin paying property taxes. LePage says that colleges and other nonprofits rely on local services, and that their tax-exempt status drives up property taxes for others.
Hill, of Vassar, says penalizing universities is not answer to the problem of inequity in higher education.
“It seems to me that the solution is really to try to get talented poor students into the rich schools, and not go after the rich schools,” she said. ”I would rather redistribute the students than redistribute the wealth.”
Hill did say selective institutions should do more to enroll low-income students, and that it would be fair for the government to expect institutions that receive a large amount of federal aid to also enroll higher numbers of low-income students.
“That’s one of the reasons we are supported by the public sector, [for] supporting notions of equal opportunity.”
She also said elite, wealthy colleges “do more than many schools” to support low-income students financially. Stanford, for example, provides free tuition to students from families making under $125,000. And while wealthy colleges enroll a smaller percentage of low-income students, they graduate a higher percentage of them than their less wealthy peers.
“I would rather redistribute the students than redistribute the wealth.” -- Catharine Bond Hill, president of Vassar College
Yet Schneider says the wealth disparity among universities is part of the reason there is a correlating disparity in graduation rates and student performance. Wealthy universities, he said, can afford more and better-quality student services, such as mentoring, that help with things like student retention. Poorer colleges are left at a disadvantage, because they are often not only financially strained, but strapped for resources as well.
Colleges with less wealth have fewer resources to offer students -- yet they educate the vast majority of students. Spending per student is lower and the number of revenue streams is fewer. The 20 wealthiest private institutions receive just 15 percent of their annual revenues from tuition and other student charges, according to Moody’s. The rest of the pack? Roughly three-quarters -- the vast majority of their budgets.
Wealthy institutions also attract wealthy donors: 60 percent of all money raised by the 500 colleges rated by Moody's goes to the 40 wealthiest institutions, both public and private.
The advantage is not just financial. The wealthiest colleges can afford to pay professors more and afford better facilities for students, which helps them attract better-quality students.
“Many of these wealthy institutions, when they throw a number on the table, we can’t even match it.” -- F. King Alexander, president of the Louisiana State University System
The average salary for a full professor at a private four-year research university was $177,600 in 2014. But at Columbia and Stanford, full professors earned more than $215,000 on average, according to a survey by the American Association of University Professors. At four-year public research universities, full professors earned $130,000 on average, but at wealthy publics the rate was much higher. Full professors at the University of Virginia earned $150,800. They earned $156,900 on average at the University of Michigan.
“Certainly it gives you a faculty advantage,” said Alexander, who has seen many of his faculty poached by wealthier colleges. “Many of these wealthy institutions, when they throw a number on the table, we can’t even match it.”
He continued, “If your best faculty, the ones who are writing the textbooks that everyone else is using, if they go to other institutions, not only does it impact the students they’ve left behind… it has a societal impact that disadvantages the population of the entire state. They’re not learning from the best.”
According to Moody’s data, there are no signs of a significant sea change in how the wealth is distributed in higher education. If anything, the gap has grown faster since the recession. Many less wealthy and moderately wealthy institutions have been slow to rebound from financial difficulty in the wake of enrollment declines and across-the-board drops in state funding.
The 40 wealthiest institutions grew their assets by 50 percent over the last five years -- 12 percent more than moderately wealthy institutions and 28 percent more than the least wealthy colleges rated by Moody’s.
“We expect the trend not to change dramatically until there’s a significant change in the higher education model,” said Pranav Sharma, an analyst with Moody’s. “The gap will continue to increase and those who are not well endowed will continue to struggle.”