Development/fund raising

Robbing the Rich to Give to the Richest

Sen. Edward M. Kennedy, fresh from an investigation of the student loan industry, is out with a plan he says will "help reverse the crisis in college affordability." Kennedy’s Robin Hood approach takes $18 billion from lenders and applies it to reducing loan repayment costs for students, among other purposes.

The student loan business is a lucrative one. But the senator is going after the wrong folks if he’s trying to rein in the biggest “fat cats” in academe. That mantle should rest on the shoulders of colleges and universities themselves. Legislators setting policy with regard to higher education should realize that colleges and universities are our nation’s richest -- and possibly most miserly -- “nonprofits.”

Colleges and universities are sitting on a fortune in tax-free funds, and sharing almost none of it. Higher education endowment assets alone total over $340 billion. Sixty-two institutions boast endowments over $1 billion. Harvard and Yale top the list with endowments so massive, $28 billion and $18 billion respectively, that they exceed the general operating funds for the states in which they reside. It's not just elite private institutions that do this; four public universities have endowments that rank among the nation’s top 10. The University of Texas’ $13 billion endowment is the fourth largest nationwide, vastly overshadowing most of the Ivy League.

These endowments tower over their peers throughout the nonprofit world. The Metropolitan Museum of Art is America’s wealthiest museum. But the Met’s $2 billion endowment is bested by no less than 26 academic institutions, including the University of Minnesota, Washington University in St. Louis, and Emory. Indeed, the total worth of the top 25 college and university endowments is $11 billion greater than the combined assets of their equivalently ranked private foundations -- including Gates, Ford and Rockefeller.

Higher education endowments also are growing much faster than private foundations. The value of college and university endowments skyrocketed 17.7 percent last year, while private foundation assets increased 7.8 percent. Just 3.3 percent of the increase in academic endowments is attributable to new gifts. Most of the gain is a result of stingy, outdated endowment payout policies that retain and perpetually re-invest massive sums. This widespread practice results in a hoarding of tax-free funds.

A recent survey of 765 colleges and universities found they are spending 4.2 percent of their endowments’ value each year. Meanwhile, private foundations -- which are legally required to spend at least 5 percent of their value annually -- average 7 percent spending.

Higher education endowments differ from private foundations in one particularly important respect. Private foundations exist to give their money to others, while college and university endowments support just one charity -- their school. But isn’t being your own sole beneficiary reason to spend more, not less? Particularly when a substantial area of spending -- financial aid grants to current students -- targets precisely the people you expect will be your future donors?

Paradoxically, it is precisely the meager financial aid outlays of endowment-rich colleges and universities that make the true miserliness of low payout practices most apparent. Stanford University spends $76 million on undergraduate financial aid, a sum that sounds generous but amounts to a mere 0.5 percent of the value of its endowment. The university spends just 4 percent of its $14 billion endowment toward operating expenses. If the 5 percent payout rule required Stanford to spend another 1 percent of its endowment, and that money was directed toward financial aid, students would enjoy $211 million in additional support. That is precisely the cost of letting all 6,600 Stanford undergraduates attend tuition-free.

The University of Texas’ nine campuses enroll 147,576 undergraduates who each pay on average $5,903 in tuition. All of U.T.’s undergraduates could attend school tuition-free if the system spent half the amount the university’s endowment grew just last year.

Of course just because a college can afford to offer education tuition-free doesn’t mean it should. Giving a free ride to students who can afford to pay obviously would cut into the bottom line in other ways. Also, education is a real service for which people should pay. And a higher quality education should command a steeper price.

But college and university endowment spending practices should reflect the public responsibility that adjoins tax-free status. When people donate to a school they get a tax break because their donation is supposed to serve the public. When those untaxed funds sit unused, piling up for decades, taxpayers are making a sacrifice and getting nothing in return.

College and university endowments currently are exempt from the 5 percent annual payout requirement. Institutions of higher education aren’t even required to publicly report endowment payout rates or the purposes for which funds are spent. And the only organization that collects that information, the National Association of College and University Business Officers, does not make it public, except on an aggregate basis. Congress should require payout rates and specific expenditures for individual institutions to be made public each year. And if this “sunshine” fails to drive up endowment spending, a minimum payout requirement should be established.

And 5 percent should be considered just a starting point. College and university endowments exist to support current operations. But if that only requires a mere 4 percent draw, clearly there is ample room to use additional endowment funds for purposes that serve the public directly. For example, why not take some of the burden off students, families and taxpayers by providing more financial aid to needy students? After all, why should taxpayers be subsidizing an ever-burgeoning number of student loans while schools can afford to provide more scholarships?

For too long the government response to skyrocketing tuition has been to increase the size and number of student loans. Now the plan is to make loan repayment easier and increase grant aid again. But making it possible for students and parents to go more deeply into debt only encourages endowment hoarding and runaway tuition. It is time for legislators to come up with a smarter strategy for addressing college affordability -- one that will pressure colleges and universities to better serve students, families, and taxpayers. And getting schools to stop hoarding billions in tax-free funds would be a good first step.

The high cost of education has consequences. When asked to name an expense that is beyond their reach, people cite “paying for college” more than buying a home, retirement, or anything else. The intimidating effect of high tuition is the largest “access” problem in American higher education. If colleges and universities truly want to open their doors to all, they will begin by sharing their riches.

Author/s: 
Lynne Munson
Author's email: 
newsroom@insidehighered.com

Lynne Munson, an adjunct research fellow at the Center for College Affordability and Productivity, served as deputy chairman of the National Endowment for the Humanities from 2001-5. She is at work on a book on endowment hoarding.

Beware Higher Ed's 'Mad Men'

In 1981, Grey Poupon took the nation by storm. Although the little-known Dijon mustard had been manufactured for more than a century, in the early ’80s it went from a minor six-figure business to a retail powerhouse.

Most people remember the famous TV ad in which one Rolls-Royce pulls up next to another. An aristocratic-looking passenger rolls down the back window to ask, “Pardon me. Would you have any Grey Poupon?”

In the cities where the ad ran, sales of Grey Poupon shot up 40 to 50 percent -- a remarkable leap in the largely static condiment sector. Today, the Grey Poupon success story is frequently invoked as a highly successful “rebranding,” and an example of a singular advertising triumph.

Within the retail world, plenty of products have had their sales driven up, and their images buffed, through focused ad campaigns and catchy slogans: Don’t Leave Home Without It (American Express), Just Do It (Nike), and Got Milk? (California Milk Processor Board).

These successes -- reinforced today by the hit cable TV show “Mad Men-- have led to an onslaught of branding consultants currently setting their sights on American universities. Many of these firms, battered by the recession and seeing higher education as a wealthy untapped sector, are coming to a campus near you.

The primary problem with their pitch is that it undervalues the very essence of a large educational institution. Universities are, by definition, complex, decentralized, multidimensional places with many disparate audiences. To attempt to rebrand these institutions as if they are one-dimensional retail products is to misunderstand what makes them exceptional.

Some university leaders are eager to buy the promise of a quick fix. The branding consultants tap into a low-level frustration on nearly every campus -- “No one knows how great we are” -- and make flashy presentations that promise fast results.

These campaigns provide all of the trappings of success: highly varnished collateral materials and new websites, all stamped with a focus-group-tested tagline. Internal constituencies are put through a time-consuming discovery process, which helps achieve a sense of internal buy-in, even if the effectiveness of the “deliverables” is suspect. In the end, most of these efforts are like Chinese takeout: initially satisfying, but with no long-term nutritional value.

So, if empty branding campaigns aren’t the answer, what is? For most institutions, a sustained and thematic flow of credible messages to your key constituencies will produce real results. Three principles should drive this approach:

Build on strong facts: Bob Dylan said, “All I got is a red guitar, three chords and the truth.” Without denigrating Dylan’s guitar chops, it’s fair to say that he relied primarily on the truth. University marketing and communications programs should do the same.

Effective marketing (or public relations -- the terms mean different things to different practitioners) should be thought of as an accelerant. It’s the lighter fluid we pour on a fledgling fire to create a full-blown blaze. As a result, even the strongest communications program will fail if it is not built on strong facts -- on the truth.

Within your institution, find three to five strong institutional assets -- the ideas, initiatives, and people that differentiate you from the rest. These could be research programs, student successes, or an innovative approach to admissions. The point is, you should fan the flames where you have the potential to outshine others.

In the late 1990s, I was appointed director of communications at Harvard Law School. At the time, Harvard Law was viewed by many as an elite institution coasting on its laurels. There were those who believed that Harvard Law, arguably the largest law school in the country, was too big and impersonal. The faculty considered shrinking the size of the student body; ultimately that proposal failed, and we decided that the school should embrace its bigness. A “legal metropolis” and “the New York City of law schools” were messages we began promoting. These efforts, combined with a public-service renaissance and tremendous fund raising success, helped Harvard Law reassert its preeminence. (Some might argue that a trained chimpanzee could enhance Harvard’s reputation. The truth is that it can be even more difficult to shift and update the image of an institution that is so deeply marbled in the public’s consciousness.)

Don’t give up on the press: A popular joke in media circles today is: “What do pimps and the newspaper industry have in common? Both are being put out of business by Craigslist.”

While it’s true that the financial model of the commercial media is being severely tested, many traditional news organizations still maintain significant readership. (The problem is that online readers don’t translate into the same kind of revenue that print readers do.)

For example, The New York Times actually has more readers today than it did a decade ago, if you consider print and online readers together. In 1998, the Times had 1.06 million readers of its print edition. Today, in part due to a top-notch web presence, the Times has more than 1.5 million print and online readers.

Even The Boston Globe, viewed in recent years as a news organization in serious trouble, has maintained approximately 460,000 daily readers when combining print and online.

Most important is that these and other news organizations remain credible sources of information. New research by the Nielsen Company shows that people have become increasingly savvy consumers of information. In a recent credibility-of-sources survey, Americans placed many forms of direct communication -- advertising, printed materials, mailings -- well below media coverage in terms of what they believe. The concept of “third-party validation” is still compelling.

Put in simple terms, a good article about your university in a national newspaper is worth more than a dozen paid display ads in the same paper.

Persistence pays off: When it comes to reputation-building, patience is indeed a virtue. So is persistence. An old rule in political campaigns is that voters should see or hear something about a candidate at least seven times between Labor Day and Election Day -- the homestretch of any election. The truth, for better or worse, is that most audiences require a steady drumbeat of consistent information to shape their perceptions.

In addition to sustaining the flow of information, use the “show, don’t tell” rule. Instead of producing print materials and web pages that tell the world how strong your programs are, show why this is true.

At Northeastern University, where I currently oversee marketing and communications, we are a leader in experiential learning, anchored by our renowned co-op program. Showcasing real students in experiential learning programs around the world will move the needle far more than dispensing platitudes about our leadership position. We have used this principle in recent newspaper ads designed to build awareness about our expanding research enterprise.

This steady, brick-by-brick approach has been used by a broad range of American universities (Duke, Emory, and Washington University in St. Louis, to name just a few) that have moved dramatically up the academic food chain. These institutions and their leaders made many tangible, undisputed good moves. But they are also each known for complementing these good moves with strong, sustained communications efforts.

***

To be fair, there are plenty of thoughtful, idea-based communications firms out there doing good work across different sectors. I differentiate these firms from the bumper-sticker branding agencies that focus solely on the sizzle, not the steak.

Whether or not your institution relies on outside counsel to promote itself, remember that you’re not selling mustard, Big Macs or running shoes. Your university is a churning, diverse and complicated place. Tell this story in a smart and truthful way -- with unrelenting persistence -- and you will succeed.

Author/s: 
Michael Armini
Author's email: 
newsroom@insidehighered.com

Michael Armini is senior vice president for external affairs at Northeastern University.

Donations Up 3.4%

Smart Title: 
Colleges raised $24.4 billion in 2004; giving by individuals and corporations was up, while foundation giving fell.

The Selling of the Curriculum?

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Chapel Hill faculty members protest plans to let a conservative foundation support a new program in Western civilization.

Transfer of Liability

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A foundation created by Western Kentucky University to manage its dormitories does not have the university's immunity from lawsuits, a Kentucky appeals court ruled Friday.

The ruling sends a lawsuit against the foundation back to a lower court for additional hearings, and the ruling could complicate the arrangements some public colleges have set up with foundations or related entities to manage some of their operations.

A Good Year for Endowments

Smart Title: 
Colleges did very well in 2004, with an average return of 15.1 percent; the greatest gains were made by institutions that were already wealthy.

No Need for a Gold Watch

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The manager of Harvard's mammoth endowment, his millions in compensation under attack, heads for the private sector.

Endowment Growth Projected to Slow

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Standard & Poor's predicts 2005 returns will be positive but lower than in 2004.

Tainted Gift at Washington

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Federal prosecutors charge major donor to Washington & Jefferson with fraud in connection with $500,000 contribution to the college. 

Donor Reportedly Endowed a Chair -- and Filled It

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Florida A&M faces controversy over million-dollar gift to its law school.

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