"Money for nothing?": Higher Education Cost and Endowments

In the Middle Ages, one of the chief means by which a man could absolve himself of his indiscretions was the purchase of an indulgence from the Church. The promise of release from eternal damnation brought with it much abuse, and the presumption that money could be called upon to put one in God's good graces was the subject of condemnation by Luther and those who protested against the excesses of the Catholic Church.

Much as medieval indulgences were presumed to absolve the penitent, the practice of charity in modern society has assumed much the same function.

Get caught killing trade unionists in Colombia?

Fund scholarships for kids going to Columbia.

Give a little money, grease the wheels of higher education, and society just might forgive you for how you got the money in the first place. Don't get me wrong, done right higher education and philanthropy are a great combination that produce real benefits for society. And it isn't always the case that the money given to universities has blood on it. A recent article from the NY Times tells the story of one school that's been able to make excellent use of endowment money to provide access to education for those who otherwise might not be able to get it: Berea College.

“You can literally come to Berea with nothing but what you can carry, and graduate debt free,” said Joseph P. Bagnoli Jr., the associate provost for enrollment management. “We call it the best education money can’t buy.”

Actually, what buys that education is Berea’s $1.1 billion endowment, which puts the college among the nation’s wealthiest. But unlike most well-endowed colleges, Berea has no football team, coed dorms, hot tubs or climbing walls. Instead, it has a no-frills budget, with food from the college farm, handmade furniture from the college crafts workshops, and 10-hour-a-week campus jobs for every student.

Berea’s approach provides an unusual perspective on the growing debate over whether the wealthiest universities are doing enough for the public good to warrant their tax exemption, or simply hoarding money to serve an elite few. As many elite universities scramble to recruit more low-income students, Berea’s no-tuition model has attracted increasing attention.

Yet, Berea College is the exception, not the rule. As is noted later in the article linked above, only one in 10 of the students at the nation's most selective institutions come from the bottom 40% of the income scale. Higher education in America is increasingly becoming segregated by class, while at the same time statistics indicate greater ethnic diversity because of access afforded to foreign nationals funded by their governments or wealthy parents. It's the perfect swindle, because it allows the folks in charge to feel better about have they've gotten where they are without doing a damn thing about improving how the other half lives.

And the tragic thing is that with remarkably little action, it would be possible to channel the vast riches accumulated by university endowments to the purpose of expanding educational access for all Americans.

During the 2008 Democratic primary in Indiana, one of the gubernatorial candidates proposed a simple plan for the state's public universities. They would be called upon to spend any amount in excess of a 10% annual increase in the university endowment to provide scholarships for in state students. I wrote at that time what the impact of that at the state's two largest universities would be.

IU and Purdue both have roughly 40,000 students, so that would mean $2,150 in tuition relief to in state students. At BSU there are roughly 20,000 students, so that's around $330. ISU is about 20,000 so that's about $40 annually in tuition relief. As you see with a lot of these issues, IU and Purdue are what's driving the need for a respose. BSU, ISU, and the other state schools have been much better at dealing with this.

At Purdue, a full time resident student can expect to pay around $3,708 a semester. So if we cut that $2,150 in half we get $1,075 a semester. That's a 29% tuition cut. At IU, annual in state tuition is $7,837. So if we apply that $2,150 from Jim's plan to the tuition that takes tuition down to $5,867 annually. That's a 27% tuition cut.

Sadly, the candidate who proposed this plan lost the primary, and I haven't seen any evidence that his opponent from the primary has said that she will pursue this if she's elected. And it's not just Indiana. The National Association of College and University Business Offices (NACUBO) compiles a list of university endowments ranked by size. Just to give you an idea of what the impact of Schellinger's plan applied on a national scale would be I'm going to show what would happen at the Big 10 schools. Arguably, I'm going to be understating the impact, because I'm not going to have numbers to separate out of state students or foreign nationals.

Big 10 Endowments
School Endowment % Change Enrollment Tuition Cut
U of Ill. $1.52 Bil 21.0% 42,728 $3,224
IU $1.56 Bil 22.0% 43,247 $3,246
U of Iowa $982 Mil 18.0% 30,409 $2,191
U of Mich. $7.09 Bil 25.4% 40,025 $21,748
Mich. State $1.25 Bil 19.1% 45,520 $2,095
U of Minn. $2.84 Bil 26.1% 51,194 $6,995
Northwestern $6.50 Bil 26.5% 13,407 $62,266
OSU $2.34 Bil 17.1% 52,568 $2,697
Penn State $1.59 Bil 19.9% 42,914 $3,060
Purdue $1.79 Bil 19.6% 39,333 $3,645
U of Wisc. $1.65 Bil 15.4% 41,466 $1,857

Sources: For enrollment numbers. For Endowment numbers.

A few things first. Yes, there are 11 schools in the Big 10. Second, the enrollment and endowment numbers can be tricky because these schools have branch campuses that may or may not5 be included in the enrollment and endowment numbers.

What's surprising here is that these are public universities with the exception of Northwestern, and you can see that Northwestern has a much higher endowment gain per student than any of the other schools. I'm certain that a similar list o Ivy League schools would show the possibility of even higher per student tuition cuts.

And that's the question.

Money given to universities is tax exempt, yet it's often hard to see a benefit to the public from the money that's in these endowments. And because they are tax exempt, some portion of the money in these endowments represents lost tax income. So in effect, by giving money that may go a long way to securing their offspring a spot at universities, wealth individuals can skip out of their tax responsibilities to society.

Maybe endowments and indulgences aren't really all that different after all.

If there is no social mandate upon philanthropy in higher education, it may come to serve to benefit those who need it the least by releasing them from tax obligations and glossing over their economic indiscretions.



I can't remember the html

to create tables. I also wanted to note that at least in my home state of Indiana, there's been a push to limit enrollment of out of state and international students.

No one is arguing that there should be none. But I think that when in state students make up only a third of graduate enrollment and a tenth of graduate funding that questions need to be asked.

tables - a gift.

I just gave you a gift (hey everybody don't expect this!) and edited your post to make the table.

Tables are a real bitch frankly, whether you know the tags or not.

For now when you to go create content, in the body, right below, turn on the rich text editor, (toggle that by clicking on it). Then, on the buttons, you will see one that looks like a spreadsheet icon. That's tables. You can have it make the table for you and then you fill in the data.

I'll have to add a "how to" in the user guide but regardless, tables are tough and one dropped tag can mess up all of your alignment.

I think that's what you wanted.

Exactly what I wanted

I'm glad there's an app for this.


The User Guide

is your friend.

Seriously, this site is a little different because Bob the Blogger, yours truly, is also the admin. So, I've tried to add features (to the best of my ability), that would be useful, are different from the major blogs and where I suspect most people get hung up. Most don't have a WYSIWYG (rich text) editor for example. So, if you're not used to having one, you probably aren't clicking on those links listed when creating a post.

Also, if someone wants a feature, just ask. I might be able to hack it together.

Anyway, I'm trying to put the important, good juju in the user guide.

higher education

This is one place where I don't think much spot light has been put upon, although some have tried. That's a great idea and along the lines of "Americans 1st" in terms of our taxpayer funded institutions doing their charter (educating Americans) first and foremost.

I read that higher education is an emerging for profit market that rivals the financial sector in terms of profits. So, it seems to be also more of a political tool in some respects to advance globalization these days.

Note, I just made an opinion that is not quantified! But nice if we could get to the bottom of this more.

The really sick thing

is that higher education tends to be a positional good in that the way that its usefulness is measured is not the absolute quantity that one has, but the relative surplus one has as compared to others.

Thus, if education allows the person who has it to hold a leadership job, what matters is not the amount they have, but instead the amount they have as compared to others. So while a high school degree may have been sufficient to ensure one a leadership position at the turn of the previous century because it represented an increment of education above that in the general workforce that provides one credentials. This in time initiates a positional treadmill, where the general increase in education means that requires an increase in the credentials needed to get a leadership job.

So the position that used to take a high school degree now requires a master's.

And this all seriously undermines the idea of higher education as a "market." In neo-classical economics, the presumption is that price increases limit demand, because individuals will presumably have better ends to which to dedicate the money they might spend on education. But it doesn't. Instead it actually increases demand because it creates the impression that the school is more exclusive and therefore providing better credentials.

And so rather than recognizing what's at work, the thought is that simply raising tuition will best determine how to allocate scarce enrollment slots by encouraging those who "value" education the least to pursue other paths.

But that isn't the way that it works. Raising tuition increases demand, and by effectively prohibiting lower and middle income families from sending their children to these, it ensures that enrollment as "prestige" schools is allocated to the offspring of the well off. And in doing so inhibits social mobility, and locks people into the social class into which they were born. So the idiot children of the economic elite are provided leadership positions while individuals who come from the lower classes are locked out.

And it creates a social loss, because the idiot children of the elite are far less qualified to be leaders, but as a result of having been credentialed are put into positions of power. And the whole time, they believe that they hold the position of power because of their power, not because they were born into it.

Now if a mechanism other than price were used to allocate university enrollment, you'd likely see university populations more reflective of the general population. And you'd provide the opportunity to educate those who can benefit society the most from receiving it. But even testing regimes to determine merit degenerate as parents buy SAT tutoring for their kids, to help them "beat the test."

And much of what passes for higher education has no use as skills training for the modern workplace. There needs to be a greater emphasis on skills training in both high schools and universities in order to provide trained workers for the marketplace. And the stigma attached to skills training that occurs outside of the university needs to be combated. Detaching the social stigma that comes these days with skilled manual labor like plumbers, electricians, and the the like would go a great distance towards getting high school graduates to undertake the training for these positions.

global demand

I think you mean by raising tuition they will reduce demand from the Domestic market (i.e. Americans). It seems to me, more and more they see students as products. I agree and what's more is a college degree no longer means a ticket to the middle class. Few are challenging the common claim of more education, more training by what is happening in reality, on the ground. I did a piece over on NoSlaves blog that goes through the rejection rates in STEM fields from colleges. It's astounding and I don't care if they are flooded with incomplete applications or whatever, the numbers are shocking. This is going on while they claim they cannot find enough students and talent.

Also this post, Are our Universities Ours? and Is the United States Bachelor Degree Getting the Shaft?, it really looks like our entire higher education system doesn't even seem to recognize what they are supposed to be doing with US taxpayer money.

It's not only that

it really looks like our entire higher education system doesn't even seem to recognize what they are supposed to be doing with US taxpayer money.

It's more than that though. With the exception of the military academies, there are no federally chartered universities. They all have state charters, and are state schools.

Yet, you have state schools where less than a third of the graduate population is from the actual state the schools located in. And when you talk about funding it's even worse. And when it comes to the real penetration of higher education by foreign nationals, it's graduate education that we're talking about.

I've been reading The Rise of the Creative Class which seems a lot like a apologia for the destruction of the American working class, and the concentration of income and wealth in the hands of an economic elite.

And I'm realizing that a lot of what we talk about as "culture war" has the subtext of class warfare to it. The "creative class" is socially liberal and economically neoliberal, while the working class has turned to social consevatism because there is no party for economic populism. And the creative class folks self select, and set themselves up as doorkeepers in academia and the new economy. And lock the gates.

And is it any wonder then when working class folks rebel against this?

These "creative class" folks seriously believe that the future lies in an economy where they provide the designs and administration, and all actual process of construction has been deskilled and outsourced to China. Up until the internet boom, you had IT folks who seriously believed that the reason that factory jobs went overseas and their's did not was because factory jobs required no intelligence or skill. So that those who held them were to be looked down upon as idiots, and shouted down when they complained about jobs being outsourced. They thought they were immune, and you have the same thing in academia today. They think that they can't be outsourced, or pushed out by foreign nationals brought into the country.

book review

Honestly, the creative class has to be the dumbest box of rocks if they are so grandiose to believe that China, India and the rest of the world is magically going to be their bitch while they do all of the "big picture" and "complex" stuff. That is so naive and it's also somewhat racist of them to believe that they have some magical leg up on ability. It also shows they are not paying attention to what's really happening and that's in the design areas. I hope you write up a review for I have not read it, although we all know the term from somewhere. The only creative class who doesn't have their country, their national interest in the back of their minds to advance are Americans.