College Endowments not Coffers of Gold To Be Plundered

Articles like this one in Trees and Things rile my blood. Not only is this activity blatantly predatory, but shows both a lack of concern for many of the nation’s pressing issues and a fundamental lack of understanding of (or desire to understand) how endowments work.

Yes, the thing known as the Endowment in most top private universities across the United States is increasing, and yes, there is a deficit, but coveting the money of educational institutions to help offset the national debt is an atrocious proposition. Many congresspeople complain that the major Universities with the $10+ billion endowments should allocate more money to financial aid, and use the money to expand programs and admit more students. However, things are far more complicated than than. Stanford’s $17-something billion endowment is not the giant vault that people imagine it to be. It is a conglomerate of tens of thousands of donations, each earmarked for a specific purpose, with only a small fraction going to the “general fund,” the part of the endowment where the University has discretion for its use, and another fraction going to financial aid, mostly earmarked for certain groups of students.

Forcing Universities such as Stanford to use a certain percent of their endowment for financial aid may simply be illegal, or, if not, would force schools to allocate more money to financial aid from the general fund than otherwise prudent, diminishing funding for research and other academic activities , the very activities that make the top institutions so successful and attract the world’s top talent. Leading from this, there is the conception that the best tuition is no tuition. While this is an honorable goal, it is economically flawed. The schools with the top endowments currently offer the best financial aid in the nation, excepting those few like Olin College that offer a full tuition scholarship for all accepted. These top endowment schools typically offer over 95% of a student’s financial need in terms of grants, work study, and low-interest loans. Free tuition sounds attractive, but economically, having a cost equal to the value of the benefit from the education is another way to attract only those students who will value the education. As a staff member of a Stanford dorm, I know that for large events, there should preferably be a small charge, even if there are funds to cover everyone’s cost, just to make sure those who sign up will not balk, and that the people signed up at least value it enough to pay x dollars.

So the next question is, why not admit more students? That is perhaps easiest to answer. The value of a Stanford education is that students have the opportunity to take classes from eminent professors and first-hand contact with them, as well as to do research with them. There simply aren’t more top professors; they are continually stolen back and forth in a friendly war between top institutions. Admitting more students would have a definitely dilution effect on the quality of education. Ask any student in a Big Ten school, and you will find that contact with a professor is rare and valued. Schools like Stanford, MIT, Harvard, and others, are slowly working to make education material from its classes and seminars available freely online through programs such as MIT’s OpenCourseWare.

Finally, the large endowments serve as an important rainy day fund in case of catastrophes. A large earthquake is set to strike the San Francisco Bay Area within the next thirty years, and while all of Stanford’s buildings are earthquake-reinforced, there are large collections of multi-million dollar scientific equipment that may be damaged during the Earthquake. The fund serves as a security policy against natural disasters, and equally damaging disasters such as policy changes that result in dramatic funding cuts from the federal and state governments.

There is no doubt that the United States is slowly losing its edge in science and technology. The last thing we need is to punish successful schools for their high donation rates from their successful and happy alumni. I would be less angry if the proposed “endowment tax” concepts would give money back to education, but the billions of dollars the federal government would essentially steal from the top research institutions by modifying some laws to their advantage would would mostly be used for offsetting a few days of fighting in Iraq.

Wake. Up.