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College/University Endowments: How High Is Up?
By David W. Kirkpatrick (October 25, 2007)
Senior Education Fellow
U.S. Freedom Foundation www.freedomfoundation.us

 
A commentary a few years ago looked at college and university endowments, Harvard University's  in particular since it was the largest, worth about $18 billion.  It was suggested part of the earnings thereof could be used to eliminate student tuition.
 
About a decade ago, seventeen institutions had endowments of a billion dollars or more.  Today sixty two do.  Harvard is still first, now with $35 billion, up some $9 billion in the past year alone.  (NOTE: there are discrepancies among various reports.  One says the endowment is up 23% in the past year, another 25.2%, while separate reported figures for 2006 and 2007 give a difference of $9 billion, up more than one-third.  This demonstrates the old adage that if you are truly rich you don't know how much money you have.)
 
Recently, some members of Congress, in particular Senator Charles Grassley (R-Iowa), have suggested college endowments be legally required to annually spend at least 5 percent of their endowments on their missions, including reducing tuition.  Private foundations currently must meet this standard but public charities, which includes college endowments, do not.
 
Not to pick on Harvard - as noted 62 institutions have endowments of at least $1 billion, and Yale not only has one of $22.5 billion but has grown at a slightly faster rate in the past year than has Harvard -but it has the most money.
 
Here's a snapshot of Harvard's endowment over the past quarter century: 1983, $1.6 billion; 1998, $11 billion; 2003, $17 billion; 2005, $22 billion, 2006, $26 billion (up four billion in one year); and 2007, $35 billion ($9 billion in one year - that's an average increase of $750 million per month.)  Note the progression.  During the 15 years from 1983 to 1998, it grew by about $9 billion.  Then it grew that much just from 2006 to 2007.
 
If Senator Grassley's five percent requirement should become law, most if not all of the 62 institutions with $1 billion or more in their endowment will have to spend money on more than just tuition.  Currently, for example,  Harvard has about 6,700 undergraduates.  The cost to them is about $45,000 a year - $31,000 in tuition and $14,000 additional, mostly room and board but also a few thousand dollars in various fees.
 
In round numbers, $45,000 each for 6,700 undergraduates gives a total cost of about $300 million..  But 5% of Harvard's endowment is almost six times that much, $1,750,000,000. Thus,  $300 million is less than half of the endowment's average monthly increase of $750 million over the past year. The endowment grew enough in less than two weeks to pay all the annual expenses of all undergraduates.
 
In actual practice it won't even take an additional $300 million to cover all student expenses since most students already receive financial aid, although much of it is loans which must be paid back, with interest.
 
If it so chose, Harvard could afford to be not only a private institution, which it already is, but an independent one as well.  It need not rely on any source to be financially self-sufficient indefinitely.
 
Students would be free to select a major without repaying a large debt.  Currently students may need to consider relatively few fields, such as medicine and law, where they can earn enough to repay debts.  Debt free they could consider lower-paying fields such as teaching school or the clergy.
 
Former college president Howard Bowen once said there are two rules in funding higher education: 1, raise all the money you can;  2, spend all the money you raise.  This is apparently now only one rule: raise all the money you can, even if you already have more than you can spend.
 
A free education is not unknown.  The military academies provide it.  Of course they get federal money.  But  Harvard's endowment more than compensates for that.
 
Harvard might look at Berea College in Kentucky.  The August 23, 2004 NEWSWEEK reported that all of Berea's 1500 students receive a full tuition scholarship. Many also receive financial aid for room board, and books. Berea thus prepares professionals that Appalachia greatly needs.
 
Does Berea have a social conscience that Harvard lacks?
 
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"The endowments of schools and colleges have necessarily diminished more or less the necessity of application in the teachers. Their subsistence, so far as it arises from their salaries, is evidently derived from a fund altogether independent of their success and reputation in their particular professions." p. 342, Vol 2, Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations, London: W. Strahan and T. Cadell, 1776, 2 Vols, (NY: August M Kelley, 1966, Facsimile Edition, 650 copies printed)

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Copyright 2007 David W. Kirkpatrick
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