FORBES: Do Big Endowments Lower Education Costs to Students?

Career College Central Summary:

Universities have large development or “advancement” departments to raise money, a significant portion of which at most schools goes into an endowment fund. The latest numbers from the National Association of College and University Business Officers (NACUBO) show American universities have over $516 billion in endowments, or more than $25,000 for every student attending American universities –including community colleges (excluding two year schools, the average per student endowment easily exceeds $40,000).
Why do universities have endowments? Endowment money is designed to help universities either better achieve their mission, or become cheaper for the student. The more investment funds a school has available theoretically reduces the need to have high tuition fees to cover the costs of instruction. But is that true? Are tuition fees lowered as endowment funds increase? The short answer is “no.”
I took the 10 schools with the largest endowments as of last summer, and compared them to 10 schools ranked 251 to 260 by endowment size. The top ten schools (Harvard, University of Texas, Yale, Stanford, Princeton, MIT, Texas A & M, Northwestern, Michigan, and the University of Pennsylvania) had some $181.2 billion in endowments – over 35 percent of the total of the over 800 schools surveyed by NACUBO. The middling sized endowment schools – University of San Francisco, Barnard College, Chapman University, University of Maryland at College Park, Johnson and Wales, Agnes Scott, University of Hawaii, Colorado School of Mines, College of Wooster, and Seton Hall had combined endowments S2.7 billion – less than one-third that of the smallest of the top 10 endowments (Penn). The rich schools had 66 times the endowment of the modestly endowed ones.
The average tuition at the high endowment schools was $43,033 a year – over $5,000 higher than at the lightly endowed institutions (both groups had seven private and three public schools). None of the seven richly endowed private schools had tuition levels under $43,000 a year, whereas five of the seven poorly endowed private schools charged tuition of under $38,300 a year. The rich schools not only spend all the endowment rather than lower tuition fees, they also charge thousands more annually in tuition fees to permit even more spending.
Some preliminary examination of other data verifies this. The rich schools treat their staff well, paying professors a good deal more than the poorer schools. I suspect they also have more administrative staff. This is in keeping with the late Henry Manne’s argument that all colleges, regardless of legal designation, are “for profit” in any meaningful sense, and that those governing universities are like de facto stockholders who use financial surpluses (quasi-profits) to pay themselves “dividends.” Endowments increase cash surpluses which get dissipated in payments to powerful university players who meaningfully “own” universities, despite the formal legal designation of the owner being the governing board or the state. Much of university advancement work and endowment expansion is about providing economic rents to powerful members of the university community – not making school more affordable to students. Those rents show up in inflated salaries, lower teaching loads, administrative bloat, deferred compensation payouts (for example, the recently revealed $8.5 million to Yale’s Richard Levin), et cetera. This is another manifestation of Bowen’s Law: universities always spend every dollar they take in.

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FORBES