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University Endowments: Charity Begins and Stays at Home

New America Media, Commentary, Cristina Cordova Posted: Jul 22, 2008

Editor's note: Some universities like Harvard, Yale and Stanford, have enormous endowments, tens of billions of dollars, and receiving more. But NAM contributor Cristina Cordova, a Stanford student, says that they are not being charitable enough when it comes to supporting their own students and their communities.

Summer will soon come to a close for college students across the nation. At Stanford, where I'll be a junior in September, I've become quite familiar with the modern endowment fundraising blitz. Many of my peers make the calls asking alumni to shell out cash for the university's endowment, only a fraction of which goes to support the university.

"Give back." "Donate." "Be charitable." Wasn't the $200,000 in tuition, room and board, enough?

Harvard alone has over $35 billion in its endowment fund. With an endowment this big, one would assume that elite universities are doing significant work to ease the financial burdens on their undergraduates. Yet, many students from middle-income families are unqualified to receive financial aid, and have to take out loans and wind up with $200,000 in loan debt along with their diplomas.

Well, all of these students are going to be rich so $200,000 is nothing, right? But students who plan to go into careers in public service or teaching will make significantly less than those who go into investment banking. Grads hesitate to enter public service careers when faced with so much debt, often providing a barrier to serving the public.

If I chose to donate to Stanford, where would that money go? Most large universities use donations in three areas: scholarships for need-based financial aid, teaching and learning, and for the associational life of clubs and organizations (academic and social alike). Elite universities typically spend less than 5 percent of their endowments per year. Lynne Munson, adjunct research fellow for the Center for College Affordability and Productivity, says schools "spent 3.9 percent on teaching, education and research last year... a pittance." The $200,000 students spend on an education over four years covers the rest of the bills.

Princeton has $15 billion in its endowment and spends 4 to 5 percent of its endowment per year. If Princeton decided to increase that to 6 percent, it could fund the entire undergraduate financial aid budget. For 12 percent of its endowment, it could fund the entire operating budget.

Let's say I donate $100 to Stanford. That money wouldn't all go to a Stanford student in need of financial aid. It would travel into an investment fund, collect interest, and make a profit. Maybe, if a needy student is in luck, he will see $5 (at the typical rate of an endowment payout) of my donation next year, in a new building or financial aid. Just five bucks.

My donation would also give me a nice tax break due to Stanford's non-profit status. Universities do not pay a tax on their endowment revenue and they are not held publicly accountable for how, where, or when the funds are spent. Federal law requires private foundations to disburse five percent of their endowments per year, but this does not apply to "charitable foundations" like universities. There are essentially no requirements for how much can be collected or how much is required to be spent.

Are Harvard, Stanford, Yale et al, unable to determine a productive purpose for their billions in cash? How about expanding local community service projects with employment centers and housing projects to ensure that universities support more than just the student community? Enlarging the undergraduate class size to ensure more disadvantaged students receive the benefits of a top education? Provide more financial aid to middle-income students so that a college education need not bankrupt working-class families?

Universities claim to be doing more to make college accessible for low-income students. Mark Smith, a higher education coordinator for the National Education Association, claims that a university must make itself "accessible and affordable," which is difficult for elite institutions where the demand outweighs supply. So many students want to attend these universities, but can't get there. The application fee to Yale alone is $75. If you want to apply for financial aid, you most likely need to fill out an application for the CSS Profile, which costs $9 to register for and $16 for every college you send it to. They even charge to apply for financial aid! For most high achieving low-income students, attending top schools is practically impossible.

Universities claim to be making strides in financing education for students. Stanford University Provost John Etchemendy claimed, "Although Stanford's tuition has gone up over the past five years, thanks to our increasingly generous financial aid program, families with incomes less than $150,000 will find a Stanford education much more affordable than it was five years ago." They've even rolled out brand new financial aid programs and packages for families making less than $100,000 a year. However, Lynne Munson claims that this move is "a drop in the bucket in comparison to what they should be doing." They are only making "small tweaks to their financial aid plans - a series of PR stunts to throw the public off."

Many seniors in high school see these packages as a godsend, especially compared to years past when families making over $100,000 were still expected to shell out half their income to colleges. I was ecstatic when Stanford unveiled its new financial aid policies, but still worry that I may be out of the financial aid game if my parents make too much next year. Many students caution their parents to hold off their raises at work until their four years are up.

There is much glamour surrounding Harvard's claims that its new policies are "path breaking" while Princeton claims its policies are "groundbreaking." All recent financial aid changes have come at a fairly convenient time - just as Congress begins to explore rapidly rising endowments.

The state of Massachusetts proposed an amendment for a 2.5 percent tax on the portion of endowments above $1 billion, which would have affected nine colleges within its border. Much of that revenue would help the state through tough economic times, but the bill was eventually blocked by the State House of Representatives. The Harvard Crimson, expectedly against the proposal, claimed, "Colleges and universities have missions that commit them to serve and better the community, callings that shouldn't be reduced to assuage the problems the state government can't handle." A reasonable claim if Harvard was indeed using its $35 billion for more than income-producing investments.

These new policies may be a step in the right direction, but this is certainly not the end of the road. Colleges could be addressing the issue of affordability, making college more accessible to high-achieving low-income students. Despite the charitable nature of these institutions, they have been doing very little with the enormous resources they possess.

When I walk across Stanford's campus, I am surrounded by beauty and safety, unlike what many university staff feel when they go home at night. Cities surrounding universities often provide the workforce for a university, yet campuses across the country have often encouraged the development of ghettos once one crosses that university border. A neighboring city of Stanford, East Palo Alto, for example, is well known for its high rates of poverty and crime. Rarely do Stanford students head to East Palo Alto unless they're venturing to Ikea. At one point, East Palo Alto had the highest per-capita murder rate in the country. So much more can and should be done.

"Give back." "Donate." "Be charitable." Maybe these elite universities need to be taking more of their own advice.

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