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Too well endowed?

Are top universities more concerned about money than about educating students?

Often, it is the confluence of several news events that brings the real story into focus. Take the Feb. 18 press release on the results of the National Association of University and College Business Officers' annual survey of school endowments: "Golden Era in University and College Endowments," the organization trumpeted. "Institutions Hold More Than $150 Billion" The strong economy, it seems, has been very good to our institutions of higher learning. University endowments--the pool of donated money, land, artwork, etc., that schools invest in stocks, bonds, and real estate--have benefited from the long-lived bull market along with everyone else's investments. The Ivy League has done particularly well: As of mid-1997, Princeton's endowment had swelled to $5 billion; Yale had $5.7 billion, while Harvard led the pack with $11 billion. (Needless to say, those figures have since risen considerably--even with the recent dip in the Dow.)

In and of themselves, the survey findings are noteworthy but likely to dissolve quickly into the pool of articles about how market madness is changing America. The story becomes more interesting, however, when viewed in conjunction with an April report from the Carnegie Foundation showing that Americas top universities "have too often failed, and continue to fail, their undergraduate populations" The report notes that this nation's 125 research universities (those that offer a range of baccalaureate and graduate degrees and receive several million a year in federal funding for research) are focusing on high-level research work at the expense of students. The commission-comprising university officials, as well as members of the Carnegie Foundation for the Advancement of Teaching and the American Council on Education--charges:

[University] recruitment materials display proudly

the world-famous professors, the splendid facilities,

and the ground-breaking research that goes on

within them, but thousands of students graduate

without ever seeing the world-famous professors or

tasting genuine research. Some of their instructors

are likely to be badly trained or even untrained

teaching assistants who are groping their way

toward a teaching technique; some others may be

tenured drones who deliver set lectures from yellowed

notes, making no effort to engage the bored

minds of the students in front of them.

Many students graduate having accumulated

whatever number of courses is required, but still

lacking a coherent body of knowledge or any

inkling as to how one sort of information might

relate to others. And all too often they graduate

without knowing how to think logically, write

clearly, or speak coherently.

We're not talking about Podunk U. here. The schools examined by the commission include the cream of our education establishment: Harvard, Stanford, Yale, Princeton, Duke, Rice--in short, some of the most respected (and most expensive) institutions around. Adding insult to injury, the report reminds us that undergraduate tuition is "one of the major sources of university income, helping to support research programs and graduate education?' In other words, undergrads and their parents are subsidizing the programs that divert university attention and resources away from said undergrads.

Now add to this mix a series of recent headlines from various papers: "Harvard will raise tuition 3.5%; cost per year in fall tops $31,000"; "Brown to raise student costs to $31,060"; "Dartmouth hikes tuition 4 percent"; and so on. Providing a broader view of the situation, a January report by the National Commission on the Cost of Higher Education notes that, between 1987 and 1996, the average tuition price jumped 132 percent for public, four-year colleges and universities and 99 percent for private ones. Tuition increases have dramatically outpaced not only inflation, but also universities' costs to educate students.

Taken all together, these stories paint a disquieting picture of what's happening in the realm of higher education: Our top schools are richer than ever, but tuition costs continue to rise at more than twice the rate of inflation. And, in stark contrast to the old you get what you pay for" adage, the quality of undergraduate education is in decline. Clearly, there has been a breakdown in the system--a breakdown caused not by financial troubles, but by the misplaced priorities of universities, students, alumni, and society in general.

Brother, can you spare a million?

If you went to college, chances are at some point since graduating you've gotten one of those phone calls: "Hello, Ms. X? My name is Mr. Y. I'm calling on behalf of University Z's reunions [i.e., fund-raising] campaign to see if you'd be willing to pledge a gift of $50 or more to help your class reach its stated goal of $1 million" If you're one of your alma mater's more financially successful alumni, you may even have received a personal visit from the school's development (i.e., fund-raising) office, asking you to donate $500,000 or $1 million to help finance a new Russian studies department or renovate the freshman dorms. (See sidebar.) And if you're Bill Gates, you may have been tapped to give $15 million to a college from which you never graduated.

Much like politicians, universities and colleges always seem to have their hand out. In addition to annual giving campaigns (which raise unrestricted funds to augment schools' operating budgets), universities are on an endless quest to increase the size of their endowments. Now without question, supporting higher education is a worthy cause. Even with the explosion in tuition over the past 15 years, it still costs most colleges more to educate a student than the schools collect in tuition and fees. (Though it bears noting that this subsidy has shrunk over the past 15 years, according to the National Commission for the Cost of Higher Education.) For public universities in particular, reductions in state support since the late '70s have resulted in serious headaches. Without additional aid, most schools would either be forced to raise tuition even higher or find ways to cut costs, perhaps at the expense of academic programs.

This is where endowments come in handy. Although the principal remains in a rainy-day fund that can't be spent under normal circumstances, the money earned by investing the fund can go toward a variety of projects, from capital improvements to student aid. The explosion in endowment values, then, opens up some exciting opportunities for schools looking to improve both access and quality. Last fiscal year, for instance, universities averaged just over a 20 percent return on their endownments. Harvard's endowment alone grew by more than $2.1 billion. If the school put even 10 percent of that income into scholarships, nearly 7,000 students who might not otherwise be able to afford Harvard's $31,000-a-year pricetag could attend for free. But since Harvard has fewer than 7,000 undergraduates total, a better plan might be to apply that 10 percent toward a significant price cut for the 18,000 students in all of Harvard's various schools (divinity, medical, education, etc.). As for improving program quality, the university could set aside another 10 percent--or 20 percent or the remaining 90 percent for that matter--for hiring additional faculty, upgrading technology, landscaping Harvard Yard, and so on.

Alas, such dramatic changes in tuition rates or educational investment are not on the horizon. Unlike private nonprofit foundations, which are required to spend at least 5 percent of their assets each year, colleges and universities are under no such obligation. As such, many (including Harvard) spend around 4 percent (or less) of their endowments. When asked about increasing that percentage, university officials insist that such a move would be unwise because, even though times are high today, the school must be prepared for when the economy turns sour. "We've enjoyed an unprecedented five- or six-year period with the market performing like it is," says William H. Boardman Jr., vice president for capital giving (i.e., big-money fund-raising) at Harvard. "But it's not going to last forever. Most institutions have to be responsible. We have to be prudent"

Such long-term planning is to some extent admirable--much like a frugal parent saving his pennies for his daughter's college fund. No bull market runs forever (something the recent drop in the market reminded investors), and despite the huge gains of recent years, the endowments at many schools still do not provide much of a financial cushion. (East Carolina University, for instance, has a paltry $27 million endowment.) But from our top private universities, with their multibillion rainy-day funds, such sentiments seem disingenuous. Even accounting for inflation, we're talking about sums these schools could never have imagined 50 or even 20 years ago. For example, during the entire 1930s, Harvard's endowment increased by $30 million. During the 1970s, it increased by $811 million. Between 1990 and 1997, Harvard's endowment swelled $6.3 billion. Last year alone, it increased by enough to run the entire university for a full year--with $600 million to spare.

While maintaining a financial safety net is all well and good, there's a certain amount of spending that must be done along the way. If our thrift/parent, for instance, becomes so obsessed with saving that he refuses to spend on books or tutoring or other items to nurture Little Susie's intellect early on, that hefty college fund will be of little use. Likewise, one might wonder if universities shouldn't focus more on avoiding another tuition hike or improving faculty-to-student ratios rather than on whether their endowments will earn $1.2 billion or $1.3 billion this year. As Henry Hansmann, a law professor at Yale University, told The New York Times last month: "Saving is worthwhile only if you have a better use for the money in the future than you do now. With universities, there is no particular reason to believe that there will be a better use in the future and every reason to believe the reverse is true. At any moment, boards of trustees should be asking whether a dollar is better off going into an endowment or being invested in a young student's mind or in research" Besides, in the event that the stock market should tank, schools would lose the bulk of their nest-eggs anyway, without having invested in any worthwhile projects.

But as administrators ramble on about the need to ensure that their university will always be around, one gets the sinking feeling that institutional perpetuation and enrichment have displaced education as the schools' fundamental goal. This drive to keep fattening endowments evokes images, not so much of a thrifty parent, but of Ebenezer Scrooge hoarding his gold while his poor clerk struggles to put food on the table.

Granted, few graduates of top universities are facing starvation. But many do emerge from college burdened with five-figure student-loan debts that hang with them for years. And although schools have increased financial assistance to students in recent years, the majority of aid (60 percent) has been in the form of loans, which students must repay, as opposed to grants. A February report by the GAO found that, between the 1992-93 and 1995-96 academic years, the number of graduating seniors who had borrowed money during college jumped from 42 percent to 60 percent for those attending public institutions and from 50 to 58 percent for private ones. Similarly, students owing $20,000 or more rose from 9 to 19 percent. Faced with these figures, it's hardly surprising that college graduates are increasingly fixated on finding high-paying jobs than on pursuing public-service-oriented careers.

Education Consumers, unite!

So why aren't students and parents taking to the streets to demand change? This seems in part to be a by-product of the awe with which we regard academia. While Americans expect cost competitiveness and customer responsiveness from almost every other business--even the hallowed profession of medicine has lost much of its mystique--universities, particularly prestigious ones, still operate as if they are above it all. To some extent they are. Top schools can ask students to pay $20,000, $25,000, $30,000 a year, yet rest assured that people will still line up for miles to apply. The misguided notion that higher prices automatically mean higher quality--a phenomenon dubbed "the Chivas Regal effect"--may actually encourage universities to keep sticker prices high.

The Carnegie report that top universities are shortchanging undergraduates is unlikely to diminish the prestige of these schools, nor the mad scramble to attend them. In recent years, the nation's Ivy worship has reached a fevered pitch. Since the `70s, Princetons acceptance rate has gone from 17 percent to 13 percent; Yale's from 24 to 17; and so on. (Full disclosure: The author neither attended nor applied to any of the Ivies.) Parents fight to get their tots into "the right" preschool in preparation for Harvard or Princeton; authors get rich exploiting parents' anxieties with books such as A Is For Admission: The Ultimate Insider's Guide to Getting into the Ivy League and Other Top Colleges. (In a December review of this book for the Monthly, Washington Post reporter Jay Matthews notes, "Every other page bears the unmistakable message that your life may be over if you are denied admission to Brown, Columbia, Cornell, Dartmouth, Harvard, Penn, Princeton, or Yale")

But pushy parents aren't the only ones driving this phenomenon. Regardless of what one may or may not have learned at Columbia or Yale, the cachet of an Ivied diploma is powerful. Sure, the left-coast software industry may not care where its programmers went to school, but credentialism is still alive and well in a variety of professions, including law, finance, business consulting--even the media. (Just recently, a New York reporter half-jokingly asked me how I had managed to get a Washington journalism job without having attended Harvard.) Such misplaced priorities do a disservice to our society, and particularly our students. As people become more and more desperate to attend a handful of prestigious schools, they become less objective about those universities and less demanding about what they receive for their education dollar. As for outside pressure to reform, while elementary and secondary schools are constantly scrutinized and their students tested for mastery of certain information, institutions of higher learning face no such regular reviews. Students are judged primarily by the school name on their diplomas and, perhaps, the grades issued them by that university (which brings up the issue of grade inflation at top schools--but that's a whole other article). Without pressure to maintain teaching standards, universities, as the Carnegie report notes, shift their attention and resources to research, which nets them federal grant money and increases their prestige within academic circles, but does little to educate undergraduates.

Clearly, something must be done to remind universities that their primary goal should be to provide students with the best education possible--not to give professors the most free time to pursue research and certainly not to see who can beg, scrimp, and invest their way to the first trillion-dollar endowment. Of course, getting schools' attention will probably require hitting them where it hurts: their wallets. Perhaps, to help get the focus back on teaching, we should implement exit tests for graduating college seniors. Any school that failed to provide students with a basic mastery of the field in which they majored would be ineligible for federal grant money of any sort. Educators would, of course, argue that no test can truly measure intellectual development. Perhaps. But students planning to pursue professional degrees already face comprehensive tests such as the LSAT (law school), MCAT (med school), GMAT (business school), and GRE. In fact, determining if a soon-to-be-graduate knows how to "think logically"--something the Carnegie report suggests is too often not the case--is a primary aim of the LSAT A similar exam could be designed and administered to students entering college, and again just prior to graduation to measure their progress.

A less formal but equally effective measure would be for students, parents, and alumni to start demanding more for their money. Even the most nostalgic, school-spirited alumnus should be disturbed by the Carnegie report; does this generation of Elis or Princetonians deserve any less of a quality education than previous ones? Before whipping out their checkbooks to donate another $500 or $500,000, alumni might want to register their concerns with the administration. (It's amazing how attentive administrators can be when money is on the line) If visible improvements don't start to materialize, and donations start to dry up, universities will listen.

There is already some indication that public pressure does work. Just this year, Princeton, concerned about a decline in middle- and lower-income applicants, announced plans to provide more student grants as opposed to loans. Yale promptly followed suit. (Harvard did not) A handful of universities, most notably Stanford and Columbia, also pledged to stop the widespread practice of reducing' school- awarded aid to students who win scholarships from other sources. Moreover, tuition increases have slowed considerably since 1993, though this may be less the result of public pressure than the fact that inflation is so low. Such actions are a clear step in the right direction. But they are only a first step--and a relatively small one. It's time to insist that our top universities start living up to their reputations--and their pricetags. Research assistance provided by Seth Grossman.

RELATED ARTICLE: Fund-Raising 101

William H. Boardman Jr. has a job most people would find daunting. As vice president for capital giving at Harvard, Boardman oversees the procurement of "major gifts" for the university. We're not talking about calling around for contributions of $1,000, $10,000, or even $100,000. Rather, Boardman works with Harvard President Neil Rudenstein and other university bigwigs to separate prospective donors from, say, $5- or $10 million.

After 35 years in fund-raising--the last 23 of which he's devoted to Harvard--Boardman is very good at his work. Katherine B. Loker, for instance, has given $27 million to the university's ongoing fund-raising campaign. Mr. and Mrs. Leonard H. Goldenson have pledged at least $50 million. The university's stated goal is to raise $2.1 billion by the end of 1999; as of this July, $1.9 billion had already been pledged.

A bit farther south, Jotham Johnson, director of leadership gifts for Princeton, is engaged in a similar pursuit for his school--with equally impressive results. Though at first glance Princeton's $5 billion endowment pales next to Harvard's, Princeton boasts the highest per-student endowment in the nation: approximately $787,000. Princeton, too, is in the middle of a fund-raising campaign and is on track to surpass its goal of $750 million. Johnson says the secret to success is believing in your product: "One of the things that has made the asking chore easier at Princeton is that so many of the volunteers believe deeply in the experience they have had here, the mission of this university, the importance of higher education."

School spirit notwithstanding, endowment gifts don't just leap onto the desks of Boardman, Johnson, and their fellow fundraisers. More often than not, big-money givers must be identified and courted, their interests piqued, their hands held, and their egos stroked before they take that six- or seven-figure plunge. And the fund-raising apparatus the top schools have put in place to maximize such giving are enough to make the Democratic National Committee green with envy.

Contrary to popular belief, not every Harvard or Princeton alum is in a position to donate a couple of million. Separating the wheat from the chaff--a process Princeton refers to as determining an individual's "gift capacity"-- is thus the obvious first step. Explains Johnson, "Someone will say, `I think [this alumna] has a million dollars,' and we'll want to get a read on her as soon as we can ." To this end, university development offices employ staff researchers who comb through piles of data for tell-tale signs that an alum has significant giving potential. (e.g., Are they on the boards of any major corporations? Have they made big contributions to other nonprofits?) But paid staff is only a small part of the process; alumni volunteers are perhaps even more valuable. For example, before it launches a fund-raising campaign, Princeton conducts an alumni-screening effort in different regions of the country. The university gathers together 15 to 30 "proud and active Princetonians' and asks them to review a list of other alumni in their area. For each name on the list, says Johnson, attendees are asked "to give us their best indication of what they believe that person's gift capacity to be." Through its various research efforts, Princeton has determined that around 5 percent of its alumni have the capacity to make "a leadership gift," defined as $100,000 or more.

But just because someone can afford to give does not mean they are inclined to give, stress both Johnson and Boardman. Thus the care and handling of potential big donors is approached much more delicately than soliciting "the masses," as one university official put it. Before approaching a prospect, the development office tries to determine what projects might interest the person. Someone who majored in English might consider endowing a professorship in that department; other alumni are more inclined to support the football program or campus beautification. It's the challenge of discovering what prompts people to open up their checkbooks, says Boardman, that he finds most appealing about his job: "Fund-raising is an art, not a science. There's a lot of psychology involved, a lot of strategy--finding out what motivates people to want to be generous."

How a request is made is as important as the actual nature of the request. Forget the random phone calls and form letters most of us get. Big-money gifts are solicited face-to-face. Top university officials are typically involved--Boardman estimates Neil Rudenstein spends a third of his time on fund-raising--as are alumni who have themselves made a major gift. ("Peers talk to peers" is a sentiment I heard more than once.) Princeton does its leadership-gift solicitation in pairs, preferably one staffer and one alumni per potential donor, says Johnson. "We find it compelling to have a volunteer march in and explain why they're volunteering time--and perhaps mention some indication of what they are committing to the campaign," he explains.

Finally, timing is key. As at many universities, Princeton's fund-raising campaigns last five years to ensure that every graduate has a major reunion-- 5th, 10th, 15th, etc.--during the course of the campaign. "When a class has a major reunion, we make a special effort to get people back on campus," says Johnson. Nostalgia runs high at these celebrations, resulting in "huge dollar success" for the campaign.

All of this may seem a little calculated for some people's taste. But Johnson emphasizes that schools such as Princeton are competing with other causes for donations and can ill afford to become complacent in their fund-raising. "A significant number of our alumni are viewed as community leaders and are being asked to support any number of things. If we just assumed Princeton was always going to be someone's No.1 priority, it would be a serious miscalculation."

God forbid some alumnus waste his money on Jerry's Kids or the Salvation Army.
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Title Annotation:includes related article on college fundraising; top colleges concerned with their endowments
Author:Cottle, Michelle
Publication:Washington Monthly
Date:Sep 1, 1998
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