Mean-spirited Universities Sit on Cash

Our Democratic friends in the House of Representatives recently passed an education bill to take $18 billion away from the evil student loan industry and give it to students.  We at Road to the Middle Class have criticized them for this, a mindless shoveling of more cash and subsidies to the universities. Now Senator Kennedy is pushing the bill through the Senate.

But that’s not the real problem, writes Lynne Munson.  The problem is that universities are sitting on piles of cash, like Scrooge, watching it grow through the magic of compound interest.  But do they spend it?  Oh no. 

The value of college and university endowments skyrocketed 17.7 percent last year, while private foundation assets increased 7.8 percent. Just 3.3 percent of the increase in academic endowments is attributable to new gifts. Most of the gain is a result of stingy, outdated endowment payout policies that retain and perpetually re-invest massive sums.

Regular private foundations are required to spend out five percent of their endowments every year.  But universities only average a four percent payout.

How does that work out in an actual university?  Munson takes a look at Stanford.

Stanford University spends $76 million on undergraduate financial aid, a sum that sounds generous but amounts to a mere 0.5 percent of the value of its endowment. The university spends just 4 percent of its $14 billion endowment toward operating expenses. If the 5 percent payout rule required Stanford to spend another 1 percent of its endowment, and that money was directed toward financial aid, students would enjoy $211 million in additional support. That is precisely the cost of letting all 6,600 Stanford undergraduates attend tuition-free.

We know why the select universities all charge tuition.  They charge because people will pay it.  Parents are willing to pay big bucks to get their children into Stanford and other select colleges.  Although colleges talk a good game about diversity and broadening access to higher education, in reality they charge whatever the traffic will bear.

Anyway Congress has the whole thing well in hand.  It’s the student loan companies that are to blame!