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Stopping Universities From Hoarding Money
HughPickens.com writes: Victor Fleischer writes in the NYT that university endowments are exempt from corporate income tax because universities support the advancement and dissemination of knowledge. But instead of holding down tuition or expanding faculty research, endowments are hoarding money. Last year, Yale paid about $480 million to private equity fund managers for managing about $8 billion, one-third of Yale's endowment. In contrast, of the $1 billion the endowment contributed to the university's operating budget, only $170 million was earmarked for tuition assistance, fellowships and prizes. Private equity fund managers also received more than students at Harvard, the University of Texas, Stanford and Princeton.
Fleischer, a professor of law at the University of San Diego, says that as part of the reauthorization of the Higher Education Act expected later this year, Congress should require universities with endowments in excess of $100 million to spend at least 8 percent of the endowment each year. Universities could avoid this rule by shrinking assets to $99 million, but only by spending the endowment on educational purposes, which is exactly the goal. According to a study by the Center for College Affordability and Productivity a minimum payout of 5 percent per annum, would be is similar to the legal requirement for private and public foundations. "The sky-high tuition increases would stop, and maybe even reverse themselves. Faculty members would benefit from greater research support. University libraries, museums, hospitals and laboratories would have better facilities," concludes Fleischer. "We've lost sight of the idea that students, not fund managers, should be the primary beneficiaries of a university's endowment."
Fleischer, a professor of law at the University of San Diego, says that as part of the reauthorization of the Higher Education Act expected later this year, Congress should require universities with endowments in excess of $100 million to spend at least 8 percent of the endowment each year. Universities could avoid this rule by shrinking assets to $99 million, but only by spending the endowment on educational purposes, which is exactly the goal. According to a study by the Center for College Affordability and Productivity a minimum payout of 5 percent per annum, would be is similar to the legal requirement for private and public foundations. "The sky-high tuition increases would stop, and maybe even reverse themselves. Faculty members would benefit from greater research support. University libraries, museums, hospitals and laboratories would have better facilities," concludes Fleischer. "We've lost sight of the idea that students, not fund managers, should be the primary beneficiaries of a university's endowment."
So they are spending almost three times as much on bankers to keep their money safe than on the education of students!
Also 6% seems a very high price to manage money. Where they getting a return on investment of 12%?
Or is this the old boys club where they are shoving student's money around to justify higher wages for themselves?
Thank you, Bradley Manning, Edward Snowden and so many others, for courageously defending humanity, my freedom and more!
In most Latin American countries, the best universities are fully or partly State-run. Tuition is often free or symbolic up to Bachelors, and for posgraduate studies it is still *really* cheap by US standards — i.e. I'm studying a Masters degree in the second most important university in Mexico, and pay less than US$100 per semester. Of course, that's because I chose not to be a full-time student; as I would automaticallyreceive a grant of ~US$600 per month.
I expect that the "hoarding money" is confined to the Ivy League Universities, and by the time you get to Texas A&M and the like they are desperately trying to get funds and have no spare money to hoard. It would be interesting to know the spread in funding.
It would be interesting to know the spread. Per U.S. News, here it is (2013 figures):
http://www.usnews.com/educatio...
Harvard is #1 at $32B
Texas A&M is #8 at $8B
That is just crazy. These are not high-risk/return investments funds. Just load up on a diversified bluechip portfolio, and make sure you follow all the other sheep so that you can't be singled out for getting something wrong.
Will that strategy net you a 20% return on your investment? Because that's what Yale's fund managers achieved.
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Google: "What is a university endowment"
A: Endowments represent money or other financial assets that are donated to universities or colleges. The sole intention of the endowment is to invest it, so that the total asset value will yield an inflation-adjusted principal amount, along with additional income for further investments and supplementary expenditures.
It is a donation that is invested. It is a donation that you cannot guarantee will be given every year. You grow this money so you will have a stable amount of income into the future.
A university is an institution. It is in the business of educating intelligent people, by retaining intelligent people. If you have a large endowment why should a congress that cannot balance a budget tell you how to spend your money?
Please remember not all universities have huge endowments. Many prestigious universities have large endowments ( snark ), from wealthy alumni, or wealthy people in the state that just like that university and left them money. These often one time investments are MEANT TO LAST. so you invest them. You do the smart thing and use 1% and try to gain 8% every year. A university can survive 100's of years so it can apply good financial practices. This is why endowments have boards that review how the money is used and invested and those boards do it for free or a small nominal amount.
A little maths:
( if you cannot grow your money )
1 billion fund spent over 100 years: 1% is only 10 million a year
10 million fund spent over 100 years : 1% is 100k a year
The hope is to grow your money on average by 7% a year. And thats a big HOPE nowadays. Leave them alone, because otherwise those same universities will be broke in 30 years cause they spent the money now for a short term drop in tuition and facilities with no way to replace that money.
Bigger list:
https://en.wikipedia.org/wiki/List_of_colleges_and_universities_in_the_United_States_by_endowment