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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."
They are for empowering a small group of people.
College level should be 100% free to citizens in the USA, there is no reason at all to have to charge for classes up to associates, and it should be inexpensive to get to bachelors and beyond.
No the dean does not deserve $980,000 a year salary, he doesn't do shit. If you want to pay the coach well, base his salary on ticket sales for games.
Do not look at laser with remaining good eye.
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!
It isn't just education. It's everywhere.
In the past couple of decades, we've seen a rise in need for "administration" in the engineering field.
I've been to plenty of meetings where there have been more PMPs (or prior to the last five years, proto-PMP administrative types) than there have been engineers. I've been to technical interchanges that could have been cut down in attendance by half to two-thirds if the engineers in attendance could have been bothered to do their own damn reporting. I see that "meeting minutes" is a deliverable on any contract I'm working on.
I can't say that I get where this is coming from, whether it is because engineers don't want to be managers, or because the "everybody gets a trophy" generation required employers to start giving aspirational administrators more power for less qualification, or because contractors needed to pad out how many employees they needed on any given contract to establish perceived value, or maybe any combination of these.
But there's a perfect storm of "my small function, no matter how small, is worth an extra man-year and I will make a meal out of a nibble to justify it" going on here.
Some people don't believe in fairies. I don't believe in The Patriarchy.
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.
The annual fund manager convention must just be putting up pictures of regular people and laughing profusely.
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.
.. economics... aka "throw money at stuff to make the problem go away"...
Look, you want education to be cheaper? You need to increase the competition for education. Yale and Harvard are always going to be expensive because they're Yale and Harvard and they can get away with that. Forget them.
Focus on the schools that educate the majority of college graduates. And if you look at them you'll see they basically increase their tuition whenever you increase the subsidies. government ear marks more money for education... and tuitions go up. why wouldn't they?
The same thing happened with housing. Government ear marked a lot of money to under right loans for poor people that otherwise couldn't afford homes because they're terrible credit risks... because they're poor. Well, what happened? Housing prices went up. Because people selling homes could charge more because people were showing up with these government loans. And beyond that, supply went down which also drove prices up.
now if you kept this going long enough... eventually... you get more housing. But you've got some time to wait for that AND in teh mean time prices are going up and they're going to stay up... they'll never go down... they just go up and up and up and up.
Now if you want prices to go down... you increase supply. Which means building more universities, expanding universities... what you want is EMPTY seats. A glut of supply. And that will drive prices DOWN. Making things MORE affordable instead of less affordable.
I know I know... I said "supply side" and I've made some idiots unhappy for reasons they don't even understand. But this is basic economics, kids.
You want the universities to charge less? Increase competition so they know that if they don't lower costs they lose your butt in their seats.
And while you're at it, consider making it harder for them to give subsidized educations to people that aren't even citizens. I know I know... I'm a bad guy. But consider that if they can't put those butts in their seats it also opens room up in the university for you and your kids etc.
What you want to do is get the university talking about "how are we going to get more people in our university"... and one of the things they're going to do right off the bat is NOT raise tuition costs if they're worried about attendance. With inflation alone that will cause tuition to fall back into equilibrium in about 20 years.
But don't stop there... we have the whole online education thing which some people think is shit because there are a lot of diploma mills that like to do it that way. But these education systems are entirely viable if taken seriously.
Especially for undergraduate classes that are mostly about people sitting in a lecture, writing down notes, and turning in some stuff that is graded by a teacher's aid. All of that stuff you can encourage into online classes. Possibly do it through the community college programs but push it really hard. Make federal funding for public universities/colleges contingent on their participation. Don't specify which software they have to use. By all means give them something they can use for free provided by the feds if you want. But whatever the feds come up with is going to be inferior to what some university either independently develops or contracts. Its theoretically possible that it won't work out that way but its historically unlikely.
The point here is drop costs. Just jack the supply up to hard that the universities have to cut fees to keep the crickets from taking over.
I've decided to stop wasting my time responding to AC trolls/sockpuppets... so if you want a response from me... login.
Colleges are being run like businesses, not education centers. That in of itself is not a problem. However couple that with the multiple other factors: they can milk state and local governments for gobs of money via "financial aid", they can charge their financially incompetent students (customers) a ridiculous amount of tuition and they rarely say no because they can just borrow it and pay later, and they themselves are often rated on how much they cost. Colleges and universities are not even expected to prove their "value". They just make some BS marketing and some numbers out of thin air or bending existing ones and then get in trouble for it by some government watchdog a half decade later. I mean, how can this freaking NOT end up as a disaster?
For Pete's sake, even the "non profit" "Catholic" college I went to, established in 1870, originally run by humble Jesuits, no longer has any Jesuits running the place. In fact 3-4 years after I graduated the replaced the damn Jesuit president with guess who? Mr. MBA man who has a background of being CEO of profitable businesses, a proven track record of raising tons of money, and making sound financial decisions and investments. I gave them a piece of my mind next time they called me and asked for donations, which I halted immediately. Their tuition has more more than doubled in a span of 10 years. When I went it was a tall $17K/yr... it's now a ludicrous $35K/yr. From what I've read, all of that money is not being spent on students nor faculty. No it's going to their precious endowment fund.
I know the government has done minor things like require colleges to post Net Price Calculators but that's almost pointless. You could have researched that information prior to that law being passed if you were determined enough to do it. IMHO, what they should really do is require them to create a ranking and scoring system they all have to abide by. Post entry-graduation rates, by year, by field/career, indicating how many attained jobs in each respective field or whether they had to leave their field, and how long it took. I'm sure prospective students would love that, especially if they could also see what graduates are getting paid as their salaries though that's a slightly too invasive. At least with this they could compare colleges apples to apples, on equal footing. Students could truly shop around and see what their dollar could get them.
That's one way to look at it. I'm not an expert on investing, but I do invest. I view it differently. Hoarding would be sitting on a mountain of money. But they are paying private equity fund managers to handle the money. What does that mean? It means the money, hardly from "sitting-around", is being invested into the market -- helping fund startup companies, investing in real-estate, providing capital for companies to invest in innovation, and whatever else may give a return. The return on investment is a constant source of income for the university. If the university spent all the money it would be gone and that constant stream of income would dry-up.
The analysis misses the real issue. Endowments are indeed spent and support perpetual operations. This has been attacked on several grounds and for various reasons, but in essence, if we accept that subjects like physics will always require future generations of teachers and researchers, there is no reason to inherently object to stable funding sources for this purpose.
However, since the 1970's (and periodically earlier), there has been a serious, problematic, society-wide trend: an increasing and now dominant fraction of the 'economy' is 'finance.' In theory, connecting every part of the economy with finance increases efficiency as money flows more freely. In practice, it all flows through certain hubs where frictions profit the finance professionals; their share of the pie has increased greatly. Is it disproportionate to the benefit of finance? That can be debated; but not up for debate is that yields and inflation will eat away at endowments if they don't get on that treadmill. You can't keep money in a savings account anymore; interest rates are too low to account for inflation. Only markets will do. With lots of money, the difference between a good return and a great return turns out to be game-changing compared to other factors like new donations. The only question left is whether 'good' investment professionals do a better job than 'mediocre' ones. If the good ones do a better job, then hiring them makes necessary sense - it would be incompetence to not - and their salaries are simply a tax taken by the finance sector, shared by people across the economy. You either pay at the bridge, or you pay by not being able to use the bridge.
The hoary trope about hoarding is usually a good indicator of someone trying to get hands on the money; as an aside.
College level should be 100% free
WHY?!?!?!
So a college degree will become as worthless as a high school diploma?
What's the point? If you didn't bother to learn in high school, you ain't gonna learn in college.
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
When (if) you retire, at some point the IRS will require you to start withdrawing money from your various retirement savings accounts regardless of the need.
These university funds should retain their tax exempt status for a limited time, after which some percentage is required to be spent on out right grants or taxed and the proceeds going to the state university system.
When Fascism comes to America, it will call itself Anti-Fascism, and tell you to give up your guns.
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.
The government already throws massive sums at the education system. I am suggesting shifting the subsidies... not totally... that would be disruptive... but gradually and incrementally to subsidize construction and expansion of universities to increase supply.
So I would slowly be scaling back demand while scaling up supply.
As to why they aren't expanding already, they are... sorta.
As to the upshift in demand from government loans, that's actually mostly what I'm talking about. Those loans are probably a bad idea in practice.
Its good politics... it sounds good... give money for poor kids to go to college. Great optics. But the problem is that the universities just jack up their tuitions whenever that happens by pretty much exactly whatever they can get away with... so kids that previously might have been able to get themselves through college by working a job and taking classes... can't anymore. And families that could have put their kid through college or had college savings... now need subsidies. And the university will take all the money the family or student can provide PLUS whatever the government will give them... and that's just how it works.
That's the problem with demand side subsidies. You create a feed back loop where all you do sometimes is just make things more expensive for no reason.
Demand side subsidies CAN be good sometimes. It depends. But when the subsidies start getting big, that's a warning sign that a feedback loop is in operation. And there isn't enough money in the universe to overwhelm it... Throw any amount of money at it and they'll just ram their prices to the new plateau.
You could set a price and then demand that schools that wish to be eligible for the scholarships and loans not increase tuition faster than inflation. That would stop the feedback loop... probably. But maybe not... it might just suck up supply from participating schools thus increasing demand in the market in general... thus... non-participating schools would jack up their prices and at some point that might create serious problems with a two tier market... schools that were charging more maybe could pay professors more which would do things to competition for professors which would have impacts on the prestige of one school versus another which might drive students to go to a non-participating school...
Its complicated. Demand side subsidies are dangerous and you have to be careful with them. You CAN use them effectively and safely and sustainably. BUT... you have to not be a jackass about it and realize there are serious dangers of it getting out of control.
I've decided to stop wasting my time responding to AC trolls/sockpuppets... so if you want a response from me... login.
College level should be 100% free to citizens in the USA
It's not free. Someone has to pay for it and frankly the students should have some skin in the game. Students who don't have to pay for their tuition routinely put less effort into it. It's almost a cliche. I agree that college tuitions have gotten WAY out of hand but I don't think it should be free either. Providing a quality education does cost money and people don't tend to value things they don't have to pay for.
No the dean does not deserve $980,000 a year salary, he doesn't do shit. If you want to pay the coach well, base his salary on ticket sales for games.
I have no problem with colleges paying market rates for talent. If that is a big number then so be it. What I have a HUGE problem with however is colleges raising tuitions to pay for things that have little to do with educating students. Want to pay the big name coach so the college can be in the business of professional football? Fine - no tuition money goes to his salary and you have to enable the athletes who are effectively university employees to earn a market rate too. Want to pay the dean a huge salary? That's fine but no tuition money goes to him unless he's doing actual work regarding educating students. Research is explicitly not educational in most cases.
I also think state colleges should actually be funded adequately to keep tuition costs reasonable but the funding streams for that should be kept separate from funding streams for research or athletics or social outreach or other non-academic goals.
The 2% amounted to $137M and 20% of the growth was $343M, which means that the managers' efforts increased the size of the endowment by $1.7B.
No that is not at all phenomenal and in fact is probably worse than simple index investing and almost certainly has little to do with their efforts. Using your numbers the fund grew by [(1.7-0.343)/(8-1.7)-1]=21.5%. Depending on the exact year in question putting the money in a simple broad US stock market ETF such as one offered by Vanguard would have generated a 33.51% increase in 2013 and 12.58% in 2014 and if this is the amount paid in 2014 it will likely include some or all of the 2013 gains because you cannot pay before you know what the gain is.
Doing this would have cost them a 0.05% expense. It's really easy to make "phenomenal" returns when the stock market is rising as much as it has in the past few years. What I do not understand is why they are paying such exorbitant expenses and, if they want to offer a bonus it should be based on performance above the market not just the total increase which has little to do with a manager's performance.
When money is donated to the university, it is categorized into buckets like facilities, capital projects, scholarships, salaries, etc. Some of these things get spent right away or put into a fund that is spent over a short period of time. But certain categories, like scholarships, faculty positions, and some staff positions, can be endowed so that they live on in perpetuity. These endowments need to be large because they fund these based on the capital gains of the investment. The university I work at has almost 200 endowed faculty positions and a TON of endowed scholarships. You need a large investment to have enough returns for to function given market fluctuations. Our board of directors is tight with the endowment because it is a well oiled machine does directly impact the students - and yes it does affect tuition in the form of financial aid grants. It's long term investment and anybody who invests knows that you don't fiddle with your investments for short term gains.
The main cost of tuition is keeping the university running. Most faculty and staff positions are not covered by endowments. Our endowed faculty is under 10% of our total faculty and staff count. Students want less students per class. They want better access to professors and not to be taught by assistants. They want every electronic service imaginable. Both students and parents want electronic front ends to everything. The IT staff to support all of these is not cheap. Universities are not the universities from 50 years ago.
Those edge case high salaries are a pain, yes. It irks me when I see our president's salary publicised. But, it irks me from more of an honor sake. When our university says it is trying to adjust our operating expenses to give the lowest tuition possible and those insane salaries remain untouched, it is somewhat hypocritical in my eyes. In reality though, I don't see it making much change in tuition for the students. Say there are 10 employees making $1M a year. If we cut that in half, that is $5M a year that can go towards a tuition cut. That's huge if you have a school of 500 but nothing if you have a school of 20k. But, from a PR point of view, it affects perception. Coaches have a different job and can get whatever salary they earn because they are a money generating entity all in themselves.
University education should be free. And in some countries it is.
It is NEVER free. Someone somewhere is paying for it. There is no such thing as a free education. Furthermore people tend not to value things they don't have to pay anything for. I think students should have some financial skin in the game. I have no problem with the cost of an education being subsidized through taxes or donations or other funding but I don't think the cost to the student should be zero. Modest? Yes. Zero? No.
Bigger list:
https://en.wikipedia.org/wiki/List_of_colleges_and_universities_in_the_United_States_by_endowment
If Congress wants to help pay for college, stop backing new student loans to any university whose tuition went up more than 2% last year
With non-teaching jobs well in excess of 50% of total employment at most universities, this is how you slam on the brakes.
It's easy to nickle dime 8% annual increases -- nobody wants to pay for a $2000 nav radio for their car, but an additional $35 a month, sign me up!
(-1: Post disagrees with my already-settled worldview) is not a valid mod option.
The reply that you replied to was trying to point out that the article doesn't even understand how endowments work.
Yes, they go towards salaries. The person who donated $10M said they were donating specifically for that purpose. The university cannot touch that money for any other reason. They money does not, usually, go towards new buildings. There is a specific division tasked with raising funds for capital projects. They also go towards scholarships - which does go directly towards tuition. The university has to either pay a fee or hire fund managers directly. They get a great return on investment, so their fund managers usually know what they're doing. Endowments are not a bank account. They are an investment put in place so that the funding of something occurs from the capital gains. A $1B endowment can maybe get $200M on a good year and that goes and pays a lot of professors (directly resulting in lower tuition costs) and scholarships (directly resulting in lower tuition costs). Some of the capital gains are put back into the fund to repair losses from other years. The ratio is way over 50% directly benefitting the students.