tag:theconversation.com,2011:/us/topics/university-endowments-25023/articlesUniversity endowments – The Conversation2021-09-22T13:14:02Ztag:theconversation.com,2011:article/1678682021-09-22T13:14:02Z2021-09-22T13:14:02ZHarvard’s decision to ditch fossil fuel investments reflects changing financial realities and its climate change stance<figure><img src="https://images.theconversation.com/files/422454/original/file-20210921-21-1f8rw8a.jpg?ixlib=rb-1.1.0&rect=0%2C882%2C4439%2C1663&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Students had demanded for years that Harvard University divest from fossil fuels.</span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/students-demanding-that-harvard-university-divest-from-news-photo/660543058">Keith Bedford/The Boston Globe via Getty Images</a></span></figcaption></figure><p>Harvard University will keep <a href="https://www.thecrimson.com/article/2021/9/10/divest-declares-victory/">phasing out all investments tied to oil, gas and coal</a>, it announced on Sept. 9, 2021. When <a href="https://www.harvard.edu/president/news/2021/climate-change-update-on-harvard-action/">Larry Bacow</a>, the school’s president, announced this plan, he cast it as a response to climate change – part of a broader trend that’s gaining steam among <a href="https://www.cnn.com/2020/05/20/us/university-of-california-divest-fossil-fuels-trnd/index.html">many large institutions with endowments</a>.</p>
<p>“We must act now as citizens, as scholars and as an institution to address this crisis on as many fronts as we have at our disposal,” he wrote. </p>
<p><a href="https://www.thecrimson.com/article/2021/9/10/divest-declares-victory/">Climate activists on and off Harvard’s campus</a> called the announcement a victory in response to their yearslong campaign demanding fossil fuel divestment.</p>
<p>But as a law professor who writes and researches about the role <a href="https://papers.ssrn.com/sol3/cf_dev/AbsByAuth.cfm?per_id=557612">climate change considerations can play in investments</a> held by universities, foundations and other large institutions, I instead see it as part of a bigger story. Investing with climate change in mind is now an accepted practice for endowments, whether or not an institution uses the word divestment to describe this strategy. </p>
<h2>No quick shift</h2>
<p>Interestingly, Bacow didn’t say Harvard is divesting from fossil fuels.</p>
<p>Instead, he explained that less than 2% of its <a href="https://finance.harvard.edu/files/fad/files/fy20_harvard_financial_report.pdf">roughly US$42 billion endowment</a> is connected to those industries, through stakes in <a href="https://www.investopedia.com/ask/answers/121614/what-difference-between-hedge-fund-and-private-equity-fund.asp">private equity funds</a>. These indirect investments will soon be phased out, and Harvard will not acquire any new assets with fossil fuel exposure in the future, its president said.</p>
<p>“We do not believe such investments are prudent,” Bacow said.</p>
<p>And that is not a sudden change. The university’s declared intention to shed its fossil fuel holdings is the continuation of a longstanding strategy. Several months earlier, in <a href="http://www.hmc.harvard.edu/content/uploads/2021/02/2021-Climate-Report.pdf">February 2021</a>, Harvard had said it no longer “had direct exposure to companies that explore for or develop further reserves of fossil fuels.”</p>
<p>The term divestment is generally <a href="https://www.investopedia.com/terms/d/divestment.asp">used in business</a> to refer to selling an asset or the division of a company. In this context, it means selling off stocks, bonds and other assets held in an investment portfolio tied to a specific industry <a href="http://www.jstor.org/stable/44282151">based on ethical reasons</a> – rather than for financial motives.</p>
<p>Some schools, including <a href="https://www.rutgers.edu/news/rutgers-divest-fossil-fuels">Rutgers University</a> and <a href="https://www.insidehighered.com/quicktakes/2020/04/22/american-u-divests-fossil-fuels">American University</a>, have followed a strategy similar to Harvard’s and called it “divestment.” </p>
<p>Harvard, however, has refused – even now – to use that word. As a result, students, faculty and others had continued to <a href="https://www.npr.org/2021/09/10/1035901596/harvard-university-end-investment-fossil-fuel-industry-climate-change-activism">pressure Harvard to divest</a>, even after it began to <a href="https://www.harvardmagazine.com/2021/09/did-harvard-climate-announcement-mean-divestment">move in this direction in 2008</a>.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/422456/original/file-20210921-21-7nhawy.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Harvard University President Larry Bacow speaking before a microphone" src="https://images.theconversation.com/files/422456/original/file-20210921-21-7nhawy.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/422456/original/file-20210921-21-7nhawy.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/422456/original/file-20210921-21-7nhawy.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/422456/original/file-20210921-21-7nhawy.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/422456/original/file-20210921-21-7nhawy.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/422456/original/file-20210921-21-7nhawy.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/422456/original/file-20210921-21-7nhawy.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Harvard University President Larry Bacow avoided the word ‘divestment’ when he explained what the school’s investment strategy is for fossil fuels.</span>
<span class="attribution"><a class="source" href="https://newsroom.ap.org/detail/HarvardMedalists/cdc849fc4b554de899b01bb7547e94eb/photo?boardId=37be9465fcce45d283d5431cccb20a6a&st=boards&mediaType=audio,photo,video,graphic&sortBy=&dateRange=Anytime&totalCount=179&currentItemNo=1">AP Photo/Elise Amendola</a></span>
</figcaption>
</figure>
<h2>What changed?</h2>
<p>Investing with climate change in mind, or, more broadly, the use of strategies for sustainable and responsible investing, has <a href="https://dx.doi.org/10.2139/ssrn.2656640">undergone a transformation</a> and <a href="https://www.marketwatch.com/story/esg-investing-now-accounts-for-one-third-of-total-u-s-assets-under-management-11605626611">become far more common</a> in recent years.</p>
<p>Investing that incorporates <a href="https://www.cfainstitute.org/en/research/esg-investing">environmental, social and governance</a> factors into decision-making, known as ESG investment, may mean avoiding a company because that information indicates uncompensated financial risk.</p>
<p>Since many people are used to thinking of climate or environmental factors as nonfinancial, the idea of using environmental information in an investment decision sounds risky, but it need not be. The environmental information is added to traditional financial metrics, with a goal of improving financial returns or reducing financial risk.</p>
<p>Efforts to act on concerns about climate change and its <a href="https://www.weforum.org/agenda/2021/06/impact-climate-change-global-gdp/">serious financial consequences</a> are creating good investment opportunities that might help investors make money too. A study that looked at 35 university endowments that divested from fossil fuels – whether they called it that or not – found that refraining from investments in those industries <a href="https://dx.doi.org/10.2139/ssrn.3501231">generally didn’t affect endowment performance</a> from 2011 to 2018.</p>
<p>Aligning an organization’s investments with its mission has also become a more common and accepted practice for charities – a <a href="https://www.charitynavigator.org/ein/042103580#:%7E:text=Harvard%20University%20is%20a%20501,and%20donations%20are%20tax%2Ddeductible.">category of nonprofits that includes Harvard</a> and thousands of other universities.</p>
<p>The <a href="https://nonprofitlawblog.com/foundation-new-rules-mission-related-investments/">Internal Revenue Service has issued guidance</a> regarding how charities, as long as certain conditions are met, may use investments to help carry out their missions – not just to produce income. Indeed, the IRS said that some charities can earn a <a href="https://www.irs.gov/pub/irs-drop/n-15-62.pdf">below-market return on their investments</a> due to practices that are tied to their missions. </p>
<p>For example, a charitable organization seeking to improve air quality can invest its holdings in wind, solar and other forms of renewable energy. Even if those investments might appear bound to produce a smaller return than other kinds of assets, which <a href="https://www.investopedia.com/investing/wind-stocks/">could prove to be an unfounded fear</a>, the investment should nonetheless be considered prudent because it carries out the organization’s mission.</p>
<p>That is why I was intrigued to see that <a href="https://www.harvard.edu/president/news/2021/climate-change-update-on-harvard-action/">Bacow’s open letter</a> to the Harvard community recognized that seeking to slow climate change is connected with the university’s mission. Its endowment “is building a portfolio of investments in funds that support the transition to a green economy,” he wrote.</p>
<p>The letter also emphasizes Harvard’s mission: “The principal way we influence the world is through our research and teaching,” Bacow wrote.</p>
<p>As complicated as strategies for using a university’s endowment to address climate change may prove, I expect to see other schools following Harvard’s lead.</p>
<p>[<em>Get the best of The Conversation, every weekend.</em> <a href="https://theconversation.com/us/newsletters/weekly-highlights-61?utm_source=TCUS&utm_medium=inline-link&utm_campaign=newsletter-text&utm_content=weeklybest">Sign up for our weekly newsletter</a>.]</p><img src="https://counter.theconversation.com/content/167868/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Susan Gary has served on the Steering Committee of the Intentional Endowments Network and currently serves on the Fiduciary Duty and Policy Group of that organization. She has served on the Advisory Committee of the NYU National Center on Philanthropy and the Law. In 2017 she received a grant from the Rockefeller Foundation to be an Academic Writing Resident Fellow at the Bellagio Center, where she worked on an article about fiduciary duties and ESG investing.</span></em></p>The announcement didn’t use the word ‘divest.’ A legal scholar explains why that shouldn’t matter.Susan Gary, Professor Emerita of Law, University of OregonLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1628372021-06-24T12:09:26Z2021-06-24T12:09:26ZHow the billions MacKenzie Scott is giving to colleges attended by students of color will help everyone in America<figure><img src="https://images.theconversation.com/files/407765/original/file-20210622-25-1afat81.jpg?ixlib=rb-1.1.0&rect=0%2C423%2C1785%2C1171&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Scott is giving dozens of predominantly nonwhite schools their biggest donations ever, including Chaffey College in Rancho Cucamonga, Calif.</span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/melissa-gomes-right-fixes-the-tassel-as-new-graduate-sarah-news-photo/1215219419">Irfan Khan/Los Angeles Times via Getty Images</a></span></figcaption></figure><p>When billionaire <a href="https://www.highereddive.com/news/mackenzie-scott-announces-more-donations-to-colleges-higher-ed-groups/601843/">philanthropist MacKenzie Scott</a> announced her third round of charitable gifts in June 2021, she said she was giving US$2.7 billion to 286 organizations. This list includes 31 colleges and universities serving people of color and other underserved communities.</p>
<p>That’s on top of the $4.2 billion <a href="https://www.insidehighered.com/quicktakes/2020/12/16/mackenzie-scott-gives-away-42-billion-and-colleges-rejoice">Scott announced in December 2020</a> to support 384 organizations, including 30 colleges and universities. Her <a href="https://mackenzie-scott.medium.com/116-organizations-driving-change-67354c6d733d">initial plan, announced in July 2020</a>, included $1.7 billion for 116 organizations, including several Historically Black Colleges and Universities and other <a href="https://www.doi.gov/pmb/eeo/doi-minority-serving-institutions-program">minority-serving institutions</a>.</p>
<p>For example, Scott is giving Xavier University of Louisiana, a school that <a href="https://www.nytimes.com/2015/09/13/magazine/a-prescription-for-more-black-doctors.html">sends more Black graduates to medical school</a> than any other university in the U.S., <a href="https://www.bizneworleans.com/ex-wife-of-amazon-founder-donates-20m-to-xavier/">$20 million</a>; <a href="https://datausa.io/profile/university/long-beach-city-college">Long Beach City College</a>, a California school where more than 85% of students are people of color, <a href="https://www.lbcc.edu/press-release/lbcc-receives-historic-30-million-gift-philanthropist-mackenzie-scott">$30 million</a>; and <a href="https://www.cbs7.com/2021/06/15/odessa-college-receives-7-million-donation-mackenzie-scott/">Odessa College</a>, a Texas school where <a href="https://datausa.io/profile/university/odessa-college">74% of students are nonwhite</a>, $7 million. All three colleges said Scott’s donations were the largest they had ever received.</p>
<p>As a counseling psychology professor <a href="https://scholar.google.com/citations?hl=en&user=nr_dqLUAAAAJ&view_op=list_works&sortby=pubdate">who conducts research regarding the education of Black students</a>, I am encouraged to see Scott, a novelist who was formerly married to Amazon founder Jeff Bezos, depart from how billionaires tend to approach their higher education giving. <a href="https://thebestschools.org/features/most-generous-alumni-donors/">Most make donations to prestigious universities</a> that already have <a href="https://www.investopedia.com/ask/answers/how-do-university-endowments-work/">large endowments</a> – money raised from alumni and other donors that they invest in stocks, bonds and other assets. This wealth can cover the cost of scholarships, salaries, construction and any other expenses. </p>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/407758/original/file-20210622-25-x1jfgz.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="MacKenzie Scott and her husband Dan Jewett" src="https://images.theconversation.com/files/407758/original/file-20210622-25-x1jfgz.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/407758/original/file-20210622-25-x1jfgz.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=600&fit=crop&dpr=1 600w, https://images.theconversation.com/files/407758/original/file-20210622-25-x1jfgz.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=600&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/407758/original/file-20210622-25-x1jfgz.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=600&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/407758/original/file-20210622-25-x1jfgz.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=754&fit=crop&dpr=1 754w, https://images.theconversation.com/files/407758/original/file-20210622-25-x1jfgz.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=754&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/407758/original/file-20210622-25-x1jfgz.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=754&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">MacKenzie Scott’s new husband, Dan Jewett, has joined her in a pledge to give away most of their fortune.</span>
<span class="attribution"><a class="source" href="https://givingpledge.org/Pledger.aspx?id=393">Giving Pledge</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc-nd/4.0/">CC BY-NC-ND</a></span>
</figcaption>
</figure>
<h2>Most wealthy people donate to wealthy schools</h2>
<p>Mike Bloomberg, for example, <a href="https://www.vox.com/future-perfect/2018/11/19/18102994/michael-bloomberg-johns-hopkins-financial-aid-donation">donated $1.8 billion</a> to John Hopkins University, his alma mater, in 2018. Notably, <a href="https://doi.org/10.7709/jnegroeducation.85.2.0097">that prestigious school receives</a> more money from federal grants than all of the nation’s 100 HBCUs combined.</p>
<p>Similarly, I question how donations to Harvard University, such as the <a href="https://www.thecrimson.com/article/2018/3/7/zuckerberg-donates-30million/">$30 million</a> from Facebook co-founder Mark Zuckerberg and his wife, Priscilla Chan, can be considered charitable when it already has <a href="https://www.harvardmagazine.com/2020/09/harvard-endowment-41-9-billion-on-7-3-percent-investment-return">$41.9 billion in its endowment</a>. Harvard earned a 7.3% return on its endowment assets for its fiscal year that ended in June 2020 – about $3 billion.</p>
<p>Interestingly, I’ve calculated that the <a href="https://nces.ed.gov/ipeds/Help/View/1">total combined annual operating cost of all private HBCUs</a> is also about $3 billion.</p>
<h2>Fewer students of color attend ‘national universities’</h2>
<p>U.S. News and World Report considers <a href="https://www.usnews.com/education/best-colleges/articles/rankings-faq">389 schools to be “national universities</a>” <a href="https://carnegieclassifications.iu.edu/">because of their stature</a> and academic offerings. These universities are more likely to receive charitable contributions than others because of their reputation and the large number of affluent people who graduate from them. But these colleges and universities represent <a href="https://www.urbanedjournal.org/education/how-many-colleges-are-in-the-us-numbers-of-colleges-and-educational-institutions/">fewer than 10% of all institutions of higher education</a>.</p>
<p>When I analyzed <a href="https://nces.ed.gov/ipeds/use-the-data">raw data files from the leading federal database for educational data</a>, I found that students of color are less likely to enroll at national universities than their white peers.</p>
<p>I also found that the schools enrolling the most students of color are more likely to be two-year colleges as opposed to a four-year institution; less likely to be prominent research universities; more likely to have significantly high percentages of low-income students; and more likely to have smaller-than-average endowments.</p>
<p>When announcing Scott’s historic donations, many colleges and universities have noted their success with graduating science, technology, engineering and math students.</p>
<p>Florida International University, for example, announced that Scott’s $40 million gift will be used for “<a href="https://news.fiu.edu/2021/mackenzie-scott-makes-a-40-million-gift-to-fiu-that-will-transform-the-student-experience">student success programs</a>.” That school noted its number 6 ranking in terms of awarding engineering degrees to African Americans and the high percentage of its Latino students who earn STEM degrees.</p>
<p><a href="https://affordableschools.net/25-largest-hbcu-bachelors-colleges-enrollment/">North Carolina A&T</a>, the nation’s largest HBCU, announced plans to spend Scott’s <a href="https://abc11.com/mackenzie-scott-worth-who-is-north-carolina-a--t-university-winston-salem-state/8818615/">$45 million donation</a> in “<a href="https://www.ncat.edu/news/2020/12/mackenzie-scott-donation.php">areas of critical national need, including professions in STEM</a>.” The selection of multiple HBCUs, Hispanic-serving and tribal colleges with a track record of graduating underrepresented STEM students seems intentional.</p>
<p>What’s more, recent data suggests that <a href="https://www.nap.edu/catalog/25257/minority-serving-institutions-americas-underutilized-resource-for-strengthening-the-stem">prominent national universities are not graduating enough students</a> overall, apart from racial, ethnic and class considerations, to satisfy the needs of the future workforce.</p>
<p>In 2019, the National Academies of Sciences, Engineering, and Medicine predicted that the <a href="https://www.nap.edu/catalog/25257/minority-serving-institutions-americas-underutilized-resource-for-strengthening-the-stem">nation will need 1 million</a> more STEM professionals than are on pace to earn higher education degrees in the 2020s.</p>
<p>The National Science Board, the governing board for the National Science Foundation, called this impending shortage of STEM professionals the “<a href="https://www.nsf.gov/nsb/news/news_summ.jsp">missing millions</a>.” It passed a resolution to address the “urgent need” for more underrepresented groups in the U.S. science and engineering workforce.</p>
<p>A STEM workforce that represents the diversity of the U.S. population can <a href="https://itif.org/publications/2019/09/12/why-federal-rd-policy-needs-prioritize-productivity-drive-growth-and-reduce">contribute to economic growth</a>. Washington Center for Equitable Growth <a href="https://live-equitablegrowth.pantheonsite.io/wp-content/uploads/2015/02/10153405/0115-ach-gap-report.pdf">estimated</a> the nation could earn $5.3 trillion in increased tax revenue from a more skilled workforce if we closed the achievement gap in math and science over the next 60 years. Similarly, a <a href="https://files.eric.ed.gov/fulltext/ED526954.pdf">Harvard University report</a> estimated, by calculating national income projections over an 80-year period, the U.S. would add $75 trillion to the GDP if math education was equal.</p>
<p>There are <a href="https://www.nap.edu/catalog/25257/minority-serving-institutions-americas-underutilized-resource-for-strengthening-the-stem">more than 700 minority-serving institutions</a> across the U.S. These <a href="https://www.nap.edu/catalog/25257/minority-serving-institutions-americas-underutilized-resource-for-strengthening-the-stem">colleges and universities enroll nearly 30%</a> of all undergraduates in America. Learners of color, research indicates, <a href="https://doi.org/10.7709/jnegroeducation.82.4.0359">find such schools to be more accessible and welcoming</a> than primarily white schools.</p>
<p>What’s more, about <a href="https://doi.org/10.1177%2F1521025117690159">half of the students attending minority-serving institutions</a> get Pell Grants, which help cover educational costs for low-income students. And they enroll many students who are the <a href="https://cmsi.gse.rutgers.edu/content/brief-history-msis">first in their families to go to college</a>.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/407760/original/file-20210622-21-pe95se.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="A masked woman and man speak under a spotlight in a booklined room" src="https://images.theconversation.com/files/407760/original/file-20210622-21-pe95se.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/407760/original/file-20210622-21-pe95se.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/407760/original/file-20210622-21-pe95se.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/407760/original/file-20210622-21-pe95se.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/407760/original/file-20210622-21-pe95se.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/407760/original/file-20210622-21-pe95se.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/407760/original/file-20210622-21-pe95se.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">U.S. Energy Secretary Jennifer Granholm speaks with Howard University student Christopher Flowers about the need for more diversity among STEM students and workers.</span>
<span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/jennifer-granholm-u-s-energy-secretary-speaks-to-howard-news-photo/1232671043">Stefani Reynolds-Pool/Getty Images</a>, <span class="license">Author provided</span></span>
</figcaption>
</figure>
<h2>A welcome trend</h2>
<p>Scott’s <a href="https://givingpledge.org/Pledger.aspx?id=393">approach to giving</a>, with its <a href="https://theconversation.com/racial-justice-giving-is-booming-4-trends-145526">emphasis on racial justice</a>, appears to be inspiring others to take a similar approach with their educational philanthropy.</p>
<p>Days after her June 2021 announcement, for example, <a href="https://www.cnet.com/news/google-announces-50-million-in-grants-for-hbcus/">Google confirmed its plans</a> to commit $50 million to build infrastructure and support scholarships at HBCUs. </p>
<p>I see many <a href="https://www.postsecondaryvalue.org/reports/">reasons beyond charity</a> for philanthropists, the government and corporations to consider donating to colleges and universities that mostly enroll students of color. Among them: It’s a key strategy for helping everyone in America.</p>
<p>[<em>Get the best of The Conversation, every weekend.</em> <a href="https://theconversation.com/us/newsletters/weekly-highlights-61?utm_source=TCUS&utm_medium=inline-link&utm_campaign=newsletter-text&utm_content=weeklybest">Sign up for our weekly newsletter</a>.]</p><img src="https://counter.theconversation.com/content/162837/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Ivory A. Toldson does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Her giving style is unusual for a billionaire donor.Ivory A. Toldson, Professor of Counseling Psychology, Howard UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1341162020-03-24T12:16:34Z2020-03-24T12:16:34ZCOVID-19 closures could hit historically black colleges particularly hard<figure><img src="https://images.theconversation.com/files/322280/original/file-20200323-112707-668mgc.jpg?ixlib=rb-1.1.0&rect=0%2C153%2C4761%2C2643&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Tight finances have long beset HBCUs.</span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/angel-dye-is-a-senior-english-major-due-to-recent-changes-news-photo/525308096?adppopup=true">Andre Chung/The Washington Post via Getty Image</a></span></figcaption></figure><p><em>As the COVID-19 crisis forces many schools to close their campuses and move all courses online, some worry that the pandemic could have a bigger negative impact on the nation’s historically black colleges and universities, than for other campuses. Here, The Conversation US has assembled a panel of experts to forecast what’s in store for HBCUs.</em></p>
<h2>How is the outbreak affecting HBCUs?</h2>
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<a href="https://images.theconversation.com/files/322354/original/file-20200323-112677-vpa4u7.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/322354/original/file-20200323-112677-vpa4u7.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/322354/original/file-20200323-112677-vpa4u7.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=741&fit=crop&dpr=1 600w, https://images.theconversation.com/files/322354/original/file-20200323-112677-vpa4u7.jpeg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=741&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/322354/original/file-20200323-112677-vpa4u7.jpeg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=741&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/322354/original/file-20200323-112677-vpa4u7.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=932&fit=crop&dpr=1 754w, https://images.theconversation.com/files/322354/original/file-20200323-112677-vpa4u7.jpeg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=932&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/322354/original/file-20200323-112677-vpa4u7.jpeg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=932&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">Marybeth Gasman, professor of education at Rutgers Graduate School of Education.</span>
<span class="attribution"><a class="source" href="https://gse.rutgers.edu/content/marybeth">Rutgers University</a></span>
</figcaption>
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<p><strong>Marybeth Gasman, professor of education at Rutgers University:</strong> I am worried about the technology demands on HBCUs, given how few IT specialists many smaller HBCUs have as well as the costs of managing online classes. I’m also worried about students not having access to Wi-Fi at home or laptops – 75% of HBCU students are <a href="https://www.tmcf.org/about-us/member-schools/about-hbcus/">eligible for Pell Grants</a> for students from low- to middle-income families. I’m happy to see some HBCUs – <a href="https://www.nbcnews.com/news/nbcblk/black-colleges-prepare-uncertainty-coronavirus-outbreak-n1161951">Paul Quinn College</a>, in Dallas, Texas, for example – lending students laptops for the rest of the semester.</p>
<p>HBCUs rely a lot on tuition and have smaller endowments than other schools. If these HBCUs get into financial trouble, they risk losing their accreditation since <a href="https://www.nytimes.com/2019/06/28/us/hbcu-closed-graduates.html">financial stability</a> is one part of what it takes to remain accredited. Without accreditation, it is nearly impossible to recruit students.</p>
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<a href="https://images.theconversation.com/files/322349/original/file-20200323-112661-478d76.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/322349/original/file-20200323-112661-478d76.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/322349/original/file-20200323-112661-478d76.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=900&fit=crop&dpr=1 600w, https://images.theconversation.com/files/322349/original/file-20200323-112661-478d76.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=900&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/322349/original/file-20200323-112661-478d76.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=900&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/322349/original/file-20200323-112661-478d76.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1131&fit=crop&dpr=1 754w, https://images.theconversation.com/files/322349/original/file-20200323-112661-478d76.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1131&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/322349/original/file-20200323-112661-478d76.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1131&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">Ivory Toldson, professor of counseling psychology at Howard University.</span>
<span class="attribution"><span class="source">Justin Knight/Howard University</span></span>
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<p><strong>Ivory Toldson, professor of counseling psychology at Howard University:</strong> <a href="https://www.nytimes.com/2008/12/30/business/30detroit.html">In 2008, during the Great Recession</a>, The New York Times published an article that mentioned an old saying: “When America catches a cold, African-Americans catch the flu.” This applies to HBCUs. Disruptions in enrollment and fundraising efforts, as well as closed dorms, prorated rebates, and lost revenue from food services and university bookstores will short-circuit normal streams of revenue for all universities. But HBCUs might see worse effects because they have <a href="https://vtechworks.lib.vt.edu/handle/10919/83120">less money</a> to begin with.</p>
<p>The challenge of abruptly moving to a virtual learning environment may adversely impact HBCUs more than other schools. Most do not have the technical capacity to deliver quality online classes. Even those with the <a href="https://theconversation.com/what-to-expect-as-colleges-and-universities-move-classes-online-amid-coronavirus-fears-4-questions-answered-133334">technical capacity</a> will have challenges if their students do not have adequate computers and broadband at home.</p>
<p><strong>Gregory Price, professor of economics, University of New Orleans:</strong> To the extent that HBCUs, relative to other schools, owe more <a href="https://eric.ed.gov/?id=EJ1072668">debt tied to their dorms</a>, the absence of students in residential on-campus housing could constitute a severe revenue shock. </p>
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<img alt="" src="https://images.theconversation.com/files/322353/original/file-20200323-112666-1tejcnj.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/322353/original/file-20200323-112666-1tejcnj.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=600&fit=crop&dpr=1 600w, https://images.theconversation.com/files/322353/original/file-20200323-112666-1tejcnj.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=600&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/322353/original/file-20200323-112666-1tejcnj.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=600&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/322353/original/file-20200323-112666-1tejcnj.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=754&fit=crop&dpr=1 754w, https://images.theconversation.com/files/322353/original/file-20200323-112666-1tejcnj.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=754&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/322353/original/file-20200323-112666-1tejcnj.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=754&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Gregory Price, professor of economics at the University of New Orleans.</span>
<span class="attribution"><span class="license">Author provided</span></span>
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</figure>
<p>Perhaps an extreme example of this is the case of <a href="https://www.news-journalonline.com/news/20180213/developer-seeks-mediation-in-b-cu-suit-over-scuttled-student-housing-deal">Bethune Cookman</a>. The private historically black university in Daytona Beach, Florida is obligated to spend about US$306 million to pay off debt it took on to build a <a href="https://www.insidehighered.com/quicktakes/2017/07/11/dorm-cost-bethune-cookman-306-million">new dorm</a>. If the outbreak continues, many of Bethune Cookman’s dorm rooms could wind up empty, as <a href="http://flcourier.com/another-option-for-b-cu/">enrollment was already declining</a> before this pandemic began. If that happens, it would reduce revenues to pay off the debt on the housing.</p>
<p>In general, I believe that prolonged closures could make it harder to pay off debt for new student housing at many HBCUs, which could move them closer to the financial brink.</p>
<h2>Do HBCUs have rainy day funds?</h2>
<p><strong>Gasman:</strong> No. Because HBCUs have small or <a href="https://www.pionline.com/article/20190204/PRINT/190209946/black-school-endowments-push-for-growth-diversity">relatively small endowments</a> and because they educate some of the most <a href="https://repository.upenn.edu/gse_pubs/331/">socioeconomically vulnerable</a> students, they face a disproportionately high level of risk right now. HBCUs are similar to families without substantial savings. HBCUs are funded heavily by tuition. Any drop in enrollment, which could happen by way of students not returning next year or not enrolling next year, will be devastating. </p>
<p>Keep in mind that, with <a href="https://theconversation.com/could-black-philanthropy-help-solve-the-black-student-debt-crisis-117734">few exceptions</a>, <a href="https://link.springer.com/article/10.1057/ijea.2008.14">HBCUs have rarely gotten large donations</a>. When institutions have a long history of being underfunded, they can’t build the same foundations as those that do.</p>
<h2>What, if anything, should the federal government do to help HBCUs now?</h2>
<p><strong>Gasman:</strong> HBCUs are vitally important to African Americans and other students as well. Their outsized contributions in <a href="https://repositories.lib.utexas.edu/bitstream/handle/2152/45895/Gasman-Nguyen_HBCUs-and-STEM.pdf?sequence=1">STEM</a>, in the <a href="https://go.gale.com/ps/anonymous?id=GALE%7CA384338569&sid=googleScholar&v=2.1&it=r&linkaccess=abs&issn=15568881&p=AONE&sw=w">preparation of students for graduate school</a> and in <a href="https://www.hup.harvard.edu/catalog.php?isbn=9780674916586&content=bios">medicine</a> are essential to the representation of African Americans across these areas. Without HBCUs, we would see an <a href="https://www.hup.harvard.edu/catalog.php?isbn=9780674916586&content=bios">immediate drop in the number of new black scientists</a>, <a href="https://link.springer.com/article/10.1023/A:1018869922415">black professors</a> and <a href="https://www.ncbi.nlm.nih.gov/pmc/articles/PMC6111265/">black doctors</a>.</p>
<p>In my view, the federal government could and should support a stimulus package for HBCUs to help them through this dire time. Rep. <a href="https://www.insidehighered.com/news/2020/03/18/black-colleges-lobby-stimulus-funds">Alma Adams</a>, a Democrat from North Carolina, is already working with input from the United Negro College Fund and Thurgood Marshall College Fund, two organizations that support students at HBCUs, on an initiative along these lines.</p>
<p>I’d like to see the federal government invest in HBCU infrastructure, technology and institutional aid so that HBCUs can attract more students.</p>
<p><strong>Toldson:</strong> I think the federal government should provide emergency relief for revenue loss from unexpected closures, including the cost of having to reschedule commencements. The government should also provide support to students who had to spend money to relocate once their campuses closed.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/322355/original/file-20200323-112677-1vkse67.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/322355/original/file-20200323-112677-1vkse67.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/322355/original/file-20200323-112677-1vkse67.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/322355/original/file-20200323-112677-1vkse67.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/322355/original/file-20200323-112677-1vkse67.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/322355/original/file-20200323-112677-1vkse67.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/322355/original/file-20200323-112677-1vkse67.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">A Howard University student from Trinidad and Tobago wears a face mask and plastic gloves as he moves out of his dorm room in Washington, D.C. on March 18.</span>
<span class="attribution"><a class="source" href="http://www.apimages.com/metadata/Index/Virus-Outbreak-Washington-Daily-Life/91b2604378954143afc91b4eab6436cc/6/0">AP Photo/Patrick Semansky</a></span>
</figcaption>
</figure>
<p><strong>Price:</strong> A coronavirus stimulus package could include giving $1,000 for every enrolled student at an HBCU per academic year. For a private institution like Bennett College, in Greensboro, North Carolina – with approximately 500 students – this would translate into approximately $500,000 to offset declines in housing revenue.</p>
<h2>Can HBCUs rely on private philanthropy during this emergency?</h2>
<p><strong>Gasman</strong>: No. Some big donors and foundations give to HBCUs but not in a way that will help them survive this crisis. In addition, HBCU alumni – for the most part – can’t afford to give in the ways that are needed. The average African American family has <a href="https://www.routledge.com/Engaging-Diverse-College-Alumni-The-Essential-Guide-to-Fundraising/Gasman-III/p/book/9780415892759">roughly $5,888 in assets</a> compared to the average white family’s $88,000. Being wealthier makes people feel more free to give.</p>
<p><strong>Price:</strong> Probably not, as philanthropy targeted at HBCUs continues to lag significantly behind other schools. In 2019, the top seven predominantly or historically white colleges landed <a href="https://hbcumoney.com/2019/09/05/the-million-dollar-gift-club-2018s-seven-figure-donations-to-hbcus-led-by-spelman-college/">$2.94 billion</a> in donations, versus just $43 million for the nation’s <a href="https://www2.ed.gov/about/offices/list/ocr/docs/hq9511.html">100 or so</a> HBCUs.</p>
<h2>Are any HBCUs in danger of permanently closing?</h2>
<p><strong>Gasman:</strong> Yes, but only those that were already in dire straits. And I’m not even convinced that they will close in those cases. I began doing research related to HBCUs in 1994, and I have listened to people say over and over that HBCUs are going to close. Someone will <a href="https://www.nytimes.com/2019/06/28/us/hbcu-closed-graduates.html">predict the imminent closure</a> of 30-40 about every five years. They are always wrong. A <a href="https://www.ajc.com/news/local/hbcus-that-didn-make/BnmRJgnxwnBV8yXqqtsWcP/">few have closed</a> but not many. <a href="https://theconversation.com/the-new-coronavirus-is-hitting-colleges-and-universities-hard-but-donors-can-help-133331">Many colleges are closing</a> and so yes, some HBCUs are in danger, but most HBCUs are incredibly resilient.</p>
<p><strong>Toldson:</strong> In my opinion, only the HBCUs that had – to borrow a phrase commonly used throughout this pandemic – preexisting conditions. HBCUs that are under-enrolled or financially impaired, with infrastructural issues, such as unfilled leadership positions, accreditation issues and subpar facilities, could have serious problems rebounding.</p>
<p><strong>Price:</strong> Yes, private HBCUs who are unable to withstand the declines in enrollment and the associated revenue similar to those that led to the <a href="https://diverseeducation.com/article/53664/">closure of St. Paul’s College</a>, in Lawrenceville, Virginia, in 2013. Currently, several HBCUs have been <a href="https://www.npr.org/2019/02/17/695593570/facing-loss-of-accreditation-over-finances-women-s-hbcu-raises-millions">placed on probation</a> by their regional accreditor for financial instability reasons. If the coronavirus continues to keep their dorms empty, the revenue shock from the pandemic could conceivably cause those in a financial situation similar to St. Paul’s College to close their doors.</p>
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<p class="fine-print"><em><span>Ivory A. Toldson is affiliated with Howard University. </span></em></p><p class="fine-print"><em><span>Marybeth Gasman is a member of the board of trustees at Paul Quinn College. </span></em></p><p class="fine-print"><em><span>Gregory N. Price does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Without government intervention, three experts warn, HBCUs will have a difficult time bouncing back from the effects of the COVID-19 outbreak.Ivory A. Toldson, Professor of Counseling Psychology, Howard UniversityGregory N. Price, Professor of Economics, University of New OrleansMarybeth Gasman, Samuel DeWitt Proctor Endowed Chair in Education and Distinguished Professor, Rutgers UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1302762020-02-04T13:31:59Z2020-02-04T13:31:59ZAt-risk colleges should do what’s best for students, alumni, donors, employees – and local communities<figure><img src="https://images.theconversation.com/files/312630/original/file-20200129-92964-17j1juy.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The College of New Rochelle closed in 2019.</span> <span class="attribution"><a class="source" href="https://commons.wikimedia.org/wiki/File:College_of_New_Rochelle_Plaque_(Back).jpg">DanTD</a>, <a class="license" href="http://creativecommons.org/licenses/by-sa/4.0/">CC BY-SA</a></span></figcaption></figure><p>The College of New Rochelle <a href="http://www.cny.org/stories/college-of-new-rochelle-closing-this-year,18791">closed in 2019</a>, more than a century after its founding as New York’s first Catholic women’s college. The announcement left students <a href="https://newyork.cbslocal.com/2019/02/22/the-college-of-new-rochelle-closing/">scrambling to figure out what to do</a>. The college’s land and buildings <a href="https://dailyvoice.com/new-york/armonk/real-estate/college-of-new-rochelle-campus-sells-for-32m-at-auction/779767/">were sold for US$32 million</a>, most of which paid off debts. </p>
<p>All told, about 90 private and public colleges or <a href="https://www.educationdive.com/news/tracker-college-and-university-closings-and-consolidation/539961/">universities have closed</a> or merged with other schools since 2016. <a href="https://theconversation.com/heres-why-colleges-are-being-forced-to-close-their-doors-and-what-they-can-do-to-stay-open-126399">Reasons for this</a> include declining enrollment, budget shortfalls and growing competition. What’s more, the number of Americans <a href="https://factfinder.census.gov/faces/tableservices/jsf/pages/productview.xhtml?src=bkmk#">between the ages of 18 and 22</a> is falling, leading to <a href="https://www.educationdive.com/news/adult-learner-enrollment-continues-to-contract/569285/">expectations</a> that <a href="https://hechingerreport.org/college-students-predicted-to-fall-by-more-than-15-after-the-year-2025/">far more closures and mergers are quite likely to follow</a>. </p>
<p>Despite their dire straits, many of these troubled and doomed schools likely will possess significant sums of money and other assets when the end comes. This wealth can include real estate, artwork and philanthropic donations that are <a href="https://theconversation.com/a-new-tax-on-big-college-and-university-endowments-is-sending-higher-education-a-message-120063">invested in endowments</a>, or pools of assets that support these institutions. </p>
<p>When colleges get into financial trouble, they can’t always tap that money because of a legal requirement that endowments and donations given for a specific purpose be used in ways that honor what donors intended. This complication can stand in the way when school officials seek to use those assets to remain open or pay for an orderly transition.</p>
<p>Students, alumni, donors, faculty and staff are clearly affected when colleges close. In addition, the communities where these schools are located can lose jobs, tax revenue, population and cultural opportunities.</p>
<h2>More closures and worries are coming</h2>
<p>We are scholars who have long examined <a href="https://www.researchgate.net/profile/Genevieve_Shaker">higher education and philanthropy</a>. One of us – <a href="https://scholar.google.com/citations?user=jRXwFcMAAAAJ&hl=en&oi=ao">William Plater</a> – is a trustee of <a href="https://www.insidehighered.com/news/2016/07/05/antioch-university-eliminates-jobs-five-presidents">Antioch University</a>, which has grappled with these challenges in recent years.</p>
<p>In 2019, the Department of Education put <a href="https://studentaid.ed.gov/sa/about/data-center/school/hcm">nearly 500 colleges and universities on a list</a> of schools on a shaky financial footing. <a href="https://www.edmit.me/">Edmit</a>, a consulting firm, says that nearly <a href="https://www.insidehighered.com/news/2019/11/19/private-colleges-convinced-company-scuttle-release-list-projected-college-closures">twice as many</a> risk closure for financial reasons. The <a href="https://www.usnews.com/news/education-news/articles/2020-01-29/education-department-looks-to-address-sudden-college-closures">federal government</a> is growing more concerned about this problem. </p>
<p>This wave of closures is affecting public colleges and universities, too. Government officials and college administrators in <a href="https://www.ktuu.com/content/news/Massive-budget-cuts-to-the-University-of-Alaska-system-could-have-tidal-wave-effects-according-to-the-university-president-512559381.html">Alaska</a>, <a href="https://consolidation.gsu.edu/">Georgia</a>, <a href="https://www.jsonline.com/story/news/education/2018/09/13/uw-campus-mergers-5-things-you-need-know/1260813002/">Wisconsin</a>, <a href="https://ctmirror.org/2019/03/07/accreditation-years-away-but-cscu-presses-forward-with-college-consolidation/">Connecticut</a>, <a href="https://www.desmoinesregister.com/story/news/education/2018/07/10/university-iowa-bruce-harreld-board-regents/772148002/">Iowa</a>, <a href="https://www.nwaonline.com/news/2019/dec/07/trustees-at-asu-sign-on-to-merger-20191/">Arkansas</a> and other states are either already consolidating some of their states’ campuses or considering whether to take that step.</p>
<h2>Aftershocks when schools close</h2>
<p><a href="https://www.marlboro.edu/">Marlboro College</a>, a small Vermont school with <a href="https://www.marlboro.edu/community/news/whats-next-for-marlboro/frequently-asked-questions/">enrollment that has dwindled to 150</a> students from 350 in 2012, will close at the end of the 2019-2020 school year. It has <a href="https://berkeleybeacon.com/new-financial-documents-detail-marlboro-college-operated-in-the-red-for-years/">lost nearly $20 million of its assets since 2015</a> by spending more than it’s taking in.</p>
<p>The college wants to combine with <a href="https://www.marlboro.edu/community/news/whats-next-for-marlboro/">Boston-based Emerson College</a>, located 120 miles away. This merger calls for transferring the estimated $30 million that would remain at that point in Marlboro’s <a href="https://www.educationdive.com/news/emerson-college-explores-absorbing-small-liberal-arts-school/566793/">endowment plus some $10 million</a> derived from shifting its real estate holdings to Emerson. Marlboro college would close its doors and students could transfer to Emerson, where tuition and <a href="https://berkeleybeacon.com/emerson-college-will-not-cover-housing-cost-difference-for-marlboro-students/">housing costs</a> are higher.</p>
<p>The 1,000 residents of Marlboro are pushing back. Town resident and former professor T. Hunter Wilson called the merger and loss of its largest employer “<a href="https://www.boston.com/news/education/2019/12/06/marlboro-college-emerson-merger">devastating</a>,” The Boston Globe reported. Another resident told the paper that he’s worried the closure could cost the town its post office or even its <a href="https://theconversation.com/school-closures-can-hit-rural-communities-hard-128837">elementary school</a>. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/312629/original/file-20200129-93023-1kfprdl.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/312629/original/file-20200129-93023-1kfprdl.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/312629/original/file-20200129-93023-1kfprdl.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=401&fit=crop&dpr=1 600w, https://images.theconversation.com/files/312629/original/file-20200129-93023-1kfprdl.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=401&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/312629/original/file-20200129-93023-1kfprdl.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=401&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/312629/original/file-20200129-93023-1kfprdl.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=504&fit=crop&dpr=1 754w, https://images.theconversation.com/files/312629/original/file-20200129-93023-1kfprdl.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=504&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/312629/original/file-20200129-93023-1kfprdl.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=504&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Marlboro College is poised to close soon.</span>
<span class="attribution"><a class="source" href="https://upload.wikimedia.org/wikipedia/commons/b/b1/Marlboro_College_campus%2C_Marlboro%2C_Vermont._.jpg">Calebjc</a>, <a class="license" href="http://creativecommons.org/licenses/by-sa/4.0/">CC BY-SA</a></span>
</figcaption>
</figure>
<h2>The fates of towns and gowns</h2>
<p>As colleges struggle to keep the doors open, in our view, they should do more to engage their local communities and funders in their planning processes. This can reduce the impact of <a href="https://hechingerreport.org/the-other-victims-when-colleges-decline-or-close-their-hometowns/">sudden disruption</a> that comes to a local community when it has not anticipated closure, as happened in <a href="https://www.educationdive.com/news/when-should-a-college-say-it-might-close/567864/">Newton, Massachusetts</a>, when <a href="https://www.wbur.org/edify/2018/05/16/mount-ida-senate-hearing">Mount Ida College</a> closed in 2018. </p>
<p>Engaging everyone who will be affected by a closure or merger may potentially ease the inevitable pains of transition all around and can result in new facilities and infrastructure that benefit local communities in new ways.</p>
<p>We consider what happened with Marygrove College, a small Catholic institution that first ended its undergraduate programs and then <a href="https://www.wxyz.com/news/marygrove-college-to-permanently-close-after-92-years-in-detroit">ceased operating its small graduate school in 2019</a>, a good example.</p>
<p>Aided by $50 million in funding from the <a href="http://www.ihep.org/about-ihep/partners/funding-partner/kresge-foundation">Kresge Foundation</a>, the school’s final leaders helped create the <a href="https://www.freep.com/story/news/education/2019/06/12/detroits-marygrove-college-closing/1429771001/">Marygrove Conservancy</a>. The college’s 53-acre Detroit campus was deeded to the new entity, which will house an <a href="https://detroit.curbed.com/2019/6/12/18663239/marygrove-college-close-campus-fitzgerald-kresge">educational program</a> including an early childhood center, a K-12 school operated by the local public school system and a teacher training program.</p>
<p>This arrangement aligns with the values of the Catholic sisters who founded Marygrove College in 1905. It was possible only because school leaders gave their students, alumni, communities and donors plenty of time to forge a plan for a different future than they expected.</p>
<p>We realize that this kind of transformation isn’t always possible. Regardless, what we consider to be Marygrove’s promising future shows why all colleges should be as open as they can when they get into financial trouble.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/313078/original/file-20200131-41490-1o52ur2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/313078/original/file-20200131-41490-1o52ur2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/313078/original/file-20200131-41490-1o52ur2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/313078/original/file-20200131-41490-1o52ur2.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/313078/original/file-20200131-41490-1o52ur2.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/313078/original/file-20200131-41490-1o52ur2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/313078/original/file-20200131-41490-1o52ur2.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/313078/original/file-20200131-41490-1o52ur2.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Many of now-closed Marygrove College’s buildings will serve a new purpose.</span>
<span class="attribution"><a class="source" href="https://commons.wikimedia.org/wiki/File:Marygrove_College_Liberal_Arts_Building_Detroit.JPG">Dwight Burdette</a>, <a class="license" href="http://creativecommons.org/licenses/by-sa/4.0/">CC BY-SA</a></span>
</figcaption>
</figure>
<h2>Deciding what to do with the money</h2>
<p>In these circumstances, control of remaining assets is usually determined by the concept of “<a href="https://www.law.cornell.edu/wex/cy_pres_charitable_trusts">cy près</a>,” a British common law term drawn from the French for “as near as possible.” It means that a court can redirect property, including endowments and land, from colleges and other nonprofits to a charitable purpose that is similar to the original intent of the donors when they chose to support those institutions.</p>
<p>In real life, these things get pretty messy. Consider what happened when <a href="https://www.eagletribune.com/news/former-chester-college-students-flock-to-another-arts-school/article_fa2fbb4a-2ed7-57e1-9736-2386dcecaff0.html">Chester College of New England</a>, a now-defunct liberal arts college in New Hampshire, folded in 2012. It initially expected most of its remaining students to attend New England College, another school in the state. It promised that school its remaining assets as an effort to honor the intents of Chester’s donors.</p>
<p>When most of the displaced students enrolled instead at the New Hampshire Institute of Art, that school objected. Ultimately the <a href="https://nonprofitquarterly.org/nonprofit-college-endowments-school-closes/">court split the funds</a> between the two schools. But the <a href="https://www.mass.edu/forstufam/diplomas/closed/newenglandinstituteofart.html">Institute itself has since closed</a>. It will <a href="https://www.concordmonitor.com/NEC-New-England-College-Henniker-arts-22504707">become part of New England College</a>.</p>
<p>The legal principle of cy près can complicate matters for colleges that are struggling to keep their doors open. They are bound by law to try their best to honor the wishes of their current and past donors, limiting what they do in emergencies.</p>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/312626/original/file-20200129-92969-duhuhr.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/312626/original/file-20200129-92969-duhuhr.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/312626/original/file-20200129-92969-duhuhr.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=450&fit=crop&dpr=1 600w, https://images.theconversation.com/files/312626/original/file-20200129-92969-duhuhr.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=450&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/312626/original/file-20200129-92969-duhuhr.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=450&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/312626/original/file-20200129-92969-duhuhr.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=566&fit=crop&dpr=1 754w, https://images.theconversation.com/files/312626/original/file-20200129-92969-duhuhr.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=566&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/312626/original/file-20200129-92969-duhuhr.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=566&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Sweet Briar is bouncing back from financial woes.</span>
<span class="attribution"><a class="source" href="https://web.archive.org/web/20161025221256/http://www.panoramio.com/photo/86762068">Annette Teng</a>, <a class="license" href="http://creativecommons.org/licenses/by-nd/4.0/">CC BY-ND</a></span>
</figcaption>
</figure>
<h2>Sweet Briar</h2>
<p>This legal principle may have helped save <a href="https://www.philanthropy.com/article/Sweet-Briar-s-44-Million/242698">Sweet Briar</a>, a women’s college in the small town of Amherst, Virginia. In 2015, the college’s president and trustees were convinced at the time that the institution could not overcome its enrollment and financial management difficulties, despite its $65 million endowment. The <a href="https://www.americaninno.com/dc/amherst-virginia-mayor-requests-sweet-briar-to-reconsider-closure/">mayor of Amherst</a> urged the school’s leaders to reconsider in a letter that emphasized the damage that closure would cause the local community. </p>
<p>Many of its <a href="https://scholarship.richmond.edu/law-student-publications/132/">graduates sued</a> to prevent the closing, as did <a href="https://www.whsv.com/home/headlines/Third-Lawsuit-Filed-Challenging-Closure-of-Sweet-Briar-College-301319221.html">members of the faculty</a> and the <a href="https://wset.com/news/sweet-briar-closing/amherst-co-attorney-files-suit-to-block-closure-of-sweet-briar-college">local county government</a>. The alumni then went on to <a href="https://www.philanthropy.com/article/Sweet-Briar-s-44-Million/242698">raise enough money</a> to rescue the school. </p>
<p>But prior to that rescue, Sweet Briar College ran into a different kind of trouble. When it sought to sell some of its assets, <a href="https://www.richmond.com/news/local/education/sweet-briar-case-appealed-judge-blocks-asset-sale/article_e121073d-7796-5909-9645-ddbf6a67b642.html">a judge blocked the sale</a> for being at odds with the directions of <a href="https://sbc.edu/museum/founders/">Indiana Fletcher Williams</a>, whose bequest led to the institution’s founding in 1901. </p>
<p>Happily, the college has now <a href="https://www.newsadvance.com/new_era_progress/news/sweet-briar-announces-m-raised-in-fiscal-year/article_36657680-1641-5c57-b965-89066b068fb3.html">raised a total of $63.9 million</a>. By <a href="https://www.roanoke.com/news/sweet-briar-bond-ratings-continue-upward-trend/article_ad1d19c7-1e08-519a-9c40-57b88163f8c6.html">many accounts</a>, it’s on the road to what could prove a complete recovery.</p>
<p>[ <em>You’re too busy to read everything. We get it. That’s why we’ve got a weekly newsletter.</em> <a href="https://theconversation.com/us/newsletters/weekly-highlights-61?utm_source=TCUS&utm_medium=inline-link&utm_campaign=newsletter-text&utm_content=weeklybusy">Sign up for good Sunday reading.</a> ]</p><img src="https://counter.theconversation.com/content/130276/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Genevieve Shaker receives funding from the TIAA Institute to research higher education and philanthropy.</span></em></p><p class="fine-print"><em><span>William Plater is a governor of Antioch University</span></em></p>It helps when school leaders are open about their financial struggles before it’s too late to forge a good plan.Genevieve Shaker, Associate Professor of Philanthropic Studies, Lilly Family School of Philanthropy, IUPUIWilliam Plater, Chancellor’s Professor Emeritus of Public Affairs, Philanthropy, and English; Executive Vice Chancellor and Dean of the Faculties Emeritus, IUPUILicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1293092020-01-10T13:47:22Z2020-01-10T13:47:22ZWhy some public universities get to keep their donors secret<figure><img src="https://images.theconversation.com/files/309164/original/file-20200108-107219-wa0q1b.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The Charles Koch Foundation had a say in some GMU faculty hires. </span> <span class="attribution"><span class="source">Universal Images Group via Getty Images</span></span></figcaption></figure><p>In April 2018, the public learned that <a href="https://apnews.com/0c87e4318bcc4eb9b8e69f9f54c7b889">George Mason University</a> had let the <a href="https://www.chronicle.com/article/how-george-mason-will-take-the/243414">Charles Koch Foundation</a> have a say in the hiring and review of faculty. The revelation confirmed long-held suspicions that Virginia’s largest public university was susceptible to pressure from wealthy people who make big donations to a foundation that solely exists to support the school. </p>
<p>The news also raised more questions. For example, how was the school able to conceal the <a href="http://www.fairfaxtimes.com/articles/gmu-president-calls-for-review-of-financial-donor-agreements/article_14ad0920-4fae-11e8-ae7e-8760dbb94979.html">strings-attached gift agreements</a> for years? Do other <a href="https://splc.org/2010/10/access-to-university-foundation-records/">public universities have similar arrangements</a>, in which donations flow not to them, but to affiliated foundations? </p>
<p>Most importantly, do these foundations give donors a legal right to shape a public institution of higher education without <a href="https://splc.org/2010/07/using-the-tools-of-the-trade/">public oversight</a> if they so choose?</p>
<p>As a <a href="https://www.jjay.cuny.edu/faculty/alexa-capeloto">journalist-turned-professor</a> who researches the tension between privatization and the public’s right to know, I can tell you the vast majority of public colleges and universities <a href="https://doi.org/10.1080/10811680.2015.1078617">have separate foundations</a> that exist to receive and manage their private donations. And unless state lawmakers do more to address the transparency status of these foundations, I’m concerned there are few ways to detect the kind of influence allowed at George Mason. </p>
<p><iframe id="3ogih" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/3ogih/2/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p>
<h2>The George Mason case</h2>
<p><a href="https://www.facebook.com/transparentGMU/">Transparent GMU</a>, a student advocacy group formed in 2013, had tried for years to access the Koch agreements under <a href="https://law.lis.virginia.gov/vacodepopularnames/virginia-freedom-of-information-act/">Virginia’s Freedom of Information Act</a> (VFOIA). The group suspected that George Mason might be trading academic influence for Koch dollars.</p>
<p>An agreement forged in 2008 for a <a href="http://www.sunshinestatenews.com/story/florida-state-university-koch-grant-supports-free-enterprise-critics-cry-foul">$1.5 million donation</a> with strings attached from the Charles Koch Foundation to Florida State University caused a <a href="https://www.insidehighered.com/news/2018/07/25/koch-foundation-pledges-make-future-grant-terms-public-critics-want-know-more-about">public outcry</a>; Florida State later <a href="https://foundation.fsu.edu/about/press-releases/president-thrasher-comments-koch-foundation-gift">changed its policies</a>.</p>
<p>Transparent GMU’s VFOIA requests were denied on the basis that the George Mason University Foundation possessed the agreement records and, as a private entity, did not have to share them. </p>
<p>The group <a href="http://www.fairfaxtimes.com/articles/students-take-gmu-to-court-over-koch-brothers-million-in/article_93778250-ba6f-11e7-9fcf-3b19f2a5cac0.html">sued the foundation</a> in 2017. Transparent GMU argued that because the nonprofit accepts, disburses and administers funds for the sole benefit of a public university, it <a href="https://www.fairfaxcounty.gov/circuit/sites/circuit/files/assets/documents/pdf/opinions/cl-2017-7484-transparent-gmu-v-gmu-et-al.pdf">should be subject</a> to VFOIA requests just like the university.</p>
<p>More than a year later, while the case was still pending, the university released the agreements and <a href="https://www.chronicle.com/article/how-george-mason-will-take-the/243414">acknowledged</a> that allowing donors to influence faculty decisions “falls short of the standard of academic independence we should expect in every gift.” </p>
<p>In the wake of the scandal, in May 2019 the university revised <a href="https://universitypolicy.gmu.edu/policies/gift-acceptance-policy/">its gift acceptance policy</a>. The university now accepts conditions attached to a private donation in writing, which makes them <a href="http://www.fairfaxtimes.com/articles/gmu-to-make-all-future-gift-agreements-public/article_6df08690-78db-11e9-b175-67c32eea5f07.html">part of the public record</a>. The Charles Koch Foundation also announced that it will now <a href="https://www.insidehighered.com/news/2018/07/25/koch-foundation-pledges-make-future-grant-terms-public-critics-want-know-more-about">make public</a> all multi-year agreements with colleges and universities.</p>
<p>But Transparent GMU ultimately lost its court challenge. In a unanimous decision that leaves no path for appeal, the <a href="http://www.courts.state.va.us/opinions/opnscvwp/1181375.pdf">Virginia Supreme Court ruled</a> Dec. 12 that as a privately held corporation with its own bylaws, the George Mason University Foundation is not a public body. Therefore, it’s not obligated to disclose records. </p>
<h2>State by state</h2>
<p>Unless it’s related to the federal government, public information access is regulated state by state under <a href="https://www.nfoic.org/coalitions/state-foi-resources/state-freedom-of-information-laws">individual Freedom of Information laws</a>. <a href="https://www.rcfp.org/open-government-guide/">Each state defines in its own way</a> what constitutes a public body, public records and public meetings. </p>
<p>Only Nevada explicitly defines university foundations as governmental entities under its <a href="https://www.leg.state.nv.us/NRS/NRS-239.html">public records act</a>. A handful of other states, including <a href="https://splc.org/2015/09/shaking-the-foundation/">Colorado, Georgia and Minnesota</a>, have laws dictating that foundations disclose certain financial records while still remaining private. In most cases, <a href="https://www.leg.state.nv.us/NRS/NRS-396.html#NRS396Sec405">even in Nevada</a>, donor identities remain confidential.</p>
<p>Virginia’s Freedom of Information Act applies to public agencies, bodies supported wholly or principally by public funds, and entities “of the public body created to perform delegated functions of the public body.” </p>
<p>The state Supreme Court cited the Webster’s dictionary definition of the word “of” in deciding the George Mason foundation wasn’t a product “of” the university, even though it <a href="http://www.courts.state.va.us/opinions/opnscvwp/1181375.pdf">exists to support that school</a>, pays the majority of the president’s salary, operates on campus, is part of the GMU website and staff directory, and is considered a “component unit” in university accounting. </p>
<p>“Had the General Assembly intended the unreserved inclusion of nonprofit foundations, that exist for the primary purpose of supporting public institutions of higher education, as public bodies under VFOIA, it could have so provided, but it has not,” <a href="http://www.courts.state.va.us/opinions/opnscvwp/1181375.pdf">Justice Cleo Powell wrote</a>. “Policy determinations of this nature are peculiarly within the province of the General Assembly, not the judiciary.”</p>
<h2>California case</h2>
<p>Courts in other states have followed the same logic. In 2001 a <a href="https://law.justia.com/cases/california/court-of-appeal/4th/90/810.html">California appellate court</a> found that the California State University, Fresno Association, a nonprofit that operates the university’s commercial enterprises, wasn’t a public agency under the state’s <a href="https://leginfo.legislature.ca.gov/faces/codes_displayText.xhtml?division=7.&chapter=3.5.&lawCode=GOV&title=1.&article=1.">Public Records Act</a> (CPRA).</p>
<p>The court looked at the language of the law, weighed it against the spirit of transparency, and saw a puzzling gap.</p>
<p>“We are fully cognizant of the fact that our conclusion seems to be in direct conflict with the express purposes of the CPRA ‘to safeguard the accountability of government to the public,’” Justice Rebecca Wiseman wrote. “The Legislature’s decision to narrowly define the applicability of the CPRA, balanced against its sweeping goal to safeguard the public, leaves us scratching our judicial heads and asking, ‘What was the Legislature thinking?’”</p>
<p>But courts don’t act as super-legislatures to determine the wisdom or propriety of statutes, she continued. “The rewriting of a statute is a legislative, rather than a judicial function, a practice in which we will not engage.”</p>
<p>Ten years later, California <a href="https://afscme3299.org/2011/09/07/governor-brown-signs-afscme-3299-transparency-bill-sb-8/">passed a law</a> that makes university foundations’ financial records, contracts and correspondence subject to public disclosure. </p>
<p>Under the <a href="https://leginfo.legislature.ca.gov/faces/codes_displayText.xhtml?lawCode=EDC&division=9.&title=3.&part=57.&chapter=14.&article=">Richard McKee Transparency Act of 2011</a>, donors can remain anonymous unless they receive something in exchange that’s worth more than $2,500 or a no-bid contract within five years of the donation, or if they attempt to influence university curriculum or operations. </p>
<p><iframe id="lGZry" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/lGZry/2/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p>
<h2>Pending in Virginia</h2>
<p>Following the George Mason court decision, <a href="http://www.davidbulova.com/">David Bulova</a>, a Democratic Virginia state delegate from Fairfax County, where the university’s main campus is located, introduced <a href="https://www.npr.org/local/305/2019/12/19/789722429/virginia-democrats-want-more-transparency-in-university-donations">two related bills</a>. Both would preserve the private status of foundations that support public universities while also imposing new transparency requirements on them.</p>
<p>One, <a href="http://lis.virginia.gov/cgi-bin/legp604.exe?201+sum+HB510">introduced Jan. 4</a>, would make the amount, date, purpose and terms of a public-university donation subject to FOIA, and only grant donor anonymity if the donor requests it and does not set conditions related to academic decision-making.</p>
<p>The <a href="http://lis.virginia.gov/cgi-bin/legp604.exe?201+sum+HB1529">second proposal</a> follows George Mason University’s lead. It would make universities accept in writing any terms or conditions placed on a donation and then provide that document upon request.</p>
<p>If those bills become law in Virginia, they could serve as good models for legislators in other states. Efforts to define university foundations as public entities <a href="http://lis.virginia.gov/cgi-bin/legp604.exe?171+sum+SB1436">usually go nowhere</a>, but states can require more transparency of private organizations that are so clearly enmeshed with public institutions.</p>
<p><em>This article has been updated to clarify that Florida State changed its policies after a controversial gift.</em></p>
<p>[ <em><a href="https://theconversation.com/us/newsletters?utm_source=TCUS&utm_medium=inline-link&utm_campaign=newsletter-text&utm_content=expertise">Expertise in your inbox. Sign up for The Conversation’s newsletter and get a digest of academic takes on today’s news, every day.</a></em> ]</p><img src="https://counter.theconversation.com/content/129309/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Alexa Capeloto does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>There’s no law forcing George Mason University’s allied foundation to make the public university’s donor deals public.Alexa Capeloto, Associate Professor of Journalism, John Jay College of Criminal JusticeLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1279082019-12-05T12:43:11Z2019-12-05T12:43:11Z5 ways to check a college’s financial health<figure><img src="https://images.theconversation.com/files/305238/original/file-20191204-70144-smtlyb.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Signs that a college may be about to close may not always be apparent.</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/modern-educationaloffice-building-on-campus-83102185?src=24065c05-2a35-4741-a865-52fc6fcb78d2-1-12">Konstantin L/Shutterstock.com</a></span></figcaption></figure><p>The financial health of colleges and universities is much in the news these days. An <a href="https://jhupbooks.press.jhu.edu/title/demographics-and-demand-higher-education">enrollment cliff</a> – a drop-off in traditionally aged college students – will hit in the next decade and may threaten more small, regional and marginally resourced public and private colleges and universities. A recent article in <a href="https://www.forbes.com/sites/dereknewton/2019/11/22/we-dont-need-a-list-of-college-finances/#1249c4856899">Forbes</a> offered some sound advice recently: “If you are worried or even curious about the financial health of a college, ask them. It’s a good, reasonable question for any student, parent or community leader to ask.” But what are the right questions to ask? As long-time <a href="https://www.elon.edu/u/administration/president/emeritus/">university administrators</a> with <a href="https://www.elon.edu/u/directory/profile/?user=whitting">experience</a> in both the public and private college sectors, we suggest beginning with these five questions:</p>
<h2>1. What physical shape is the school in?</h2>
<p>Institutions with cash flow problems often put off millions of dollars of maintenance – and it shows. As you tour a campus, you will probably get a feel within the first few minutes of what the campus is like. Is it clean and neat? Is there evidence of disrepair? Do the buildings appear well cared for and technologically up-to-date? All these things shine light on whether an institution has the resources needed to keep its facilities in good operating order. The more you see that concerns you, the more you should wonder if a school has enough money to provide a quality educational experience.</p>
<h2>2. How big is the endowment?</h2>
<p>When it comes to a college or university’s <a href="https://www.investopedia.com/ask/answers/how-do-university-endowments-work/">endowment</a>, size matters. An endowment is a permanent fund that universities and their foundations use to collect and invest funds given by philanthropic donors. Most schools use interest and dividends earned from the funds in their endowment to pay for various things, such as student aid programs and financial support for study abroad and internships.</p>
<p>You can find out what the institution’s endowment is through an <a href="https://www.nacubo.org/Research/2019/Public-NTSE-Tables">online search</a>. Generally speaking, the larger the endowment, the better able an institution is to finance its operations and the more stable it is for the long run. Only <a href="https://www.chronicle.com/article/Which-Colleges-Have-the/245587">106 institutions</a> have endowments of more than US$1 billion. But the <a href="https://theconversation.com/all-public-universities-get-private-money-but-some-get-much-more-than-the-rest-120401">size of endowment</a> isn’t the only thing to consider.</p>
<p>To preserve the value of the endowment spending for both current and future students, historically, colleges were advised to spend only about <a href="http://forum.mit.edu/articles/endowment-spending-goals-rates-and-rules/">5% of their endowments each year</a>. Institutions that spend above that amount over a longer period of time can potentially erode the value of their endowments, unless they attract more donations or gain other sources of revenue. </p>
<p>For that reason, institutions that spend more than 5% assume larger risks for the future market value of the endowment.</p>
<p>An endowment spending rate of more than 5% may be also a sign of budget stress and another potential red flag. There is no single place that you can go to find out the spending rate of the endowment. Some institutions, such as <a href="https://www.elon.edu/u/bft/investment-management/">Elon</a>, where we both work, and <a href="https://www.endowmentinvestor.org/my_weblog/2014/03/the-yale-spending-rule.html">Yale</a>, publish this information on their websites. Many do not.</p>
<p>Often, the only way to find out is to ask. You might start by asking the director of admissions or chief financial officer. </p>
<h2>3. What is the tuition discount rate?</h2>
<p>At private colleges, you should ask, “What is the school’s <a href="https://www.insidehighered.com/news/2019/05/10/nacubo-report-shows-tuition-discounting-trend-continuing-unabated">tuition discount rate</a>?” These discounts are actually tuition dollars that families or students pay that are redistributed – for very good reasons – to support students with high financial need or to attract students with special talents. Learning environments that are <a href="https://journals.sagepub.com/doi/full/10.1111/j.0956-7976.2004.00710.x">diverse</a> and vibrant benefit all students. This tuition money gets redistributed in the form of need-based financial awards, merit financial awards and athletic financial awards.</p>
<p>According to the National Association of College and University Business Officers, the average tuition discount rate for incoming freshmen in 2018-19 was <a href="https://www.insidehighered.com/news/2019/05/10/nacubo-report-shows-tuition-discounting-trend-continuing-unabated">52.2%</a>. When an institution is using 52% of every dollar they take in for discounting, that leaves only 48% for everything else, such as faculty and staff salaries, student support services, facilities and utilities. A tuition discount rate higher than the average rate can be a sign of trouble.</p>
<p>If you have never understood why the sticker price of college is not what you end up paying, a big part of that answer for private colleges is the tuition discount rate.</p>
<h2>4. Check databases</h2>
<p>Check out federal databases to get key measures about a school’s performance. The <a href="https://collegescorecard.ed.gov/">College Scorecard</a>, for instance, is a free U.S. Department of Education site that provides information on a variety of measures, including the size of the student body, cost, graduation rates and how much students are expected to earn after they graduate.</p>
<p>The education department also publishes a <a href="https://studentaid.ed.gov/sa/about/data-center/school/composite-scores">Financial Responsibility Composite Score</a> for each institution in the U.S. that receives federal aid. This score rates each school’s ability to meet the standards of financial responsibility necessary to participate in federal financial aid programs. The range of scores is a high of 3 to a low of -1. While this simple score might not tell the complete story of a school, it is a key indicator of whether a school is in good financial health.</p>
<h2>5. Search online</h2>
<p>Get online and broadly research institutions you are considering. Many state university systems are considering <a href="https://www.chronicle.com/article/Why-College-Mergers-Need-to-Be/243271">mergers</a> because of declining enrollment. Your research will also help you uncover potential trouble spots: Is the school’s accreditation threatened? Has enrollment been on the decline? Has there been frequent turnover in leadership? None of these things bodes well for a college or university in the future.</p>
<p>There are more than <a href="https://nces.ed.gov/fastfacts/display.asp?id=84">4,500 colleges and universities</a> in the U.S. Most of them can make a major difference in a student’s life. But some are in <a href="https://www.insidehighered.com/news/2019/06/13/list-private-colleges-have-closed-recent-years">danger of closing</a> and – in the most egregious cases – <a href="https://www.chronicle.com/article/Colleges-With-the-Best-and/246069">are revolving doors of failure</a>. Before you invest your money by paying your own costs or footing the bill for a loved one to attend a particular college, understand that the responsibility for doing research and asking questions is on you.</p>
<p>[ <em>Deep knowledge, daily.</em> <a href="https://theconversation.com/us/newsletters?utm_source=TCUS&utm_medium=inline-link&utm_campaign=newsletter-text&utm_content=deepknowledge">Sign up for The Conversation’s newsletter</a>. ]</p><img src="https://counter.theconversation.com/content/127908/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Leo M. Lambert is on the Board of Directors of the Association of Governing Boards, the Washington Center, and the John N. Gardner Institute for Excellence in Undergraduate Education. </span></em></p><p class="fine-print"><em><span>Gerald Whittington is affiliated with Kaludis Consulting, as a Senior Consultant. </span></em></p>Before you invest your money in going to a particular college, you should figure out if a school is financially healthy enough to keep its doors open, two veteran college administrators warn.Leo M. Lambert, President Emeritus and Professor of Education, Elon UniversityGerald Whittington, Senior Vice President, Elon UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1200632019-08-27T12:59:20Z2019-08-27T12:59:20ZA new tax on big college and university endowments is sending higher education a message<figure><img src="https://images.theconversation.com/files/289503/original/file-20190826-8868-1ahl8uq.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Stanford will most likely have to pay a new higher ed tax.</span> <span class="attribution"><a class="source" href="http://www.apimages.com/metadata/Index/California-Universities/6f90297c842c4007a370e4bae0dc4337/2/0">AP Photo/Marcio Jose Sanchez</a></span></figcaption></figure><p>The nation’s wealthiest private colleges and universities have a new expense.</p>
<p>Thanks to a provision in the <a href="https://www.investopedia.com/taxes/trumps-tax-reform-plan-explained/">tax reform package</a> that President Donald Trump signed in late 2017, these schools are paying a <a href="https://federalregister.gov/d/2019-13935">1.4% tax</a> on their net investment income. This highly targeted tax only applies to schools with endowments worth at least US$500,000 per tuition-paying student. </p>
<p>One aspect of this new legislation surprised me, even though I’m an expert on the <a href="https://scholar.google.com/citations?user=QOWY7xUAAAAJ&hl=en">growth of university endowments</a> and potential government responses to this trend. In my view, the structure of the tax implicitly warns elite schools that they need to do a better job of serving low-income students.</p>
<h2>Mega-endowments</h2>
<p>Endowments fund student financial aid, academic programs, research and overall university operations. Schools build endowments by soliciting money or other financial assets from donors and then investing those
assets to grow principal and create income for future expenditures.</p>
<p>The vast majority of colleges and universities have modest endowments of no more than <a href="https://www.clevelandfed.org/en/newsroom-and-events/publications/economic-commentary/2018-economic-commentaries/ec-201804-college-endowments.aspx">$50 million</a>, but some schools have what I call <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1124544">“mega-endowments”</a> that are <a href="https://theconversation.com/how-should-we-measure-the-size-of-a-universitys-endowment-54634">far larger</a> than what is necessary to support institutional operations.</p>
<p>The Internal Revenue Service <a href="https://www.federalregister.gov/documents/2019/07/03/2019-13935/guidance-on-the-determination-of-the-section-4968-excise-tax-applicable-to-certain-private-colleges">estimates</a> that up to 40 schools may have endowments large enough to owe the tax.</p>
<p>Based on the latest available <a href="https://www.nacubo.org/Research/2019/Public-NTSE-Tables">data, from 2018</a>, this surely will include <a href="https://www.harvardmagazine.com/endowment-18">Harvard, with a $39 billion endowment</a>. The tax will also no doubt hit <a href="https://news.yale.edu/2018/10/01/investment-return-123-brings-yale-endowment-value-294-billion">Yale, with its $29 billion endowment</a> and <a href="https://facts.stanford.edu/administration/finances/">Stanford, with $26.5 billion</a>. </p>
<p>With an endowment as large as Harvard’s, for example, the school would have to enroll more than 76,000 students before it fell beneath the taxing trigger. But it has a total of only about <a href="https://www.harvard.edu/about-harvard/harvard-glance">20,000 students</a> enrolled in its undergraduate and graduate programs. </p>
<p>Some of the other schools that will likely owe the new tax are less prominent, but have large endowments relative to student body size. For instance, <a href="https://www.amherst.edu/offices/office_of_the_chief_financial_officer/annual_reports">Amherst</a>, a private college in Massachusetts with a nearly $2.4 billion endowment and about 1,800 students, will surely face this new obligation. <a href="http://www.intentionalendowments.org/grinnell_college">Grinnell</a>, a private college in Iowa with an almost $2 billion endowment and roughly 1,700 students, is also likely to pay.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/288827/original/file-20190820-170935-1qznu0p.jpg?ixlib=rb-1.1.0&rect=0%2C1505%2C4509%2C1938&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/288827/original/file-20190820-170935-1qznu0p.jpg?ixlib=rb-1.1.0&rect=0%2C1505%2C4509%2C1938&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/288827/original/file-20190820-170935-1qznu0p.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=451&fit=crop&dpr=1 600w, https://images.theconversation.com/files/288827/original/file-20190820-170935-1qznu0p.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=451&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/288827/original/file-20190820-170935-1qznu0p.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=451&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/288827/original/file-20190820-170935-1qznu0p.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=566&fit=crop&dpr=1 754w, https://images.theconversation.com/files/288827/original/file-20190820-170935-1qznu0p.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=566&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/288827/original/file-20190820-170935-1qznu0p.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=566&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Princeton’s endowment is among the nation’s biggest.</span>
<span class="attribution"><a class="source" href="http://www.apimages.com/metadata/Index/New-Jersey-Daily-Life/8e21a0352e744fef8ad348a0e8757057/2/0">AP Photo/Seth Wenig</a></span>
</figcaption>
</figure>
<h2>Proposed regulations</h2>
<p>Within the next few months the complete list of schools that have to pay the tax will become a matter of public record.</p>
<p>The upcoming months will also provide a better sense of what counts as investment income. This will certainly include income produced by a school’s endowment, but may include more.</p>
<p>In July, the IRS issued <a href="https://www.federalregister.gov/documents/2019/07/03/2019-13935/guidance-on-the-determination-of-the-section-4968-excise-tax-applicable-to-certain-private-colleges">proposed regulations</a> that would also include other sources of income, such as interest on student loans and rents from school-owned housing.</p>
<p>The IRS is currently taking comments on these <a href="https://www.federalregister.gov/documents/2019/07/03/2019-13935/guidance-on-the-determination-of-the-section-4968-excise-tax-applicable-to-certain-private-colleges">proposed regulations</a>. It will issue final regulations after the comment period closes on Oct. 1.</p>
<p>Prior to this latest round of tax reforms, the income of all nonprofit colleges and universities was exempt from any federal tax so long as the income was derived from activities related to an educational purpose, such as instruction and research. </p>
<h2>Why tax these endowments</h2>
<p>To help offset the costs of overseeing the nonprofit sector, the government has long made <a href="https://www.cof.org/public-policy/private-foundation-excise-tax">foundations pay either a 1% or 2% tax</a> on their net investment income. The new rules for taxing the richest colleges and universities’ net investment income are akin to how the government taxes private foundations.</p>
<p>But Congress did not make clear why it decided to levy a tax on the net investment income of the wealthiest colleges and universities. </p>
<p>Undoubtedly, Congress wanted to find revenue to offset the cost of <a href="https://www.crfb.org/blogs/tax-cut-and-spending-bill-could-cost-55-trillion-through-2029">assorted tax cuts</a>. But its Joint Committee on Taxation has projected that the tax on investment income will generate only <a href="https://www.jct.gov/publications.html?func=startdown&id=5053">$200 million</a> per year – hardly a book-balancing sum when the budget deficit is pushing <a href="https://www.cbo.gov/publication/55551">$1 trillion</a>.</p>
<p>Most of the schools that will pay the tax are in liberal strongholds. People like former President George W. Bush adviser <a href="https://www.nytimes.com/2017/12/22/business/the-peril-of-taxing-elite-higher-education.html">N. Gregory Mankiw</a> have suggested that a Republican-controlled Congress may have wanted to tax the elite colleges and universities that it perceives as <a href="http://nymag.com/intelligencer/2017/11/the-republican-plan-is-the-opposite-of-tax-reform.html">overwhelmingly liberal</a>.</p>
<p>But an exemption from tax on investment income is only one of the <a href="https://www.taxpolicycenter.org/briefing-book/what-entities-are-tax-exempt">many governmental</a> subsidies that private colleges and universities receive. They enjoy a range of other <a href="https://theconversation.com/american-giving-lost-some-ground-in-2018-amid-tax-changes-and-stock-market-losses-118892">preferential treatment</a> – all because government believes that higher education does a lot of good. In my view, the new tax sends a message to wealthy schools about what is expected in return for these subsidies.</p>
<h2>Immunity for Berea College</h2>
<p>Perhaps the key to deciphering the message lies in the phrase “tuition-paying student.” There was bipartisan agreement that this language needed to be included so that <a href="https://www.berea.edu/admissions/academic-requirements/#1542730503284-bb1625a2-2536">Berea College in Kentucky</a> would not be taxed. Berea has an endowment of about $700,000 per student, well above the taxing trigger Congress set.</p>
<p>What’s so special about this small college? Its core mission is to serve “students of academic promise with limited financial means.” Berea charges no tuition and admits only academically promising, lower-income students – primarily from Appalachia. </p>
<p>The college fits precisely at the <a href="https://www.theatlantic.com/education/archive/2018/10/how-berea-college-makes-tuition-free-with-its-endowment/572644/">intersection of education and the American dream</a>: It prepares poor students to compete in the marketplace and thereby helps them climb the economic ladder. </p>
<p>Many of the schools that will pay the 1.4% tax on net investment income are in the group of institutions that <a href="https://blog.collegevine.com/a-guide-to-need-blind-schools-complete-list/">admit students without considering their ability to pay tuition</a> and <a href="https://blog.collegevine.com/schools-that-meet-100-percent-financial-need/">meet 100%</a> of a student’s demonstrated financial need. <a href="https://college.harvard.edu/financial-aid">Harvard</a>, <a href="https://admission.princeton.edu/cost-aid/how-princetons-aid-program-works">Princeton</a> and more than a dozen <a href="https://www.usnews.com/education/best-colleges/paying-for-college/articles/2018-09-18/18-schools-that-meet-full-financial-need-with-no-loans">other wealthy colleges</a> and universities point to these policies when defending the size of their endowments. They argue that their institutional wealth helps make these policies possible.</p>
<p>But research has demonstrated that elite colleges and universities are <a href="https://www.vox.com/policy-and-politics/2017/2/28/14359140/chetty-friedman-college-mobility">not nearly as good as they should be</a> at getting poor students to apply. These schools also fail to create <a href="https://www.theatlantic.com/education/archive/2019/03/privileged-poor-navigating-elite-university-life/585100/">environments in which students with limited means</a> feel that they belong, sometimes hindering academic success.</p>
<p>When Congress protected Berea, I believe it sent a signal. The real message behind this new measure is that the surest way for colleges and universities to hang onto their tax breaks is to figure out how to better serve poor students.</p>
<p>[ <em>Like what you’ve read? Want more?</em> <a href="https://theconversation.com/us/newsletters?utm_source=TCUS&utm_medium=inline-link&utm_campaign=newsletter-text&utm_content=likethis">Sign up for The Conversation’s daily newsletter</a>. ]</p><img src="https://counter.theconversation.com/content/120063/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Sarah Waldeck does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The IRS estimates that up to 40 privately run schools may be affected by this measure in the 2017 tax reform package.Sarah Waldeck, Distinguished Professor of Law, Loyola University ChicagoLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1204012019-07-31T11:42:18Z2019-07-31T11:42:18ZAll public universities get private money, but some get much more than the rest<figure><img src="https://images.theconversation.com/files/286083/original/file-20190729-43153-1vpn7bl.jpg?ixlib=rb-1.1.0&rect=274%2C448%2C4194%2C2264&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The University of North Carolina at Chapel Hill has more than $3 billion in its endowment.</span> <span class="attribution"><a class="source" href="http://www.apimages.com/metadata/Index/Outtakes-AP-A-NC-USA-OTKGB115-JPG-UNC-Chapel-H-/3bf90d2032d542f7a6d9be5cd6178b8d/1/0">AP Photo/Gerry Broome</a></span></figcaption></figure><p>U.S. <a href="https://www.case.org/trending/2018-vse-survey-results">universities raised nearly US$47 billion</a> in the academic fiscal year that ended in mid-2018. This new record haul marked a 7% increase from the prior year.</p>
<p>As usual, <a href="https://www.marketwatch.com/story/these-20-colleges-took-in-28-of-donations-to-universities-last-year-they-educate-16-of-undergrads-2019-02-11">private universities</a> generally led the way. But public universities are hardly on the sidelines. </p>
<p>Some of the most prestigious public universities, such as the University of California, Los Angeles and the University of Washington, have <a href="https://www.npr.org/sections/thetwo-way/2012/02/15/146900650/wealthy-colleges-see-spike-in-fundraising">since 2011</a> begun to join schools like Stanford and Johns Hopkins universities in the top 10. Meanwhile, the universities that <a href="https://ticas.org/sites/default/files/pub_files/inequitable_funding_inequitable_results.pdf">get less funding</a> are <a href="https://www-chronicle-com.liblink.uncw.edu/article/In-the-Drive-for-Donors/244523">struggling to compete for the donations</a> that can help make up for the steep reductions in state spending on higher education that began <a href="https://www.marketwatch.com/story/state-colleges-receive-the-same-amount-of-funding-from-tuition-as-from-state-governments-2017-03-24">more than 30 years ago</a>.</p>
<p>As a professor of <a href="https://scholar.google.com/citations?user=2vnyevwAAAAJ&hl=en&oi=ao">higher education management and finance</a> conducting research about the private donations that help fund public universities, I’m increasingly concerned that this practice is making the <a href="https://www.usatoday.com/story/money/business/2019/03/28/college-endowment-universities-receive-most-gifts-funds/39230729/">richest public universities</a> richer. The rest face fewer choices as many of these schools are being forced to stretch their budgets thin and <a href="https://www.wpr.org/uw-stevens-point-scraps-plans-drop-6-majors">cut academic programs</a> and, in extreme cases, <a href="https://www.nbcnews.com/news/us-news/alaska-defunds-scholarships-thousands-university-students-ahead-fall-semester-n1035231">scholarships</a>. </p>
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<h2>Donations</h2>
<p>Educational fundraising is as old as U.S. universities. Harvard, for example, is named after its first donor. <a href="https://www.harvard.edu/about-harvard/harvard-glance/history">John Harvard</a> was a minister who left the newly established college half his estate and a large number of books in his will, <a href="https://harvardmagazine.com/2000/01/john-harvard.html">back in 1638</a>.</p>
<p>Public universities <a href="https://www.doi.org/10.1353/rhe.1996.0002">did little fundraising until the mid-1970s</a> because they received ample government money. </p>
<p>Billions of dollars still flow to these schools, overall, from the <a href="https://www.pewtrusts.org/en/research-and-analysis/issue-briefs/2015/06/federal-and-state-funding-of-higher-education">taxpayers in their states as well as federal money</a>. But states have cut their average per-student <a href="https://www.educationnext.org/higher-ed-lower-spending-as-states-cut-back-where-has-money-gone/">funding for their public universities by 25%</a> over the last three decades. </p>
<p><a href="https://www.wsj.com/articles/university-of-michigan-raises-5-billion-others-close-behind-1538658001">Since the 1990s</a>, most public universities have treated fundraising as an increasingly significant source of revenue, on top of taxpayer dollars and tuition payments. Typically, public universities raise money through campus-based fundraising offices and <a href="https://agb.org/trusteeship-article/partners-in-advancement/">affiliated foundations</a>. The latter are technically independent but exist for the sole purpose of raising and managing money for a specific school.</p>
<h2>Funding</h2>
<p>Some donations pay for specific grants and scholarships. For example, funding scholarships is the top priority of the <a href="https://www.apnews.com/48b92f812312499c98477095a5c7daca">University of Kentucky’s campaign to raise $2 billion</a>. In this way, donations can help to make college more affordable, at least for the students who get scholarships.</p>
<p>But the price of going to college keeps rising. The official average total tab for tuition, fees, room and board for students attending public universities in their own states <a href="https://nces.ed.gov/fastfacts/display.asp?id=76">increased by 34%</a> between 2005 and 2015, from $14,499 to $19,189.</p>
<p>The net price of public university college tuition, what in-state students pay after applying grants and scholarships, also grew 27%, from an average of $11,430 to an <a href="https://trends.collegeboard.org/college-pricing/figures-tables/average-net-price-over-time-full-time-students-public-four-year-institution">average of $14,330</a> in that time frame. <a href="https://ticas.org/sites/default/files/pub_files/student_debt_and_the_class_of_2017_nr.pdf">Two-thirds of graduates leave college with debt</a>, which nationally <a href="https://trends.collegeboard.org/sites/default/files/2018-trends-in-student-aid.pdf">averages about $27,000</a> for the alumni of public universities with bachelor’s degrees.</p>
<p>One reason for the failure of fundraising campaigns to restrain tuition hikes is how donors give. <a href="https://theconversation.com/disappointed-donors-cant-count-on-getting-their-charitable-money-back-93635">Many of the biggest gifts</a> are reserved for specific uses. For example, <a href="https://www.chronicle.com/article/Hillsdale-College-Sues-U-of/246656">one donor to the University of Missouri stipulated</a> that the school spend his money to hire faculty who are “disciples” of the free-market economy.</p>
<p>Another is that <a href="https://www.philanthropyroundtable.org/philanthropy-magazine/article/the-passion-and-pitfalls-of-giving-to-college-sports">many big gifts</a> fund things unrelated to academic instruction, such as new <a href="https://www.upressonline.com/2019/06/fau-receives-3-million-donation-from-the-rocco-and-mary-abessinio-foundation-to-renovate-rename-basketball-arena/">sports arenas</a> and <a href="https://terrapinclub.com/sports/2018/9/16/endowments.aspx">coach salaries</a>.</p>
<h2>Endowments</h2>
<p>Charitable gifts from alumni, companies and other donors also fund <a href="https://www.investopedia.com/ask/answers/how-do-university-endowments-work/">endowments</a>, pools of money that universities and their foundations created to collect and invest donor dollars in assets like stocks and bonds. Endowment funds and income, such as interest and dividends, fund student aid programs, professors’ salaries and additional expenses. </p>
<p>All told, U.S. higher ed endowments have more than <a href="https://nces.ed.gov/fastfacts/display.asp?id=73">half a trillion dollars</a> in capital and generate <a href="https://www.insidehighered.com/news/2019/01/31/college-endowments-returned-82-percent-2018-annual-survey-adds-some-insight-how">millions in investment income</a> every year. They are growing at private and <a href="https://www.nacubo.org/Research/2019/Public-NTSE-Tables">public universities</a> alike, with two of the top 10 in Texas, which derives money from <a href="https://www.utsystem.edu/puf">the state’s petroleum revenue</a>, and the University of Michigan. </p>
<p>But huge endowments are not the norm at public universities. The endowments of about 50 of the most prestigious public universities in most states are much larger than the rest. For example, the endowment of the University of North Carolina at Chapel Hill, the biggest in my own state, stood at around <a href="https://uncmc.unc.edu/files/2017/09/CHIF-FY2017-AnnualReport.pdf">$3 billion</a> at the end of its 2017 fiscal year. </p>
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<p>Chapel Hill’s endowment is bigger than those of the state’s other 16 public universities combined. Elizabeth City State University, a historically black university in North Carolina, has the smallest one. It totaled about <a href="http://www.ncauditor.net/EPSWeb/Reports/Financial/FIN-2017-6086.pdf">$11 million</a> at the end of the 2017 fiscal year. </p>
<p>Endowments are designed to grow so that they can benefit universities in perpetuity. So university <a href="https://www.case.org/system/files/media/file/Endowments_Facts_Jan2017.pdf">governing boards limit spending</a> to an <a href="https://www.nacubo.org/Press-Releases/2019/US-Educational-Endowments-Report-8-2-Percent-Return-in-FY18">average of around 5% or less</a> of the endowment’s total assets per year.</p>
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<h2>Disparity</h2>
<p>Prestigious public universities, which are often referred to as the state’s “<a href="https://trends.collegeboard.org/college-pricing/figures-tables/tuition-fees-flagship-universities-over-time">flagship university</a>,” typically raise the most money. <a href="https://news.umich.edu/u-michigan-raises-5b-shattering-records-for-public-universities/">The University of Michigan</a> is among the most successful. It set a new record in 2018 for fundraising at public universities when its comprehensive campaign hauled in over $5 billion in gifts and pledges.</p>
<p>These campaigns are possible, in part, due to <a href="https://www.chronicle.com/article/Major-Private-Gifts-to-Higher/128264">an increasing number of gifts in excess of $100 million</a> from wealthy donors, such as <a href="http://as.virginia.edu/ampersand/uva-plans-new-school-data-science-120-million-gift-largest-university-history">the $120 million</a> hedge fund CEO Jaffray Woodriff gave the University of Virginia to establish a data science school.</p>
<p><a href="http://carnegieclassifications.iu.edu/index.php">Researchers split</a> the nation’s 600 or so public universities into three main groups. The roughly 200 “doctoral universities,” which includes the 49 state flagships, spend the most on research and offer 20 or more doctoral degrees. Examples of nonflagships in this category are <a href="https://msu.edu">Michigan State University</a> and the <a href="https://louisville.edu">University of Louisville</a>.</p>
<p>These schools <a href="https://www.case.org/trending/2018-vse-survey-results">raised an average of $74 million</a> in 2018.</p>
<p>That’s about 10 times the $7.1 million amassed by the group designated as “master’s universities.” Around 275 of these schools offer few doctoral programs but award at least 50 master’s degrees. Examples include <a href="https://www.adams.edu">Adams State University</a> in Alamosa, Colorado, and <a href="https://www.ewu.edu">Eastern Washington University</a> in Cheney, Washington.</p>
<p>The roughly 130 “baccalaureate colleges” mainly offer bachelor’s degrees and have the few graduate programs. Example include <a href="https://www.iuk.edu/index.html">Indiana University-Kokomo</a> and <a href="https://www.cobleskill.edu">SUNY Cobleskill</a>. They garnered an average of $4.2 million in donations in 2018.</p>
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<h2>Causes</h2>
<p>While studying the causes of these disparities, I’ve interviewed a total of 30 people who are either presidents of public universities or leading fundraising efforts on behalf of these schools.</p>
<p>One reason for the differences, I’ve found, is structural. Big, prominent public universities are more likely than smaller higher ed institutions to have medical and law schools. The doctors and lawyers who graduate from them, in turn, earn large incomes and are more able to make big donations to their alma maters. </p>
<p>The public universities lacking law and medical schools often educate <a href="https://scholars.org/brief/why-regional-comprehensive-universities-are-vital-parts-us-higher-education">high numbers of low-income students</a>, including many people who are the first in their families to go to college. This means that there is less wealth to tap among students, parents and alumni.</p>
<p>“A lot of our alums are artists, teachers, professional people,” one of the leaders I interviewed whom I’ll call Roger told me. “But we don’t have the lawyers and the doctors that some of the bigger schools do.” </p>
<p>Another explanation is historic. The public universities with the biggest endowments typically began fundraising earlier on. This head start has given them an edge for years and today is making it easier for them to employ more fundraising staff to spot and cultivate potential big donors.</p>
<p>[ <em><a href="https://theconversation.com/us/newsletters?utm_source=TCUS&utm_medium=inline-link&utm_campaign=newsletter-text&utm_content=expertise">Expertise in your inbox. Sign up for The Conversation’s newsletter and get a digest of academic takes on today’s news, every day.</a></em> ]</p><img src="https://counter.theconversation.com/content/120401/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Kevin McClure received research funding from the Council for the Advancement and Support of Education. </span></em></p>Overall, the growth in giving to public higher ed institutions isn’t compensating for a reduction in funding by the states.Kevin McClure, Associate Professor of Higher Education, University of North Carolina WilmingtonLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/982842018-08-29T10:47:20Z2018-08-29T10:47:20ZMaking college more affordable<figure><img src="https://images.theconversation.com/files/227517/original/file-20180712-27021-sf3pco.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Has the cost of higher education in the U.S. put college out of financial reach?
</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-illustration/investment-education-concept-conception-fee-expenses-659689999?src=2xQeZglNENWOjh3EuWS-Ww-6-0">DRogatnev/www.shutterstock.com</a></span></figcaption></figure><p><em>Editor’s note: When it comes to the cost of higher education in the U.S., signs of trouble abound.</em></p>
<p><em>For instance, states now <a href="http://www.sheeo.org/news/sheeo-releases-state-higher-education-finance-fy-2017">rely more heavily on tuition</a> to finance their public colleges and universities than on government funding.</em> </p>
<p><em>Private colleges and universities are also struggling to make ends meet, <a href="https://www.insidehighered.com/news/2018/04/30/nacubo-report-finds-tuition-discounting-again">steering a record amount of tuition revenue</a> toward grant aid for economically needy students.</em> </p>
<p><em>Meanwhile, the number of student borrowers who defaulted on their student loans <a href="https://www.ed.gov/news/press-releases/us-department-education-releases-national-student-loan-fy-2014-cohort-default-rate">edged up</a> last year as did the <a href="https://trends.collegeboard.org/sites/default/files/2017-trends-in-college-pricing_1.pdf">price of higher education itself</a>.</em> </p>
<p><em>So we asked our panel of presidents – from Xavier University of Louisiana, Colorado College and Penn State: Given this reality, what are the top two or three things that you believe need to happen to make college more affordable – particularly for low-income students, students of color and the working class?</em></p>
<hr>
<h2>More than one funder has to step up</h2>
<p><strong>Jill Tiefenthaler, President of Colorado College</strong></p>
<figure class="align-right ">
<img alt="" src="https://images.theconversation.com/files/233953/original/file-20180828-86141-1ugxh71.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/233953/original/file-20180828-86141-1ugxh71.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=744&fit=crop&dpr=1 600w, https://images.theconversation.com/files/233953/original/file-20180828-86141-1ugxh71.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=744&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/233953/original/file-20180828-86141-1ugxh71.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=744&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/233953/original/file-20180828-86141-1ugxh71.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=935&fit=crop&dpr=1 754w, https://images.theconversation.com/files/233953/original/file-20180828-86141-1ugxh71.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=935&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/233953/original/file-20180828-86141-1ugxh71.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=935&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Jill Tiefenthaler, president of Colorado College.</span>
<span class="attribution"><a class="source" href="https://www.coloradocollege.edu/us/giving/campaign/phonecast.html">Colorado College</a>, <span class="license">Author provided</span></span>
</figcaption>
</figure>
<p>A college education has many funders. Federal and state governments provide support, as do the institutions of higher education themselves. And then, of course, there is the money paid by the students’ families. Improving access will require additional support from one or more of these sources.</p>
<p>To start at the local level, an increase in state funding would make college more affordable. After all <a href="https://nces.ed.gov/programs/digest/d17/tables/dt17_303.70.asp">over 70 percent of all undergraduates</a> attend public institutions, and historically, states have been the primary source of funding for both two- and four-year public institutions.</p>
<p>However, states have <a href="https://www.educationnext.org/higher-ed-lower-spending-as-states-cut-back-where-has-money-gone/">reduced their support in recent years</a> and, as a result, the burden has fallen on students and their families. The <a href="https://www.marketwatch.com/story/heres-how-many-new-yorkers-are-benefiting-from-the-states-free-college-plan-2017-10-03">“free college”</a> plans in New York and a <a href="http://www.pewtrusts.org/en/research-and-analysis/blogs/stateline/2018/01/05/why-free-college-tuition-is-spreading-from-cities-to-states">few other states</a> are examples of commitments to improve access. However, given the pressure on budgets resulting from underfunded pensions, Medicaid and K-12, I am not optimistic that students can count on increased support from states. In addition, <a href="https://www.marketwatch.com/story/how-the-new-tax-law-affects-homeowners-it-could-be-more-than-you-think-2018-02-05">recent tax changes</a> that limit federal deductions for state taxes will increase pressure to keep state income and property tax rates down, further hindering state funding.</p>
<p>Additional support from the federal government, by increasing the <a href="https://studentaid.ed.gov/sa/types/grants-scholarships/pell">Pell Grant</a> program, could make a big difference. The maximum Pell Grant for the 2018-19 academic year is $6,095. This is sufficient to cover the annual tuition at most community colleges. For example, the average tuition at <a href="https://www.ppcc.edu">the community college in my city</a> is $4,651. However, only students with family incomes of less than $60,000 qualify and the amount of the grant declines significantly as family income increases. Increasing the income cut-off and providing the full $6,095 to all who qualify would make college much more accessible for low- and middle-income students.</p>
<p>Private nonprofit colleges and universities educate <a href="https://nces.ed.gov/programs/digest/d17/tables/dt17_303.70.asp">about 20 percent of all undergraduates</a>. The “sticker price” at these institutions gives the impression that they are not accessible to low- and middle-income students. However, privates provide significant institutional aid. </p>
<p>The major source of this support is philanthropy, made up of earnings on endowments and annual gifts. Private institutions with smaller endowments also provide aid from tuition revenue by using the revenue from some students to provide financial aid to other students. However, increasing institutional aid by using tuition revenue is not sustainable. Therefore, the key to making private institutions more affordable is increasing endowments through philanthropy. Although it is true that the new <a href="https://econofact.org/the-university-endowment-tax-who-will-pay-it-and-why-was-it-implemented">“endowment tax”</a> on large endowments and any changes to the tax deduction for charitable giving reduce the funds available for financial aid. In addition, private institutions could reduce “merit aid” – aid that is awarded on the basis of academic, athletic or artistic merit – and reallocate those funds to need-based financial aid. </p>
<p>Of course, <a href="https://www.washingtonpost.com/news/grade-point/wp/2017/05/26/forget-the-marketing-gimmicks-its-time-for-colleges-to-cut-costs/">some may argue</a> that rather than finding new sources of revenue, colleges could simply cut their costs and reduce tuition. This would make college more affordable but it would also reduce the quality of the education provided. </p>
<p>Higher education is a very competitive market, and students and their families demand quality – as they should. We must do our best to educate students in a global environment, keeping pace with technological innovations, teaching critical thinking, fostering comfort with ambiguity, and graduating nimble leaders who will thrive in a rapidly changing era.</p>
<hr>
<h2>What needs discussing is the total cost of a degree</h2>
<p><strong>Eric Barron, President of Pennsylvania State University</strong></p>
<figure class="align-right ">
<img alt="" src="https://images.theconversation.com/files/233958/original/file-20180828-86138-9iqxkk.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/233958/original/file-20180828-86138-9iqxkk.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=801&fit=crop&dpr=1 600w, https://images.theconversation.com/files/233958/original/file-20180828-86138-9iqxkk.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=801&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/233958/original/file-20180828-86138-9iqxkk.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=801&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/233958/original/file-20180828-86138-9iqxkk.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1006&fit=crop&dpr=1 754w, https://images.theconversation.com/files/233958/original/file-20180828-86138-9iqxkk.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1006&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/233958/original/file-20180828-86138-9iqxkk.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1006&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Eric Barron, president of The Pennsylvania State University.</span>
<span class="attribution"><a class="source" href="https://president.psu.edu/biography.html">The Pennsylvania State University</a>, <span class="license">Author provided</span></span>
</figcaption>
</figure>
<p>The high level of tuition in U.S. universities can be blamed on many factors. On top of <a href="https://www.educationnext.org/higher-ed-lower-spending-as-states-cut-back-where-has-money-gone/">shrinking state appropriations</a> there are more technology-intensive degrees in every field; an <a href="https://news.psu.edu/story/475363/2017/07/21/administration/trustees-hear-update-proposed-university-capital-plan">aging campus infrastructure;</a> a sharp increase in compliance and <a href="https://regulatorystudies.columbian.gwu.edu/reg-stats">regulations</a> reporting; and soaring health care costs.</p>
<p>University administrators should be deeply concerned that our price is limiting access to an education that enables upward mobility. Interestingly, the conversation on access and affordability seems to be fixated on controlling, first and foremost, the increase in tuition. We need to broaden the framing of this discussion considerably.</p>
<p>The first step is to change the conversation to one of the total cost of a degree. The simple fact is that timely completion of a degree is a critical mechanism to control total cost. A tuition increase pales in comparison to going to school for another year.</p>
<p>The second step is to recognize that the only thing worse than going five and six years in order to graduate, is to accumulate debt and drop out before graduation.</p>
<p>Universities like Penn State are justifiably proud of their <a href="https://budget.psu.edu/factbook/StudentDynamic/gradretratesummary.aspx?&ratetype=grad&repyear=2017&YearCode=2015&FBPlusIndc=N">high graduation rates</a>. However, when you dig deeper, you discover that first-generation, need-based students have <a href="https://theconversation.com/why-graduation-rates-lag-for-low-income-college-students-96182">a dramatically lower graduation rate</a> than most of their peers. At Penn State, they graduate 22 percentage points below the average. We can point to many factors that cause [this graduation gap], but it’s clearly not due to lack of ambition.</p>
<p>Sixty-two percent of these students work an average of 22 hours a week, usually at minimum wage jobs, so they can’t take a full credit load. It is impossible to graduate in four years. They drop classes more frequently than other students and tend to have lower grades because of their work load. Sadly, they also don’t have time to participate in advantageous activities, such as research or internships. They get discouraged. They either give up or end up attending a fifth or sixth year at a significant cost. If they graduate, they have paid more and gotten less from the experience than other students.</p>
<p>Our universities need a laser-like focus on mitigating all factors that slow the time to the completion of a degree. Every student should have access to financial literacy advisers and tools that help students take the most cost-efficient way to achieve a degree. We need “completion” programs to be a priority and not allow students to slip away because of finances or other hardships.</p>
<p>We can serve our mission of upward mobility and save students millions in costs and debt if we help every student, regardless of financial capability, to graduate, and graduate on time.</p>
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<h2>The importance of pre-collegiate preparation</h2>
<p><strong>Reynold Verret, President of Xavier University of Louisiana</strong> </p>
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<span class="caption">Reynold Verret, president of Xavier University of Louisiana.</span>
<span class="attribution"><a class="source" href="http://www.xula.edu/president/">Xavier University</a>, <span class="license">Author provided</span></span>
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<p>By 2020, nearly <a href="https://files.eric.ed.gov/fulltext/ED584413.pdf">two-thirds</a> of jobs will require postsecondary education. Yet, fewer than <a href="https://nces.ed.gov/programs/digest/d15/tables/dt15_603.20.asp">45 percent of adult Americans</a> currently have earned an associate degree or higher, as reported in national data.</p>
<p>The cost of higher education and its impact on access and opportunity is a major barrier to more students earning degrees. Talent and ability are not relegated to those of higher means. Our present challenge is to assure education and opportunity for students from all backgrounds. Sadly, we as a nation have been comfortable with very good schools for the haves and less than good ones for the have-nots. </p>
<p>On the federal level, <a href="https://studentaid.ed.gov/sa/types/grants-scholarships/pell">Pell awards</a> should be increased and eligibility expanded for students with the greatest need. Pell awards should also be allowed to continue to apply during the summer terms so that students persist and graduate on time. </p>
<p>On average, an American student takes 5.1 years to earn the bachelor’s degree. <a href="https://nscresearchcenter.org/signaturereport11/">Time to degree completion</a> has increased over the past decades due to a number of factors, such as the need to work and inadequate pre-collegiate schooling. Each extra year increases the cost of the bachelor’s degree by 25 percent. The time it takes to earn a bachelor’s degree could be reduced if students didn’t have to take courses to acquire math and language skills that are normally mastered in high school.</p>
<p>Bold steps are needed. This includes building an equitable K-12 educational pipeline that provides better college readiness for all of America’s students. Quality K-12 requires great teachers who remain in the profession and teach in schools with the greatest need. The teaching profession must be elevated and the nation’s best students should be encouraged to become teachers. For their service, school loans should be forgiven or repaid. Colleges and universities should also create postsecondary certificates and credentials meeting the needs of students entering careers that do not require college degrees.</p>
<p>The <a href="https://sites.ed.gov/whhbcu/one-hundred-and-five-historically-black-colleges-and-universities/">HBCU</a> where I serve as president, Xavier University of Louisiana, has been leading the nation in educating <a href="https://www.nytimes.com/2015/09/13/magazine/a-prescription-for-more-black-doctors.html">African-Americans who go on to achieve medical degrees</a>. The school also excels in preparing students who achieve Ph.D.s in the STEM fields. A 2017 study has ranked the university <a href="https://www.nytimes.com/2017/01/18/opinion/sunday/americas-great-working-class-colleges.html">6th in the nation</a> for social mobility, whereby students from the lower 40 percent of the U.S. income distribution enter the upper 40 percent. Our success and the <a href="https://www.chronicle.com/article/How-Are-Black-Colleges-Doing-/243119">success of other HBCUs</a> should dispel any notion that talent is associated with socioeconomic status.</p>
<p>The education of our citizens is not only an individual but a collective benefit: America thrives if it develops all of its talent.</p><img src="https://counter.theconversation.com/content/98284/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Jill Tiefenthaler is affiliated with the National Association of Colleges and Universities (NAICU), serving as treasurer and on its executive committee; and with the Annapolis Group, serving as chair of its board of directors. She has received funding from foundations in support of education and research. These include Blue Shield of California Foundation and National Consortium for Violence Research.</span></em></p><p class="fine-print"><em><span>Eric J. Barron is currently a member of the University Corp. for Atmospheric Research (UCAR) Board of Trustees, APLU Board of Directors, CICEP Chair, College Football Play-off (CFP) Board of Managers, Council on Competitiveness: EMCP Steering Committee, Universities Research Association (URA), Big Ten Council of Presidents and Chancellors and American Talent Initiative (ATI). </span></em></p><p class="fine-print"><em><span>Reynold Verret and Xavier University of Louisiana receives and has received funding from federal agencies and foundations in support of education and research. These include the NIH, NSF, NASA, DOD and the Howard Hughes Medical institute</span></em></p>As students head back to campus, the ever higher cost of a college education is once again top of mind. The presidents of Colorado College, Penn State and Xavier University weigh in on what’s to be done.Jill Tiefenthaler, President, Colorado CollegeEric J. Barron, President, Penn StateReynold Verret, President, Xavier University of Louisiana, Xavier University of LouisianaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/884282017-12-02T07:37:34Z2017-12-02T07:37:34ZTax bill’s attack on higher education undermines America’s economic vitality<p>With the <a href="https://mobile.nytimes.com/2017/12/01/us/politics/senate-tax-bill.html?action=click&module=Top%20Stories&pgtype=Homepage">Senate’s passage</a> of the “<a href="https://www.congress.gov/bill/115th-congress/house-bill/1">Tax Cuts and Jobs Act</a>,” President Donald Trump seems close to notching his first legislative victory – a huge tax cut for the 1 percent. All that remains is the need to reconcile the Senate bill with the <a href="https://waysandmeansforms.house.gov/uploadedfiles/bill_text.pdf">version passed earlier</a> by the House of Representatives. </p>
<p>The bill is a travesty. Never have so many been forced to give up so much to benefit so few. The <a href="http://abcnews.go.com/Politics/wireStory/white-house-open-striking-health-provision-tax-bill-51270294">president’s claims to the contrary</a> notwithstanding, this is no wonderful Christmas present for the American people. It’s more like a grimy lump of coal – many lumps, in fact.</p>
<p>In a pair of bills that each runs to more than 400 pages, it is not hard to find objectionable provisions. As a long-time academic, I am particularly appalled by the <a href="https://theconversation.com/how-the-tax-package-would-slam-higher-ed-86913">treatment</a> of America’s colleges and universities, the widespread network of institutions charged with training America’s talent pool of the future. </p>
<p>The Republican plan undermines <a href="https://www.cnbc.com/video/2017/10/27/white-house-says-tax-plan-would-boost-long-term-economic-growth.html">what its backers claim</a> is their goal: boosting America’s economic vitality. Here’s why. </p>
<h2>Targeting higher ed</h2>
<p>For instance, as part of its effort to pay for <a href="http://www.businessinsider.com/trump-tax-plan-rich-people-benefits-2017-11">the generous tax cuts</a> for corporations and the wealthy, Republicans aim to impose a <a href="https://theconversation.com/gop-plan-to-tax-college-endowments-like-yales-and-harvards-would-be-neither-fair-nor-effective-86912">1.4 percent tax on investment income</a> at private schools with endowments worth at least US$250,000 per full-time student. This would affect as many as 70 schools and cost them an estimated $2.5 billion over a decade. </p>
<p>Not only will that shrink the resources available to support research, much of which <a href="https://theconversation.com/how-universities-boost-economic-growth-65017">helps to fuel</a> the nation’s economic growth. It will also make it more difficult to hold down rising tuition expenses, thus closing off educational opportunities for many students from lower- and middle-income families. </p>
<p>Public universities in states like New York and California can also expect to be hard hit by the bill’s elimination of the federal deduction for state and local taxes. Since this change <a href="https://www.vox.com/policy-and-politics/2017/10/30/16557554/the-state-and-local-tax-deduction-explained">will actually add</a> to residents’ overall tax bills, state governments are bound to come under voter pressure to offset them with tax cuts closer to home, which in turn will require corresponding expenditure reductions. Public universities, by definition, tend to be <a href="https://www.cbpp.org/research/state-budget-and-tax/funding-down-tuition-up">highly dependent</a> on the public purse for their revenues. That makes them particularly vulnerable targets when budgets are slashed at the state level.</p>
<p>Those of us who teach in the University of California system, for instance, still remember the pay cuts we all had to endure when Sacramento’s budget was hit by the Great Recession of 2008-2009. <a href="http://www.dof.ca.gov/budget/historical_budget_Publications/2009-10/FullBudgetSummary.pdf">Funding</a> for the system as a whole was cut by 40 percent, leading to an exodus of faculty, tight limits on new hires and severe limits on financial aid for students. It took years for support of instruction and research to return to pre-crisis levels.</p>
<p>And even more egregious are some “reforms” in the House version that might yet make it into law depending on how negotiations with the Senate turn out. The House bill is far stingier than the Senate’s when it comes to higher education. For example, House Republicans <a href="https://www.nytimes.com/interactive/2017/11/11/your-money/tax-student-debt.html">propose eliminating</a> a benefit that lets some taxpayers deduct student loan interest. That too will close off opportunities for many poorer students.</p>
<p>The House bill also takes aim at a break that presently makes graduate school more affordable by allowing students to work as research or teaching assistants for tuition waivers that don’t count as taxable income. Counting these waivers as income <a href="https://www.insidehighered.com/news/2017/11/07/grad-students-and-policy-experts-say-taxing-graduate-students-tuition-waivers-would">would make graduate school unaffordable</a> for tens of thousands of current and would-be students. </p>
<p>All in all, the House bill alone <a href="http://www.taxpolicycenter.org/taxvox/house-tax-bill-would-simplify-higher-ed-subsidies-price-would-be-higher-costs-many">would reduce tax incentives for higher education</a> by an estimated $64 billion over 10 years. </p>
<h2>Higher ed’s economic impact</h2>
<p>Whatever the final shape of the Tax Cuts and Jobs Act, the provisions targeting higher education will have adverse economic effects that will be both substantial and long-lasting. </p>
<p>Numerous studies have shown that a college education adds substantially to an individual’s lifetime earning potential. <a href="https://trends.collegeboard.org/sites/default/files/education-pays-2013-full-report.pdf">Research by the College Board</a>, a nonprofit that helps students prepare for college, shows that the median income of bachelor’s degree recipients with no advanced degree and working full time in 2011 was $56,500, some $21,100 more than median earnings of high school graduates. Put another way, the benefits of a four-year college degree <a href="https://www.brookings.edu/research/where-is-the-best-place-to-invest-102000-in-stocks-bonds-or-a-college-degree/">are equivalent to an investment</a> that returns 15.2 percent per year – over a lifetime. And the earnings premium grows even wider for additional years of study. </p>
<p>Furthermore, over time individual earnings tend to rise more rapidly for those with higher levels of education, and unemployment levels are significantly lower. The evidence is strong that these benefits bolster the overall economy as well. </p>
<p>Zvi Griliches, a Harvard economist who died in 1999 and was a specialist on the topic, <a href="http://www.hup.harvard.edu/catalog.php?isbn=9780674003439">found</a> that the historical growth of years devoted to higher education and other advanced training accounted for about a third of productivity growth in the U.S. economy over the 50-year period he examined.</p>
<p>These productivity gains, in turn, translated into higher output and incomes for the economy as a whole, adding substantially to America’s wealth. </p>
<p><a href="https://www.asu.edu/president/p3/Reports/EdValue.pdf">Evidence also suggests</a> that regions with a higher proportion of college graduates tend to have lower crime rates, higher levels of civic participation and improved performance across a number of other socioeconomic measures.</p>
<h2>Shattered dreams, stunted economy</h2>
<p>In its essence, the Tax Cuts and Jobs Act embodies a contemptuous disregard for intellectualism and expertise that over time can only erode the quality of the U.S. work force. </p>
<p>Many schools will see their budgets cut; faced with higher fees and tuition, many students will be forced to drop out – their dreams shattered, their earning potential stunted, their contribution to the American economy significantly curtailed. </p>
<p>America will not be made great again by attacking its system of higher education in such a mindless manner.</p><img src="https://counter.theconversation.com/content/88428/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Benjamin J. Cohen does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Universities play a vital role in promoting economic growth, something the writers of the Republican tax plan have apparently forgotten.Benjamin J. Cohen, Professor of International Political Economy, University of California, Santa BarbaraLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/869132017-11-09T04:00:54Z2017-11-09T04:00:54ZHow the tax package would slam higher ed<figure><img src="https://images.theconversation.com/files/193664/original/file-20171107-6733-1n0bebq.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The proposed tax bill could make higher ed even less affordable.
</span> <span class="attribution"><a class="source" href="http://www.apimages.com/metadata/Index/California-Budget/04937f3e4aba4065ab245b64ca462439/101/0">AP Photo/Rich Pedroncelli</a></span></figcaption></figure><p>The <a href="https://waysandmeansforms.house.gov/uploadedfiles/bill_text.pdf">tax code overhaul</a> pending in Congress is littered with provisions that would make it a lot harder for most Americans to <a href="https://www.theatlantic.com/education/archive/2016/01/where-are-all-the-high-school-grads-going/423285/">go to college or grad school</a>.</p>
<p>All told, the changes proposed by House Republicans would require Americans to spend <a href="http://www.acenet.edu/news-room/Pages/Statement-by-ACE-President-Ted-Mitchell-on-the-House-Tax-Reform-Proposal.aspx">US$65 billion more to get a higher education</a> in 2027 versus 2018 by increasing costs for both students and universities, according to a projection by the American Council on Education, a trade group that represents colleges and universities, which based its forecast on the <a href="https://waysandmeansforms.house.gov/uploadedfiles/tax_cuts_and_jobs_act_section_by_section_hr1.pdf">House’s own report</a>. </p>
<p>Many of the details and provisions will change as the House and Senate seek compromises on this legislation, which is a top priority for President Donald Trump.</p>
<p>But as an expert on how tax policy affects education and nonprofits, I am concerned that any version of the proposed tax code changes would <a href="https://www.insidehighered.com/news/2017/11/03/gop-tax-overhaul-would-eliminate-tax-breaks-used-colleges-and-students">undercut higher education</a>, which is increasingly <a href="https://www.pbs.org/newshour/nation/many-college-grads">essential for workers</a> looking for good jobs.</p>
<p>Even if there are a lot of moving pieces, it’s still useful at this stage to zero in on what some of the proposals, including the ones I describe here, would do.</p>
<h2>Charging students more</h2>
<p>The latest version of the tax bill contains many provisions that would drive up higher education costs for students.</p>
<p>For example, Republicans want to end the tax deductibility of education, which currently allows students and parents with matriculating dependents to deduct up to $2,500 in student loan interest on their tax forms. In 2015, <a href="https://www.usnews.com/news/business/articles/2017-11-08/gop-tax-bill-would-kill-deduction-for-student-loan-interest">12.2 million taxpayers took the deduction</a>, which phases out at higher incomes.</p>
<p>A separate provision would impose new and heavy financial burdens on students who spend more than five years at colleges and universities, <a href="https://www.washingtonpost.com/news/grade-point/wp/2017/11/02/republican-tax-plan-seeks-to-shake-up-higher-education-tax-credits-deductions-and-benefits/?utm_term=.d69052426802">especially those pursuing a Ph.D</a>.</p>
<p>It would do that by treating waived tuition payments for school employees and educational assistance provided by any employer as taxable income. Schools routinely waive the cost of tuition or provide other aid so they can recruit highly skilled employees who might earn more in private sector jobs. This is also common way grad students are able to afford their education.</p>
<p>Treating the value of these benefits, which can far exceed the student’s income, as taxable income may double, triple or even quadruple their tax bills, partly because it would push them into <a href="https://www.insidehighered.com/news/2017/11/03/gop-tax-overhaul-would-eliminate-tax-breaks-used-colleges-and-students">much higher tax brackets</a>.</p>
<p>This change, in other words, would put the cost of graduate degrees out of reach for many Americans.</p>
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<p>The bill also combines multiple tax credits available for education into a single credit that is much less generous because it would not be available after the fifth year of higher education, unlike its precursors. Also, certain tuition payments would no longer be tax-deductible, and Americans would no longer be able to use U.S. savings bond interest tax-free to pay for higher education.</p>
<p>On the positive side, it would remain possible for students to have their debts forgiven without any tax consequences under some circumstances, such as prolonged <a href="https://studentaid.ed.gov/sa/repay-loans/forgiveness-cancellation/public-service">public service careers</a>. And for the first time, all student loans would be taken off the books when the borrower dies or becomes completely disabled.</p>
<p>If that provision goes forward, at least student loans would no longer <a href="https://www.today.com/health/after-daughters-death-parents-plead-forgiveness-her-200k-student-loan-1D79996678">follow you to the grave</a> – as is the case now for many private lenders. (Federal loans already are discharged upon death.)</p>
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<h2>Taxing faculty and higher ed leaders</h2>
<p>The same provision that would hammer graduate students would impose new costs on some faculty members as well – or their children. </p>
<p>As a perk to recruit and retain employees, many schools such as the <a href="https://humanresources.uchicago.edu/benefits/tuition/employees/index.shtml">University of Chicago</a> cover at least part of the cost of tuition payments for the <a href="http://www.latimes.com/business/hiltzik/la-fi-hiltzik-alimony-tax-20171106-story.html">dependent children</a> of faculty and staff. </p>
<p>The bill would treat that benefit as taxable income.</p>
<p>Other provisions would affect university leaders. Many presidents and other staff in areas with high housing costs currently get free accommodations as an untaxed part of their compensation. The tax bill would restrict the multiple ways schools provide this perk by treating it as taxable income.</p>
<p>And the schools would have to pay a new 20 percent tax on compensation in excess of $1 million to their <a href="https://www.usatoday.com/story/sports/2017/11/03/republican-tax-bill-takes-aims-college-athletics-stadium-financing/830583001/">five highest-paid employees</a>. This measure is likely to put downward pressure on pay for university presidents, medical and law school deans and <a href="https://deadspin.com/infographic-is-your-states-highest-paid-employee-a-co-489635228">football and basketball coaches</a>, who are typically the highest-paid staffers. </p>
<p>While this could be a welcome change for those who believe that <a href="https://www.nytimes.com/roomfordebate/2014/06/23/are-college-presidents-overpaid">executive compensation</a> at universities has become excessive, it could also lead universities to hire less prominent leaders. </p>
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<h2>University finances and operations</h2>
<p>More than half of all colleges and universities have endowments – essentially pools of money raised from their alumni, companies and other donors – that they invest in stocks, bonds and other assets. These funds help foot the bill for scholarships, salaries, construction and any other expenses. </p>
<p>Until now, higher ed endowments have operated like tax-exempt nonprofits. Contributions to them are deductible for donors, and they do not pay taxes on their earnings. This bill would change that for some schools, by requiring a few dozen elite schools to pay a <a href="https://theconversation.com/gop-plan-to-tax-college-endowments-like-yales-and-harvards-would-be-neither-fair-nor-effective-86912">1.4 percent tax</a> on their investment income.</p>
<p>The government would levy this new tax only on private colleges and universities with more than 500 students and at least <a href="https://waysandmeansforms.house.gov/uploadedfiles/summary_of_chairman_amendment.pdf">$250,000 per student</a> saved up in their endowment. The <a href="https://www.cnbc.com/2017/11/03/tax-reform-hits-college-endowments-and-maybe-tuition-and-scholarships.html">original proposal</a> set that benchmark at $100,000.</p>
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<p>What’s more, universities are worried that the proposed tax changes would reduce the amount of <a href="http://www.case.org/Public_Policy/United_States/Charitable_Deduction.html">money donors give</a> during their lifetime and leave as <a href="http://www.case.org/Public_Policy/United_States/Estate_Tax.html">bequests from their estates</a> in their wills. That is because this bill would reduce two important charitable giving incentives. </p>
<p>First, it would abolish the <a href="https://theconversation.com/how-closing-the-door-on-the-estate-tax-could-reduce-american-giving-85166">estate tax</a>, which currently applies only to the inheritances left by one out of 500 people who die each year. Second, it would double the standard deduction.</p>
<p>Philanthropy experts predict that the second change would slash the share of taxpayers who itemize their returns and are eligible to benefit from <a href="https://theconversation.com/why-congress-should-let-everyone-deduct-charitable-gifts-from-their-taxes-78323">charitable deductions</a> from 30 percent of all taxpayers to 5 percent. </p>
<p>And a provision in the House bill would cut into the revenue colleges and universities earn from their <a href="https://www.usatoday.com/story/sports/2017/11/03/republican-tax-bill-takes-aims-college-athletics-stadium-financing/830583001/">sports programs</a>. Currently, taxpayers may deduct up to 80 percent of what they spend to attend football games and other college sports events. The proposed bill would put an end that.</p>
<h2>Savings accounts</h2>
<p>Separately, the bill would change the tax-free savings options available to families.</p>
<p>It would phase out <a href="https://www.360financialliteracy.org/Topics/Paying-for-Education/College-Savings-Options/529-Plans-vs.-Coverdell-Education-Savings-Accounts">Coverdell Savings Accounts</a>, which exempt the gains from qualified savings for higher education from taxation.</p>
<p>At the same time, it would let parents use up to $10,000 per year from 529 plans, which offer different tax advantages, to pay for their children to attend K-12 private schools.</p>
<p>Interestingly, the tax bill would also allow contributions to 529 tuition-savings plans on behalf of fetuses, setting a precedent for supporters of “<a href="https://www.politico.com/story/2017/11/02/gop-tax-bill-abortion-rights-college-savings-244486">personhood</a>” laws who see them as a step toward outlawing abortion.</p>
<h2>Likely outcome</h2>
<p>It’s important to remember that the estimated $65 billion <a href="https://harvardmagazine.com/2017/11/taxing-university-endowments">increase in tuition costs</a> would follow years of the rising cost of higher ed <a href="http://college.usatoday.com/2017/06/09/private-college-tuition-is-rising-faster-than-inflation-again/">outpacing inflation</a>.</p>
<p>Yet the House Ways and Means Committee, which writes tax legislation, <a href="https://waysandmeans.house.gov/wp-content/uploads/2017/11/WM_TCJA_PolicyHighlights.pdf">is defending</a> the proposed changes. It denies that they would augment the sticker shock that comes with higher ed.</p>
<p>Instead, the committee says the overhaul would merely “streamline higher education benefits to help families save for and better afford college tuition and other education expenses.” </p>
<p>But I find it hard to foresee any outcome other than an increase in <a href="https://surlysubgroup.com/2017/11/06/gop-raises-taxes-on-graduate-students-or-does-it/">unaffordabability</a> at a time when Americans <a href="https://www.cnbc.com/2017/08/29/student-loan-balances-jump-nearly-150-percent-in-a-decade.html">owe more than $1.4 trillion</a> in student loan debt.</p><img src="https://counter.theconversation.com/content/86913/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Ted Afield does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Republican lawmakers say the proposed changes to the tax code would ‘streamline’ higher ed benefits. But this overhaul would squeeze many, if not most, students and schools.Ted Afield, Associate Clinical Professor and Director of the Philip C. Cook Low-Income Taxpayer Clinic, Georgia State UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/869122017-11-08T11:16:25Z2017-11-08T11:16:25ZGOP plan to tax college endowments like Yale’s and Harvard’s would be neither fair nor effective<figure><img src="https://images.theconversation.com/files/193647/original/file-20171107-6766-1k9z6zs.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Harvard, located along the Charles River in Cambridge, boasts the largest endowment at $37.6 billion.
</span> <span class="attribution"><span class="source">Jorge Salcedo/Shutterstock.com</span></span></figcaption></figure><p>Tucked away in the recently <a href="https://waysandmeansforms.house.gov/uploadedfiles/bill_text.pdf">announced GOP tax bill</a> is a small item you may have missed: a new tax on university endowments. As I have spent decades working in higher education, the proposal immediately piqued my interest.</p>
<p><a href="http://www.investopedia.com/ask/answers/06/universityendowment.asp">Colleges create endowments</a> by raising funds from alumni, companies and other donors, invest the money in stocks, bonds and other assets, and use the returns to fund student aid programs, professors’ salaries and any other expenses needed to run a college. Republicans want to slap a 1.4 percent tax on certain endowments’ investment income, also known as their returns.</p>
<p>Some college leaders are already <a href="http://www.acenet.edu/news-room/Pages/Statement-by-ACE-President-Ted-Mitchell-on-the-House-Tax-Reform-Proposal.aspx">howling</a> at the proposal – and at <a href="http://www.cnn.com/2017/11/04/opinions/tax-plan-student-loans-dancy-opinion/index.html">several others</a> in the tax bill targeting higher education – arguing it would threaten their autonomy and reduce support for poorer students. </p>
<p>Since tax revenue to run the government has to come from somewhere, I believe colleges and universities are fair game. To me, the questions that matter are simple: Is the tax itself fair? And would it be effective?</p>
<h2>Endowments swell in size</h2>
<p>Republicans have <a href="https://www.bloomberg.com/news/articles/2017-04-18/universities-seek-to-defend-endowments-from-republican-tax-plan">expressed concern about the tax-exempt status</a> of college endowments for several years, arguing the largest ones aren’t spending enough on tuition assistance and questioning how the funds are managed. </p>
<p>Such endowments have grown dramatically recently, presenting a juicy target for GOP lawmakers looking for revenue to offset <a href="https://www.nytimes.com/2017/11/02/us/politics/tax-plan-republicans.html?_r=0">nearly $1.5 trillion</a> in tax cuts for companies and individuals. </p>
<p>Post-secondary institutions <a href="https://nces.ed.gov/programs/digest/d16/tables/dt16_333.90.asp">reported a total of $547 billion</a> in endowment assets as of 2016, up 54 percent from five years earlier, shortly after they got whacked by the financial crisis. And in the preceding academic year, from 2014 to 2015, schools earned a total of $26 billion off their endowment assets.</p>
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<p>Currently, <a href="https://nces.ed.gov/programs/digest/d16/tables/dt16_333.90.asp">Harvard University boasts the largest</a> endowment, at $37.6 billion – more than neighboring state <a href="https://www.bea.gov/newsreleases/regional/gdp_state/qgsp_newsrelease.htm">Vermont’s entire annual GDP</a>.</p>
<p>Harvard, however, is not alone in having a hefty endowment. Fellow private universities Yale, Stanford and Princeton all have <a href="https://nces.ed.gov/programs/digest/d16/tables/dt16_333.90.asp">more than $20 billion each</a>, as does the public University of Texas. The 10 biggest endowments combined were worth more than $183 billion in 2016, about a third of the total. </p>
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<h2>How the tax would work</h2>
<p>Republicans aren’t targeting all schools with an endowment, however, or even only large ones. </p>
<p>Their plan has <a href="https://www.cnbc.com/2017/11/03/tax-reform-hits-college-endowments-and-maybe-tuition-and-scholarships.html">three criteria</a>: To be taxed, a school must be private, enroll at least 500 students and have an endowment that amounts to at least $250,000 per student – up from an earlier proposal of $100,000. This means all public colleges are exempt, as are private schools with an endowment smaller than $125 million or a disproportionately large or small student body.</p>
<p>One other requirement is that an endowment must actually earn a return on its investments to be taxed. Many do not in any given year.</p>
<p>Some of the largest endowments generate quite a bit of money. During the 2014 to 2015 academic year, Yale earned the most of any university, returning $2.55 billion – or more than $200,000 for every one of its 12,385 students. Princeton came second at $2.51 billion, while Harvard’s endowment returned $2.23 billion. </p>
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<h2>How much it would raise</h2>
<p>The earlier proposal, which was detailed only last week, would have affected about 150 of the <a href="https://nces.ed.gov/ipeds/Home/AboutIPEDS">3,922 colleges that have an endowment</a>, yielding what I estimated would have amounted to just under $270 million based on the 2014-15 academic year. Republicans said the tax would reap $3 billion over a decade. </p>
<p>The latest version, with the much higher threshold, <a href="https://www.washingtonpost.com/news/grade-point/wp/2017/11/07/house-gop-trims-total-of-colleges-targeted-for-new-endowment-tax/?utm_term=.e6373aff8e0a">would affect fewer than half that</a>, or roughly 60 to 70 schools. That would probably not lower the amount raised that much since only a handful of primarily elite schools will pay almost all of the tax. </p>
<p>Most colleges, on the other hand, would not pay very much. For example, Carleton College in Minnesota, which ranks in the middle of the tax list, would owe about $250,000. Some colleges, such as Emory in Atlanta, whose endowment lost almost $160 million in the period, most likely would receive a tax credit, useful for deferring this tax in the future.</p>
<h2>Is the tax fair?</h2>
<p>Fair <a href="http://businessmacroeconomics.com/">tax systems</a> do not punish select groups. The bill as currently written fails this criterion. </p>
<p>The bill primarily punishes the Ivy League and a small number of other elite private universities like Stanford, MIT, Notre Dame and Duke. These four schools, along with seven of the eight Ivy League colleges, would have paid about $200 million of the total tax, according to my calculations. </p>
<p>While lawmakers have expressed concern over large endowments, the tax does not punish universities just for amassing a huge amount of money. I work for <a href="https://www.osu.edu/">The Ohio State University</a>, which has a $3.6 billion endowment, but it is exempt since it’s a public college. </p>
<p>Regional rival the University of Michigan, with an endowment of almost $10 billion, is similarly exempt, as is the University of Texas system, which has the third-largest endowment, at $22.5 billion. </p>
<p>The tax is also unfair even among private universities, since those with large endowments but very small or large student bodies would not be taxed. </p>
<p>For example, Rockefeller University in New York City has a $2 billion endowment, which returned $111 million in 2014-2015. But it does not have enough students to be taxed under the present plan. On the other end, Brigham Young University in Utah has a $1.58 billion endowment and earned $202 million in investment income during that period, yet its large student body means it wouldn’t pay a tax either. </p>
<p>If the goal is to raise revenue from colleges that collect large amounts of tax-free donations, limiting the tax to just a few private institutions is simply punitive.</p>
<h2>Who’s a student?</h2>
<p>Another problem is that the proposal uses the number of students to determine whether to apply the tax.</p>
<p>The bill states the count of students “shall be based on the daily average number of full-time students attending such intuitions (with part-time students taken into account on a full-time student equivalent basis).”</p>
<p>I believe this would allow schools to find creative ways to avoid paying the tax, just as <a href="https://itep.org/3-percent-and-dropping-state-corporate-tax-avoidance-in-the-fortune-500-2008-to-2015/">Fortune 500 companies do</a>. The student body figures reported to the Department of Education count part-time students the same as those matriculating full-time. So schools would have to compute a new number based on the “full-time equivalent” calculation, which creates ample room for creative accounting. </p>
<p>For example, many schools provide executive education and extension programs for individuals who are generally not considered students. But you can expect many schools to turn them into students, and the same goes for people enrolled in <a href="https://library.educause.edu/topics/teaching-and-learning/massive-open-online-course-mooc">massive open online courses</a>, or MOOCs. Given that <a href="https://www.onlinestudies.com/news/How-Many-Students-Enrolled-in-MOOCs-in-2016/-1390/">58 million people signed up for MOOCs</a> in 2016, this would not be a particularly high hurdle.</p>
<p>An effective tax is one that is not easy to evade. The proposed bill is not very effective because it is easy to evade.</p>
<h2>A fairer approach</h2>
<p>Republicans presented their plan as a method of <a href="https://www.politico.com/agenda/story/2017/11/02/trump-republican-tax-plan-not-simple-000569">simplifying the tax code</a>. The tax on private colleges’ investment income does not accomplish this but rather makes things even more complicated.</p>
<p>If endowment earnings are going to be taxed, a fair approach would be to keep things simple. Just institute a tax on endowment income from all colleges and universities, regardless of number of students or whether it’s public or private. This would have raised about $359 billion – not a lot more, but it would do it a lot more simply, fairly and effectively.</p>
<p>In general, I am not against taxing university endowments or investments. However, if we are going to do it, the tax needs to be fair and not have giant loopholes. The current bill is a punitive mess that is extremely suspect in its long-term ability to raise money.</p><img src="https://counter.theconversation.com/content/86912/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Jay L. Zagorsky does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Colleges and universities boast US$547 billion in endowment assets, yet only a handful of elite schools would be taxed under the proposal.Jay L. Zagorsky, Senior Lecturer, Boston UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/857902017-10-17T00:49:00Z2017-10-17T00:49:00ZWhy Harvey Weinstein can’t redeem himself through charity alone<figure><img src="https://images.theconversation.com/files/190482/original/file-20171016-31016-lbmqs1.jpg?ixlib=rb-1.1.0&rect=326%2C0%2C3251%2C1637&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Filmmaker Harvey Weinstein, shown attending a concert to raise money for the Robin Hood Foundation in 2013. </span> <span class="attribution"><a class="source" href="http://www.apimages.com/metadata/Index/inVision-Andy-Kropa-Invision-AP-A-ENT-NY-USA-IN-/3251833a3b7a4361a8b7052a6a4eaace/12/0">Photo by Andy Kropa/Invision/AP</a></span></figcaption></figure><p>As allegations of sexual harassment, abuse and rape topple his career and wipe out his clout, Hollywood mogul Harvey Weinstein is apparently trying <a href="http://www.hollywoodreporter.com/news/harvey-weinstein-cites-jay-z-nra-bizarre-statement-ny-times-expose-1046152">to contain the blaze with generosity</a>. So far, he isn’t finding takers for this contrition cash.</p>
<p>Fast-tracking a plan he claimed was in the works for a year, Weinstein said in his <a href="http://www.hollywoodreporter.com/news/harvey-weinstein-cites-jay-z-nra-bizarre-statement-ny-times-expose-1046152">initial public statement</a> about his monstrous behavior that he would donate US$5 million to the University of Southern California in scholarship money for women directors. The <a href="http://www.hollywoodreporter.com/news/usc-rejects-harvey-weinsteins-5m-womens-program-donation-1047487">school declined</a> that gift. He also pledged to leverage his wealth and – what he expected would continue to be – his power to advance gun control, swearing to “give the NRA my full attention.”</p>
<p>As a political philosopher who studies the ethics of philanthropy, I see the Weinstein scandal as embodying an important question: Can the rich and powerful redeem their reputations through acts of generosity?</p>
<h2>‘Blood money’</h2>
<p>Offering money as a form of atonement is easier for Weinstein than finding someone who will accept it now that the source is so tainted. As the <a href="https://www.change.org/p/the-university-of-southern-california-reject-harvey-weinstein-s-5-million-foundation-for-the-usc-school-of-cinematic-arts">Change.org petition</a> started by a USC student put it, these donations are “blood money” intended to distract the public and purchase forgiveness.</p>
<p>There’s nothing new about rich and powerful men who try to strip the tarnish off their reputations through philanthropy. For centuries, the Catholic Church encouraged rich people to purchase “<a href="http://www.nytimes.com/2009/02/10/nyregion/10indulgence.html">indulgences</a>” as tickets to heaven. Martin Luther’s disgust with this practice helped spark the <a href="http://www.theopedia.com/protestant-reformation">Protestant Reformation</a>.</p>
<p>“Robber baron” philanthropists like steelmaker <a href="https://www.biography.com/people/andrew-carnegie-9238756">Andrew Carnegie</a> and oilman <a href="http://www.history.com/topics/john-d-rockefeller">John D. Rockefeller</a> still <a href="http://www.slate.com/articles/news_and_politics/history_lesson/2006/11/looking_the_carnegie_gift_horse_in_the_mouth.html">raise hackles</a> for how they gave away money amassed through ruthless business tactics.</p>
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<a href="https://images.theconversation.com/files/190485/original/file-20171016-31016-ysbnz.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/190485/original/file-20171016-31016-ysbnz.png?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/190485/original/file-20171016-31016-ysbnz.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=848&fit=crop&dpr=1 600w, https://images.theconversation.com/files/190485/original/file-20171016-31016-ysbnz.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=848&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/190485/original/file-20171016-31016-ysbnz.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=848&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/190485/original/file-20171016-31016-ysbnz.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1066&fit=crop&dpr=1 754w, https://images.theconversation.com/files/190485/original/file-20171016-31016-ysbnz.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1066&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/190485/original/file-20171016-31016-ysbnz.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1066&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">John D. Rockefeller (left) and John D. Rockefeller Jr. gave a large share of their fortune, made in the oil business, to charity.</span>
<span class="attribution"><a class="source" href="https://commons.wikimedia.org/wiki/File:Rockefellers.png">American Press Association</a></span>
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<p>More recently, the <a href="https://theconversation.com/oxycontin-how-purdue-pharma-helped-spark-the-opioid-epidemic-57331">Sackler family</a>, which made its fortune in pharmaceuticals, has come under fire. Until news of their role in <a href="https://www.statnews.com/2016/05/12/man-center-secret-oxycontin-files/">creating the opioid crisis</a> through aggressive marketing emerged, the Sacklers were best known for <a href="https://www.huffingtonpost.com/allen-frances/connecting-the-dots-between-the-opioid-epidemic-and-philanthropy_b_11996752.html">major gifts</a> to universities and museums.</p>
<p>A <a href="http://wfpl.org/opioids-on-trial-can-lawsuits-help-fix-the-addiction-crisis/">series of lawsuits</a> is starting to change that reputation.</p>
<p>And the UCLA law school accepted a $10 million donation from <a href="http://www.motherjones.com/politics/2011/08/lowell-milken-institute-ucla/">Lowell Milken</a>, who nearly went to jail with his brother Michael for their role in the <a href="http://www.businessinsider.com/michael-milken-life-story-2017-5">junk bond scandal</a>, in 2011. That move prompted <a href="https://dealbook.nytimes.com/2011/08/22/milkens-gift-provokes-dispute-at-u-c-l-a-law-school/?_r=0">Lynn A. Stout</a>, a business law scholar, to <a href="https://papers.ssrn.com/sol3/cf_dev/AbsByAuth.cfm?per_id=23266">leave the school</a>.</p>
<h2>Real philanthropy</h2>
<p>Despite those precedents, philanthropy is about benefiting society, not repentance. Done well, it requires a thoughtfully selected worthy cause and a wise strategy to advance it, coupled with respect for all the stakeholders involved and compliance with the law.</p>
<p>Reasonable people can disagree about whether other characteristics also matter, how to rank these criteria and what constitutes a good cause. What about motives? </p>
<p>Donors who make big donations to advance their business interests appear to betray philanthropy’s main purposes. Conflicts of interest, or even their appearance, can make philanthropy <a href="https://www.washingtonpost.com/politics/trump-foundation-apparently-admits-to-violating-ban-on-self-dealing-new-filing-to-irs-shows/2016/11/22/893f6508-b0a9-11e6-8616-52b15787add0_story.html?utm_term=.f3e5bc148174">morally dubious and even illegal</a>.</p>
<p>And Weinstein’s gifts to support feminist causes – at least in the aftermath of revelations of sexual misconduct – reflect one giant conflict of interest. (New York state Attorney General Eric T. Schneiderman was already investigating corporate governance at <a href="https://www.nytimes.com/2017/09/23/nyregion/harvey-weinstein-charity.html">amfAR</a>, a New York-based charity that works to cure AIDS, over concerns raised by its support from Weinstein before this scandal unfolded.)</p>
<p>At least two institutions – <a href="http://www.nj.com/education/2017/10/california_school_rejects_weinstein_money_as_rutge.html">Rutgers University</a> and the <a href="http://variety.com/2017/politics/news/harvey-weinstein-clinton-foundation-1202590796/">Clinton Foundation</a> – have vowed to keep their Weinstein donations, arguing that they can do more good by using the money to advance good causes than by returning it.</p>
<p>Meanwhile, many politicians, including former Democratic presidential nominee <a href="http://www.politico.com/story/2017/10/11/harvey-weinstein-democrats-fundraising-243684">Hillary Clinton</a>, are either returning money he gave their campaigns or donating those sums to charity.</p>
<p>It seems clear that his attempt to cover the cost of women seeking a degree in filmmaking, announced as his scandal broke, was a desperate attempt to deflect blame and salvage his reputation.</p>
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<h2>The German example</h2>
<p>“Guys, I’m not doing OK but I’m trying. I got to get help. You know what, we all make mistakes,” Weinstein said a few days later, as more <a href="https://www.thedailybeast.com/harvey-weinstein-speaks-we-all-make-mistakes">women spoke out</a> about how the now-disgraced producer had demanded sexual favors in exchange for movie roles for decades.</p>
<p>Are there conditions under which the court of public opinion owes wrongdoers the “second chance” he said he hoped might be in store?</p>
<p>I suggest that Germany provides an instructive example. In the aftermath of the Holocaust and the other horrors its Nazi government meted out, that country underwent a profound period of collective soul-searching.</p>
<p>In a nationwide attempt to atone for its crimes against humanity, West Germany honored the outcomes of the <a href="https://www.ushmm.org/outreach/en/article.php?ModuleId=10007722">Nuremberg Trials</a>, imposed by the Allies. But it also took <a href="https://hub.jhu.edu/magazine/2015/summer/germany-japan-reconciliation/">numerous and considerable steps</a> on its own accord to try to make amends.</p>
<p>West Germany held its own tribunals two decades after World War II, the <a href="http://www.theholocaustexplained.org/ks4/survival-and-legacy/what-became-of-the-perpetrators/the-frankfurt-auschwitz-trials-1963-1967/#.WeTmm2hSxM0">Frankfurt Auschwitz Trials</a>, to punish Holocaust conspirators not tried at Nuremburg. It made Holocaust denial a serious crime – and Germany <a href="https://www.nytimes.com/aponline/2017/10/16/world/europe/ap-eu-germany-neo-nazi-convicted.html">continues to do so</a> today, long after reunification.</p>
<p>The country is dotted with <a href="https://www.thelocal.de/20161019/how-germany-remembers-the-holocaust-world-war-two-nazis-jewish-history-germans">memorials</a> and <a href="https://www.science.co.il/jewish/Museums.php">Jewish museums</a>. Its educational curriculum includes frank historical accounts of the nation’s tarnished past. And it has voluntarily paid more than <a href="https://www.nbcnews.com/nightly-news/death-train-will-germany-finally-pay-holocaust-survivors-iasi-n778336">$70 billion in reparations</a> to Israel and individual Jewish survivors.</p>
<p>Though none of these acts can excuse the Third Reich’s despicable behavior, many people perceive them as authentic displays of atonement. What’s more, these efforts made it possible for Germany gradually to resume its place as a member of the international community in <a href="http://www.pewglobal.org/2017/06/15/favorable-views-of-germany-dont-erase-concerns-about-its-influence-within-eu/">good standing</a>.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/190484/original/file-20171016-30979-324woh.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/190484/original/file-20171016-30979-324woh.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/190484/original/file-20171016-30979-324woh.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=393&fit=crop&dpr=1 600w, https://images.theconversation.com/files/190484/original/file-20171016-30979-324woh.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=393&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/190484/original/file-20171016-30979-324woh.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=393&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/190484/original/file-20171016-30979-324woh.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=494&fit=crop&dpr=1 754w, https://images.theconversation.com/files/190484/original/file-20171016-30979-324woh.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=494&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/190484/original/file-20171016-30979-324woh.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=494&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">The Memorial to the Murdered Jews of Europe is located in the heart of Berlin.</span>
<span class="attribution"><a class="source" href="https://commons.wikimedia.org/wiki/File:Berlin-_German_Jewish_Holocaust_Memorial_-_3212.jpg">Jorge Royan</a>, <a class="license" href="http://creativecommons.org/licenses/by-sa/4.0/">CC BY-SA</a></span>
</figcaption>
</figure>
<h2>Applying the German model</h2>
<p>Here is how I believe that disgraced rich and powerful people can learn from Germany’s example. Imagine that Weinstein had first issued an earnest apology, instead of <a href="http://www.hollywoodreporter.com/news/harvey-weinstein-cites-jay-z-nra-bizarre-statement-ny-times-expose-1046152">rambling defensively</a> after <a href="https://www.nytimes.com/2017/10/15/insider/sexual-harassment-weinstein-oreilly.html">The New York Times</a> first reported his protracted abuse.</p>
<p>Then imagine Weinstein welcoming and dutifully complying with the legal and professional investigations about his conduct that are in the works. And then picture him graciously accepting any verdicts and serving any sentences required of him for <a href="https://www.cbsnews.com/news/harvey-weinstein-rape-sexual-misconduct-allegations-mount/">the crimes he has allegedly committed</a>. Visualize, if you can, Weinstein keeping himself checked into <a href="http://people.com/movies/harvey-weinstein-going-to-residential-treatment-facility-following-sexual-harassment-scandal/">rehabilitation clinics</a> and enrolled in courses on gender inequality as long as he isn’t behind bars. </p>
<p>Now suppose that after all of this hypothetical behavior, Weinstein would then meet with victims of sexual abuse and experts in grantmaking. And that with their guidance, he would give away what’s left of his fortune – currently estimated to be in the neighborhood of <a href="http://time.com/money/4978630/harvey-weinstein-net-worth-money/">$250 million</a> – to advance gender justice and end workplace harassment and sexual abuse.</p>
<p>None of these efforts I have conjured up would excuse Weinstein’s behavior. But I contend that in such a case, it would make sense for charities and universities at least to consider taking his money.</p>
<p>Sensitive acts of this kind of <a href="http://www.cairn-int.info/focus-E_MANA_193_0203--organisational-indulgences-or-abuse-of.htm">compensatory philanthropy</a> can be an acceptable part of a process of making amends for past crimes. To count as legitimate, however, acts of charity as penance cannot substitute for official punishment for civil and criminal misconduct and they must be closely related to the crimes.</p>
<p>No matter what, money can never replace genuine contrition and rehabilitation. </p>
<p>And such donors should cede control over how their money is spent. Germany, for instance, did not demand that recipients of reparations spend the money in specific ways. Rich and powerful wrongdoers should likewise not seek to micromanage or receive a seat on the board of organizations they fund.</p>
<p>It’s hard, in other words, to give large sums of money away as one of several steps toward atonement for heinous crimes. This is just as should it be.</p><img src="https://counter.theconversation.com/content/85790/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Ted Lechterman does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Offering money as a form of atonement is easier for the movie mogul than finding someone who will accept it.Ted Lechterman, Postdoctoral Fellow, Stanford University McCoy Family Center for Ethics in SocietyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/813062017-08-21T19:03:04Z2017-08-21T19:03:04ZSouth African universities need to rethink how they invest their millions<figure><img src="https://images.theconversation.com/files/182109/original/file-20170815-26751-103xl1v.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The Rhodes Must Fall movement accused the University of Cape Town of having blood on its hands for investing in the mining company Lonmin. </span> <span class="attribution"><span class="source">Ian Barbour/flickr</span></span></figcaption></figure><p>Universities are no longer simply institutions of learning. Over the past 50 years, they have also become important players in global financial markets. They have become institutional investors. </p>
<p>Universities have to decide what to do with the pension fund contributions of their staff. They also receive large monetary donations from alumni and other private donors. This money – millions, sometimes billions of dollars – goes into university investment funds. These can be managed internally or delegated to investment managers. </p>
<p>Harvard University in the US has the biggest endowment fund in the world with <a href="https://thebestschools.org/features/richest-universities-endowments-generosity-research/">USD$32.7 billion</a>, while university endowment funds in the UK hold between <a href="https://www.timeshighereducation.com/news/analysis-which-university-has-the-deepest-pockets/163860.article">£2.5 million and £1 billion</a>. Pension funds in the US and UK are even more substantial. For example, the California University pension fund boasts more than <a href="https://www.towerswatson.com/en-GB/Insights/IC-Types/Survey-Research-Results/2015/09/The-worlds-300-largest-pension-funds-year-end-2014">USD$70 billion</a>.</p>
<p>University funds in southern Africa are much smaller, but some are still significant. According to our calculations, the universities with the largest endowments are all in South Africa, with the top five representing a little less than USD$1 billion collectively. The pension funds of the top 10 universities in the region come to around USD$3,6 billion. </p>
<p>The question of how universities choose to invest all this money is increasingly coming under scrutiny. In the <a href="https://gofossilfree.org/commitments/">US, Europe, Australia and New Zealand</a> universities’ pension funds and endowment funds are starting to align their investment portfolios with the social concerns of their students and staff.</p>
<h2>Putting assets to work for a better world</h2>
<p>In the 1970s student and staff activists at US universities put serious pressure on their managements to stop investing in companies involved in the Vietnam war or, later on, in apartheid South Africa.</p>
<p>Today climate change is the issue that’s increasingly dominating the activist agenda on university campuses. Since 2012, <a href="https://350.org/">350.org</a>, a climate change activist movement, has been pushing for total <a href="https://fossilfreesa.org.za/">disinvestment from fossil fuels</a> – with <a href="https://www.theguardian.com/environment/2015/sep/22/leonardo-dicaprio-joins-26tn-fossil-fuel-divestment-movement">some significant victories </a>. Student activists in the US have also called successfully for disinvestment from <a href="http://www.latimes.com/local/education/la-me-uc-divestment-prisons-20151226-story.html">prisons</a>.</p>
<p>In 2005 the UN established a responsible investment coalition called the <a href="https://www.unpri.org/">Principles for Responsible Investment</a>. Signatories pledge to invest according to <a href="https://www.unpri.org/about">six principles</a>, aiming to achieve long-term sustainable investment returns and benefits for society as a whole. So far over 1000 investment managers <a href="https://www.unpri.org/directory/">have signed up</a>, making it the biggest coalition of this kind in the world.</p>
<p>A few academic institutions have signed up too. Harvard’s USD$35 billion <a href="http://news.harvard.edu/gazette/story/2014/04/harvard-to-sign-on-to-united-nations-supported-principles-for-responsible-investment/">University Endowment Scheme</a> joined in 2014. And at least four retirement funds, endowment funds or foundations linked to tertiary education institutions in the US and Europe <a href="https://www.unpri.org/signatory-directory/?co=&sta=3%2C5&sti=&sts=&sa=join&si=join&ss=join&q=">signed up</a> this year. As was the case with Harvard, this has often happened under pressure from student activists. </p>
<h2>Progress at South African universities</h2>
<p>So far no universities in South Africa or Africa have signed the principles. But there are signs that the idea of responsible investment is starting to gain some traction – especially within the heightened activism at South African universities.</p>
<p>For example, the <a href="https://fossilfreesa.org.za/">South Africa fossil free disinvestment campaign</a> has made significant progress at the University of Cape Town. After a four-year campaign, the university’s convocation of alumni and students this year voted to <a href="https://fossilfreesa.org.za/2017/03/02/coal-oil-and-gas-investments-to-be-phased-out-uct-convocation-votes/">support a motion</a> to disinvest from fossil fuels.</p>
<p>The <a href="http://www.npr.org/sections/goatsandsoda/2015/03/28/395608605/why-south-african-students-say-the-statue-of-rhodes-must-fall">Rhodes Must Fall</a> movement also brought the issue of workers’ exploitation into focus. It accused leadership at the University of Cape Town of having <a href="http://www.groundup.org.za/article/rhodes-must-fall-uct-lonmin-and-pension-funds_3263/">blood on its hands</a> for being invested in Lonmin at the time of the <a href="http://www.sahistory.org.za/article/marikana-massacre-16-august-2012">Marikana Massacre</a>.</p>
<p>This was closely followed by nationwide <a href="https://www.dailymaverick.co.za/opinionista/2016-10-10-feesmustfall-the-eye-of-the-hurricane/#.WZLXtoSGOM8">Fees Must Fall</a> protests. Protesters called on government to provide free education for all. In doing so, they challenged the idea that universities should operate as businesses according to free market principles. They also challenged the role of the university in society by calling for decolonisation of the institution.</p>
<p>Since then the University of Cape Town’s council <a href="https://fossilfreesa.org.za/about/uct-campaign-timeline/">has agreed</a> to design a responsible investment policy. This makes it the first known Southern African university to do so.</p>
<h2>Paradigm shift</h2>
<p>For this movement to truly take off in Southern Africa’s universities, there needs to be a paradigm shift at the level of university management.</p>
<p>As stressed by the <a href="http://www.ucop.edu/investment-office/_files/sustainable-investment-framework.pdf">University of California</a>, becoming a responsible investor is not about giving up on financial returns. Rather it’s about finding ways to achieve these while addressing societal challenges and opportunities. A responsible investor can decide to disinvest from environmentally and socially harmful sectors, but also to support new investment opportunities such as renewable energy. </p>
<p>An institutional investor that takes its responsibility towards future generations seriously should reflect on its values to take informed decisions on how financial returns can be better achieved. Fortunately it’s becoming easier to do this thanks to a surge in innovative investment strategies and funds that seek to achieve both good financial returns and positive social impacts. The <a href="http://www.gsb.uct.ac.za/impact-barometer">African Investing for Impact Barometer</a> – a research project that we run for the Bertha Centre for Social Innovation and Entrepreneurship at the UCT Graduate School of Business – charts the rise of opportunities like this and shows that impact investing on the continent is booming. </p>
<p>This trend, combined with activism, can persuade universities to become more proactive, creative and responsible investors. </p>
<p>Student and staff activists have clearly begun to interrogate the links between social and environmental issues and their universities’ investment choices. For university management, these questions present an opportunity to think about how their investment portfolios can be used address the social concerns of their students and staff. Universities – being both institutional investors and places of education – can ultimately find improved investment solutions that create a more sustainable future for the generations of learners to come.</p><img src="https://counter.theconversation.com/content/81306/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Stephanie Giamporcaro receives funding from Government of Flanders</span></em></p><p class="fine-print"><em><span>Xolisa Dhlamini is on a Bertha Scholarship for his PhD Studies funded by the Bertha Centre, a specialized unit within the UCT Graduate School of Business. Xolisa volunteers as a member of the investment subcommittee at the Institute for Retirement Funds Africa (IRFA). </span></em></p>Universities have the power to transform society not just through how they operate their campuses, but also through how they invest their endowments and pensions funds.Stephanie Giamporcaro, Associate professor UCT GSB / Readership Responsible and Sustainable Finance NTU NBS, University of Cape TownXolisa Dhlamini, PhD Candidate and Bertha Scholar and Researcher, UCT Graduate School of Business, University of Cape TownLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/546342016-02-24T11:09:21Z2016-02-24T11:09:21ZHow should we measure the size of a university’s endowment?<figure><img src="https://images.theconversation.com/files/112165/original/image-20160219-25876-19k1ks5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The statue of John Harvard, the first benefactor of Harvard University</span> <span class="attribution"><a class="source" href="https://www.flickr.com/photos/wallyg/4849232899/in/photolist-8ovzZM-858sBw-nypDAr-czKFAh-8qtR7c-8qnfkg-4ym5tR-9XVGXv-d3bDJA-9dMdqe-6sRf8f-e7Pe1f-cEg6Zq-eaDcAF-e5V6SB-6ujzz-cEg793-eaDcEa-e9jsA6-e9q9md-jeZKK-8bRn4y-r15thD-838YMR-83962x-DnKFY1-773HGg-cF9mg7-83caBd-oaxkmM-8ovzVn-2SQ5X-83c9sE-DiCqH3-8oyL6f-8bN4X8-8ovA7c-dyRZg2-83c7zj-8395DX-82t8Ku-8qbCcx-7ytuvh-cF9kXS-6o5Qeo-ke3q5H-by5PUn-8qeLRo-8q7nwg-773NHz">Wally Gobetz</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc-nd/4.0/">CC BY-NC-ND</a></span></figcaption></figure><p>Congress is rattling its saber at colleges and universities with endowments worth U$1 billion or more. Committees from the House and Senate have sent a joint <a href="http://chronicle.com/items/biz/pdf/harvard.pdf">letter</a> to <a href="http://chronicle.com/article/Congress-Again-Scrutinizes/235238">56</a> private colleges and universities, asking for comprehensive information about endowment spending and management policies. </p>
<p>Thomas W. Reed, representative for New York’s 23rd Congressional District, is <a href="http://www.bloomberg.com/news/articles/2016-01-08/richest-u-s-schools-could-lose-tax-status-in-endowment-proposal">talking about</a> legislation that would require colleges and universities with endowments of $1 billion or more to spend 25 percent of their endowment earnings on financial aid or forfeit their tax-exempt status. </p>
<p>But what is so significant about the $1 billion mark? Are all endowments with $1 billion so huge that Congress should treat them differently than endowments with less than $1 billion? And are all endowments less than $1 billion so small that Congress should ignore them? </p>
<p>From my perspective as a professor who has <a href="http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1124544">studied endowments</a>, the only real significance of $1 billion is that it shocks the public because it sounds like so much money. </p>
<p>What really matters is how much buying power a school needs and how much buying power an endowment has. The bigger a school’s budget, the more endowment is necessary. To figure out which colleges and universities have large endowments, you have to consider a school’s expenses. </p>
<h2>How do endowments work?</h2>
<p>An endowment is like a savings account that exists to support college or university operations. The assets in an endowment usually come from donations. The funds in an endowment are invested; each year a school spends a portion of these returns and then puts the remainder back into the endowment. </p>
<p>In good financial times, an endowment allows a school to spend more on priorities like financial aid, research budgets or professor salaries. In bad financial times, an endowment acts like a rainy day fund to ensure that schools will not have to dramatically reduce spending in important areas. </p>
<p>Because an endowment’s primary purpose is to support institutional operations, the strength of a $1 billion endowment is relative to the size of an institution’s expenses. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/112167/original/image-20160219-25879-1qid2e0.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/112167/original/image-20160219-25879-1qid2e0.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=448&fit=crop&dpr=1 600w, https://images.theconversation.com/files/112167/original/image-20160219-25879-1qid2e0.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=448&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/112167/original/image-20160219-25879-1qid2e0.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=448&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/112167/original/image-20160219-25879-1qid2e0.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=563&fit=crop&dpr=1 754w, https://images.theconversation.com/files/112167/original/image-20160219-25879-1qid2e0.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=563&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/112167/original/image-20160219-25879-1qid2e0.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=563&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">How does an endowment work?</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/9731367@N02/7643873724/in/photolist-cDsRmh-b4PNL-9VAqRa-ADzhKr-4HQZWd-fQo3cD-9Px5o-6v5ACQ-9VCot1-7qu6x-cFrCB-omurUD-aFAHsp-eecbFK-7Qmd-3e1FpU-92FCG5-fKcz8e-oofpvV-RgsDf-omhzdu-a2YaDD-eKaR58-bopgvh-9VzCpn-48FKMH-DuWArf-576m2j-62QFjm-aFAKZi-Mbx9b-aFAtAX-8JCrTE-ocaM29-aFDfrk-62QF77-86tWQ3-8x2kD7-deoiw-2jacHy-3CFcEf-5mPhd4-oC5PMb-7t1B8d-aSRbK4-a1pVMw-aFABT4-iVg5NY-AJ8xr-7oqmYy">Philip Taylor</a>, <a class="license" href="http://creativecommons.org/licenses/by-sa/4.0/">CC BY-SA</a></span>
</figcaption>
</figure>
<p>To illustrate, I want to take a closer look at three of the schools that received the congressional request for information because they have endowments of $1 billion or more. In the context of this discussion, there’s nothing particularly special about these three schools except that they demonstrate why expenses are relevant to endowment size.</p>
<p>Each year, the <a href="http://www.nacubo.org/Documents/EndowmentFiles/2015_NCSE_Endowment_Market_Values.pdf">National Association of College and University Business Officers</a> ranks endowments by their absolute value. In 2015, Harvard was at the top of the heap with an eye-popping $36.4 billion endowment. Vanderbilt University was in 23rd place, with $4.1 billion. Grinnell College was considerably farther back, coming in 50th with an endowment of almost $1.8 billion. </p>
<p>Now let’s add a fourth school to the mix: Colgate University. As before, in the context of this discussion there’s nothing special about Colgate except that it helps illustrate why endowments and expenses need to be considered simultaneously. </p>
<p>When measured only by absolute endowment value, Colgate is way behind Harvard, Vanderbilt and Grinnell. Colgate comes in 103rd place, with an $892 million endowment. And Colgate was spared the congressional letter because its endowment did not exceed the $1 billion threshold. </p>
<h2>Expenses matter</h2>
<p>Now consider these same schools, this time in light of both absolute endowment value and all expenses – the costs incurred to fulfill the school’s educational mission, to administer the institution and to fundraise. Unsurprisingly, these four schools have wildly different expenses. Harvard and Vanderbilt are large research universities, while Grinnell and Colgate are small liberal arts colleges.</p>
<p>In 2013 (the most recent year for which data is readily available), <a href="http://chronicle.com/interactives/executive-compensation#id=12240_166027_2013_private">Harvard</a> had expenses of $4.4 billion; <a href="http://chronicle.com/interactives/executive-compensation#id=16731_221999_2013_private">Vanderbilt</a>, $3.8 billion; <a href="http://chronicle.com/interactives/executive-compensation#id=18177_153384_2010_private">Grinnell</a>, $97.6 million; and <a href="http://chronicle.com/interactives/executive-compensation#id=13889_190099_2013_private">Colgate</a>, $172.2 million. There’s been a lot of <a href="https://net.educause.edu/ir/library/pdf/ffp0005s.pdf">discussion</a> about whether colleges and universities are doing enough to control costs. But to measure the strength of an endowment, we can assume that current institutional expenses are representative of future institutional expenses.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/112171/original/image-20160219-25888-4jd2co.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/112171/original/image-20160219-25888-4jd2co.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=375&fit=crop&dpr=1 600w, https://images.theconversation.com/files/112171/original/image-20160219-25888-4jd2co.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=375&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/112171/original/image-20160219-25888-4jd2co.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=375&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/112171/original/image-20160219-25888-4jd2co.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=471&fit=crop&dpr=1 754w, https://images.theconversation.com/files/112171/original/image-20160219-25888-4jd2co.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=471&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/112171/original/image-20160219-25888-4jd2co.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=471&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">An endowment helps fund scholarships and research budgets.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/kylebaker/4405613434/in/photolist-7HiVoj-q4tn8W-qiKGp3-q4tQUj-5j49bX-phyX2M-bEhzPg-bEhuVM-ptp75c-87ubF4-91TRTk-87uhRR-87uhWz-nCLx5Q-c3ryrL-Bys7hL-6y6WND-c3rAk7-nojwhq-eZH8uW-nojJzd-pDi5AR-fZumH6-h4nADg-h4o1YN-h4nLsq-h4nK55-h4oPnZ-h4nRqQ-h4nZLs-h4nZ3U-h4nLhf-h4nKNQ-h4oSQk-h4oNPp-h4nBME-fpsSMm-h4p1Xc-h4nPVr-h4nPVY-h4oKNp-pyM4nM-fPvJBd-4sZoMm-chk76u-rGeqsR-oy7sY6-h4oMHg-h4oZhi-h4oXKF">kylebaker</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc-sa/4.0/">CC BY-NC-SA</a></span>
</figcaption>
</figure>
<p>Grinnell’s endowment is so enormous that it can pay for a whopping 18 years of expenses, until today’s infants are ready to matriculate. Harvard’s endowment is large enough to cover eight years. And Colgate – which does not exceed the $1 billion threshold – can pay for five years.</p>
<p>But Vanderbilt, with its $4.1 billion endowment, cannot cover even two years’ worth of expenses. </p>
<p>Some <a href="http://papers.ssrn.com/sol3/papers.cfm?abstract_id=565241">academics</a> have argued that endowments are excessively large once the endowment can cover more than two years of expenses. <a href="http://chronicle.com/article/Endowments-Can-Become-Too-Much/8280">Others</a> have suggested that an endowment is much bigger than a school needs when it can pay for more than five years of expenses.</p>
<p>At some point, an endowment may become vastly larger than what a college or university needs to ensure its success. No school really needs an endowment that is large enough to cover a half-decade or more of expenses. But to determine whether an endowment is so large that it warrants different treatment than others, Congress must consider the endowment in relation to institutional costs. It cannot simply use $1 billion as some kind of magical threshold.</p>
<h2>Modifying endowment tax policy</h2>
<p>Favorable tax policy is one of the reasons that endowments can accumulate $1 billion or that a school can have an endowment large enough to cover 18 years of expenses. The government collects fewer tax dollars than it otherwise would because donations to endowments qualify for the charitable deduction, and endowments do not have to pay taxes on their investment returns. </p>
<p>In my view, schools like Harvard and Grinnell are going to fight tooth and nail to hang on to this preferential tax treatment. But when a college or university has an endowment that is large enough to cover its expenses for years and years into the future, I believe lawmakers should conclude that the forgone tax dollars would be better spent elsewhere. At some point, an endowment has such ample funds that it no longer needs government subsidy. This means goodbye to tax-free investment returns and to the charitable deduction.</p>
<p>Eliminating the charitable deduction may mean that donors would give less, but they would not stop giving altogether. As I’ve described <a href="http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1124544">elsewhere</a>, research has shown that the charitable deduction is only one of the reasons that donors give to colleges and universities. Some donors feel a responsibility to “give back” to their alma matter. Others desire the social status and public recognition that giving can provide, or want to influence institutional policy. <a href="http://www.journals.uchicago.edu/doi/10.1086/261662">Some people give</a> simply because it makes them feel good. For many donors, a combination of all these factors motivates them to give. </p>
<p>But even if eliminating the charitable deduction means that some donors would choose to direct their giving elsewhere, chances are that the recipient organization would need the donation more than a school with a very large endowment. </p>
<p>Although schools are unlikely to see it this way, less preferential tax treatment would actually be a sign of success: it means that donors have been so generous and the endowment has been so well-managed that the school now requires less public assistance than others do. </p>
<p>So, legislators should stop fixating on the $1 billion mark and instead evaluate endowments in their larger institutional context. </p>
<p>Before Congress singles out certain endowments for less preferential tax treatment, it needs to distinguish between endowments that sound obscenely large and those that actually are.</p><img src="https://counter.theconversation.com/content/54634/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Sarah Waldeck does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>A bill before Congress is proposing colleges and universities with endowments of at least $1 billion spend 25 percent of the money on financial aid. What is the proposal missing?Sarah Waldeck, Professor of Law, Seton Hall UniversityLicensed as Creative Commons – attribution, no derivatives.