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Victor Fleischer writes in the NYT that university endowments are exempt from corporate income tax because universities support the advancement and dissemination of knowledge. But instead of holding down tuition or expanding faculty research, endowments are hoarding money. Last year, Yale paid about $480 million to private equity fund managers for managing about $8 billion, one-third of Yale's endowment. In contrast, of the $1 billion the endowment contributed to the university's operating budget, only $170 million was earmarked for tuition assistance, fellowships and prizes. Private equity fund managers also received more than students at Harvard, the University of Texas, Stanford and Princeton.
Fleischer, a professor of law at the University of San Diego, says that as part of the reauthorization of the Higher Education Act expected later this year, Congress should require universities with endowments in excess of $100 million to spend at least 8 percent of the endowment each year. Universities could avoid this rule by shrinking assets to $99 million, but only by spending the endowment on educational purposes, which is exactly the goal. According to a study by the Center for College Affordability and Productivity a minimum payout of 5 percent per annum, would be is similar to the legal requirement for private and public foundations. "The sky-high tuition increases would stop, and maybe even reverse themselves. Faculty members would benefit from greater research support. University libraries, museums, hospitals and laboratories would have better facilities," concludes Fleischer. "We've lost sight of the idea that students, not fund managers, should be the primary beneficiaries of a university's endowment."
(Score: 3, Insightful) by Anonymous Coward on Friday August 21 2015, @01:06AM
1. Are the universities overpaying the endowment money managers?
Well, some probably are, especially in years where the endowment doesn't beat what the university could've gotten by investing in an S&P 500 index fund and other conservative investments. When the managers do handily beat the benchmark, though, the university is being prudent, to the extent that it isn't turning over all the winnings to the fund managers.
All this has nothing to do with the totals of money going to financial aid for students, or facilities. It's a nonsensical comparison.
2. Should the universities spend more of their endowment each year, rather than try to accumulate it?
As another poster mentioned, this is the same kind of decision that most families and institutions face. Spend the money now, or try to build the nest egg? I think the schools are trying to do both. They are giving away a lot in financial aid and are making substantial capital improvements, at the same time they are trying to increase their endowments. Have you read many stories in the press lately about the shocking deterioration of buildings on Ivy League campuses?