Billion dollar endowments

Billion dollar endowments have become the norm at institutions of higher learning; the riches from the endowments will fund university expansion and provide bragging rights in the academic community. The university I attend continuously promotes its billion dollar endowment; Harvard, on the other hand has a $34 billion endowment.

Endowments are a special type of donation. The donor of an endowment expects for their money to be invested; over time, the donation is able to have more of an impact. Many chairs in departments (not department chair, but designated chairs) are funded through endowments. In theory, endowments are a logical fund raising mechanism because the money is allowed to make money in the stock market.

Endowments are managed by hedge fund managers, the new superstars of Supercapitalism (to borrow from Robert Reich). These managers are given the task of making money no matter what. Because if money isn't made, or is lost, the institution will pay the price in terms of budget cuts. The Art Institute of Chicago faced 3% budget cuts in 2001 because of a $39 million hit to their endowment.

Collectively, endowments in the United States and Canada have grown 21% in the 2006-2007 academic year. Spending from endowments, across the board, has averaged 4.6%. This discrepancy has not escaped the eyes of United State's lawmakers; on Thursday, Max Baucus (D-Mont.) and Charles Grassley (R-Iowa), in the Senate, requested data from 136 universities on financial aid spending, tuition costs, and endowment growth. It will certainly be interesting to see how this plays out.

Regardless of intention, endowments seem inherently flawed to me. Educational institutions should be in the business of educating people, not making money. I would be interested to see where all of the money goes at my school. As a public institution, there ought to be more transparency about the endowment process and how this money is made.

Furthermore, endowments are not taxed as income, even though they generate billions of dollars in revenue. Elite institutions have a clear advantage when raising money. Their alum generally make more money than the average American citizen. Many of their students come from backgrounds of vast wealth. If these funds were taxed, the federal government could redistribute some of the income to institutions and individuals who do not have such an advantage.

I will continue to discuss this issue as more information is made available from the Senate investigations. I hope that the outcome from attention on this issue is higher spending from endowments. Given that educational attainment is so important for social mobility and a comfortable standard of living in our society (and it will grow in importance as the economy changes), it is more important than ever to provide everyone the opportunity to further their education. If institutions have so much money, why isn't more of it being used for these means?