Harvard University is sitting on an endowment worth more than $50 billion. Yale’s is worth more than $40 billion— and every day, it seems, I get a letter in the mail begging me to build that investment ever higher.
I’m grateful for the Yale bachelor’s degree and Harvard law degree I obtained, but when you consider that the interest alone on Harvard’s lightly taxed endowment provides $1.9 billion in income every year, they really don’t need my money. After all, the cost of attending Yale is $83,000, about the same as a brand new BMW M3 — every year.
So instead of courting ever more wealth, shouldn’t institutions blessed with massive endowments act with greater responsibility to society?
As the leader of Great Jobs KC, an organization that provides scholarships to students from underserved communities, I think it’s time for high-endowment, high-cost universities to rethink their priorities. I believe that if an endowment is above a certain size, students should be able to attend at no cost.
Universities that truly want the best and brightest — and not only if they are also the richest and best-connected — should let students attend for free if they can’t afford tuition, room, board and other fees. And students from middle-income families who can afford something less than $300,000 for a bachelor’s degree should be able to pay what they can without crippling their futures with debt.
Wealthy colleges not willing to do that ought to have their endowments taxed more significantly. It is time for universities that hoard wealth to support their communities.
There is no doubt that hosting Harvard does create a public good for Cambridge, Mass., and the surrounding area. It brought almost $1 billion in research funding to Massachusetts in 2022. It’s the sixth largest employer in Massachusetts and the largest in Cambridge. It spent $1.4 billion on construction, supplies and services in Massachusetts in 2022.
And some money does go to local governments. Harvard pays an average of $10.6 million a year in taxes and payments in lieu of taxes to the city of Boston, and about $6.6 million a year to Cambridge. (The high-endowment Massachusetts Institute of Technology pays Cambridge 10 times as much. Yale pays $13 million a year to New Haven, far less than the $130 million bill it would pay if it were fully taxed.) As a Cambridge city council member once said in frustration, “Harvard has more money than many third-world countries. They are going to be expected to do more.”
In 2019, a new IRS rule added a 1.4 percent tax on college investment income for schools with more than $500,000 in assets per student. That costs Harvard almost $50 million a year, which sounds like a lot until we remember that the interest alone on its endowment amounts to more than a third of its revenue.
Meanwhile, although Harvard is generous with aid to those they admit, those who get Pell Grants — available only to low-income students — enroll at Harvard at about half the rate of other schools. Clearly, they can open their doors wider.
And if they won’t, local communities that host these institutions should get help instead. New Haven, the Connecticut city that is home to Yale, is struggling. South Bend, Ind., home of the University of Notre Dame (with a $17.1 billion endowment), could use some help. Even New York City forgoes $4 billion a year in taxes from its colleges and universities, which happens to be the price tag for its current migrant crisis. Columbia University, with its $13 billion endowment, is the only Ivy League university that makes no payments in lieu of taxes to its host city.
The exorbitant cost of college causes damage in other ways. More than 50 percent of young people who go to college don’t complete a degree program within four years — and for Black students that’s 75 percent and 67 percent for Hispanic students. For the 38 percent who don’t finish their studies, it’s not for academic reasons but because they don’t have the money. So now these people are starting their adult lives with the debt, but no degree. That means they are closed off from the jobs that would help them repay that debt. What a lost opportunity for all involved.
In many instances, endowments are swollen beyond necessity and reason. The primary costs for universities are facilities and faculty. An institution with an endowment of dozens of billions of dollars clearly has paid off all its facilities. I understand research can be expensive. New facilities can cost. But an endowment of $40 billion is excessive.
Would it really hurt the cachet of such a university to help those of lesser means? The Harvard Financial Aid Initiative claims to provide free education to children of families making less than $75,000, and 55 percent of undergrads receive need-based grant aid. But more can be done.
At least one highly regarded institution of higher education has made the calculus that it can help and still retain its reputation of being among the best. The University of Chicago offers multiple ways to get students with limited means in the door without lifelong debt, which is meaningful from a highly regarded institution with a sticker price significantly higher than Harvard’s or Yale’s. This school has set an example that others could follow.
The time has come for wealthy schools to pay it back, either by letting students in who can’t afford the high price tags or by better supporting the communities where they live.
Earl Martin Phalen, a national education reformer, is the CEO of Great Jobs KC, which provides scholarship aid and job training to young adults. He is also the founder and CEO of the George and Veronica Phalen Leadership Academies, a national network of K-12 schools that serves almost 10,000 students.
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