More than 800 colleges and universities across North America hold endowment assets of $516 billion. But the top 10 schools in terms of assets have about $180 billion of that total, more than one-third of all the holdings. Harvard University alone has a $35 billion endowment.
None of that money, nor the gains on it — which at the top schools were about 16 percent last year — are taxed. As non-profit entities, neither are the extensive land holdings of the nation’s colleges and universities.
Such benefits account for $41,000 in hidden taxpayer subsidies per student annually, on average, at the top 10 wealthiest private universities. That’s more than three times the direct appropriations public universities in the same states as those schools get. Princeton University, for example, receives $105,000 in taxpayer benefits for each of its students, compared to the $12,000 in appropriations that go to New Jersey’s public university, Rutgers.
Those figures come from a new study, released Monday, which recommends an excise tax on private colleges’ endowments of more than $500 million. Such a tax, which would not impact individual gifts to the institutions and would be reduced by the amount the schools dedicate to financial assistance, could generate $6 billion for the federal government to use for President Obama’s free community-college proposal. That large sum also could be used more generally for federal student aid programs.
“The inequality of the distribution of this is the most troublesome,” said Mark Schneider, one of the co-authors of the study, who is a vice president at the American Institutes for Research, and a former U.S. commissioner of education statistics. “What is the public purpose of a school that educates wealthy people and foreign students?”
Just last week, many of these schools carrying significant endowments released admissions rates for this fall’s incoming class, and they noted that they rejected some nine out of 10 students who applied. At the same time, they have a poor record of enrolling economically diverse classes, according to a New York Times analysis last year. Low-income students who qualify for Pell Grants, most of whom come from families making less than $60,000 annually, make up 15 percent or less of the student body at Stanford, Princeton, and Yale.
The endowment gains for these private universities come at a time when public schools, which educate 80 percent of Americans seeking a college degree, with massive cutbacks in their state appropriations and increasingly needy students faced with higher tuition rates.
Take California, for example. Stanford University has a $21.4 billion endowment (as of Aug. 2014) and the assessed value of its land is nearly $8 billion. That equals a taxpayer subsidy of some $63,000 for each student at Stanford, according to the study by the Nexus Research and Policy Center, an independent, nonpartisan group in California. Stanford’s indirect subsidy compares with direct appropriations of $10,000 per student at the University of California at Berkeley, or $4,000 at California State University at Fullerton.
But unlike the appropriations given to public universities, the tax breaks given to wealthy private universities are not voted on every year by Congress or state legislatures. Rather, they are a historic relic of the tax code.
Proposals to tax endowments and the land holdings of colleges and universities are raised every few years, usually by lawmakers, and are promptly shot down by higher education lobbyists who maintain that the schools act in the public interest. That was their reaction to this latest salvo. If endowments were taxed, said Barry Toiv, a spokesman for the Association of American Universities, which represents the top research institutions, “the teaching, research, and public service activities that are supported by endowment would suffer.”
“Taxing them is not the solution to this problem,” Toiv said in a statement. “Rather states need to stop disinvesting and start reinvesting in higher education — and the federal government needs to provide adequate financial aid to low-income students seeking to attain college degrees.”
But the growing wealth gap between these top universities and hundreds of schools below them that serve the vast majority of college students shows that a small handful of institutions are increasingly benefiting from an often-hidden public subsidy. These top institutions need to do their part, too, rather than just claim in public statements to want to enroll a greater economic diversity of academically qualified students.
Some, like the University of Chicago and Washington University in St. Louis, recently announced plans to expand financial aid to increase the proportion of qualified middle- and low-income students at their schools. The other elite universities need to do more on this front, or perhaps their endowments and land holdings should be subjected to an excise tax.