Much of the recent discussion about income inequality in the U.S. has focused on the decline of the American middle class. What’s true in the overall economy seems to be the reality in higher education as well: The wealthiest colleges, both public and private, are pulling away from the rest of the herd financially.
In doing so, Harvard, Stanford, Michigan, Ohio State — among a handful of others — are leaving behind hundreds of financially struggling colleges. There are also now fewer schools in the middle tier with even the slimmest hope of ever joining the top ranks money-wise.
A few weeks ago, I wrote about a study that recommended an excise tax on private colleges’ endowments of more than $500 million to pay for federal financial aid. That study seems to have actually underestimated the real wealth of the nation’s most elite universities.
An analysis by Moody’s Investors Service released last week shows just how much the divide between rich and poor schools has grown in recent years. The wealthiest 40 universities tracked by the ratings agency increased their overall assets by 50 percent in just the past five years, while the bottom group of Moody’s schools grew by only 22 percent.
Moody’s tends to only rate colleges that are financially strong enough to borrow in the public markets, so there are hundreds of schools not even on its radar and even further behind those at the top.
“This growing gap will pose increasing competitive challenges for institutions that do not have the resources to invest in facilities, financial aid, and other strategic initiatives at the same level as their wealthier counterparts,” Moody’s said in its report.
The numbers in the Moody’s report are staggering. Median cash and investments of the wealthiest universities was $6.3 billion compared to $273 million for everyone else in 2014. Of the more than 500 colleges rated by Moody’s, the 40 financial leaders account for some two-thirds of total wealth. The top 10 hold nearly one-third of the overall wealth.
What’s more, the schools at the top are just getting richer by the day. Six of every 10 dollars in private donations goes to schools in the top 40 as rated by Moody’s. Such dollars, Moody’s noted, “contribute to their ongoing performance as they use these funds to invest in academic programs, research, facilities, further widening their competitive advantages.”
Even if you didn’t go to one of these top-ranked schools or have children interested in attending one, what happens at these universities still matters to many of us.
For one, these top schools tend to set the agenda for everyone else. Unfortunately, too many colleges are trying to keep up with the Jones’ and spend money to look more like top-ranked schools — particularly when it comes to the campus amenities offered to students, such as recreation centers, fancy dining halls, and a bevy of advisers to help them through school. Even if the colleges can’t afford to participate in this arms race, students end up paying in the end with higher tuition.
Perhaps even more important is that as these wealthy schools eat up more of the financial resources flowing to higher education, there is less for the scores of schools that educate the bulk of American students. And it’s more difficult than ever to actually get accepted to one of these top 40 schools: Nearly all of them have maintained the size of their student bodies even as they encouraged more applications from around the world.
That still leaves students with plenty of options for college, of course, but few of the remaining schools have the means to offer generous financial aid packages for everyone who needs them. The wealthy schools have that ability, but many of them enroll very few low-income students.
Wealthy students outnumber poor students at the most-selective four-year colleges by a factor of 14 to 1, according to the Century Foundation. Rather than college being the ladder for social mobility, increasingly higher education, and the economy at large, are mirroring each other in their inequity.