The Washington PostDemocracy Dies in Darkness

Why should elite universities get more taxpayer support than regional public colleges?

Harvard University in Cambridge, Mass., had an endowment of $35.7 billion as of June. (AP Photo/Steven Senne)

Mark Schneider, vice president and institute fellow at the American Institutes for Research, served as commissioner of the National Center for Education Statistics under President George W. Bush. Jorge Klor de Alva is the president of the Nexus Research and Policy Center.

By Mark Schneider and Jorge Klor de Alva

One of the most compelling arguments in favor of government support of colleges and universities is that higher education helps each generation of young adults achieve one of the great American dreams: to do better economically than their parents.

Congress digs into issue of colleges using endowments to lower students’ costs

But colleges vary widely in their contribution to this dream because taxpayers support colleges in different ways—and at vastly different levels. Public institutions frequently go begging because they are supported by a combination of steadily rising tuition and declining tax revenue. And state legislatures must publicly balance the share of tax revenue allocated to these colleges against competing budget demands, such as highways, health care and public K-12 education.

In contrast, taxpayers, for the most part, unknowingly support private institutions primarily through tax deductions and exemptions. For example, gifts to university endowments are tax deductible and the earnings on these endowments are exempt from taxation, as are the endowments themselves. For elite private institutions, those with endowments in the billions of dollars, the size of these tax breaks can dwarf the direct subsidies that taxpayers send to public institutions.

These tax breaks are rarely debated because they are hidden in the tax code. Meanwhile affluent private universities, claiming their importance to the realization of the American dream, do everything in their power to silence any questioning of their right to enrich themselves through favorable tax treatment. However, it is important to remember that these tax breaks are not divinely ordained. Rather, they flow from congressional acts aimed at improving the public welfare. Without doubt, America’s richest universities use their wealth to provide important benefits to society, such as support for research and student financial aid. But their inherent exclusivity leads them to fail at fostering the most critical dimension of the American dream: social mobility. And that should lead Congress to ask whether the extent of the tax subsidies granted to the nation’s wealthiest universities is justified.

Wealthy universities are doing a poor job helping low-income students, report says

Recent data from the Equality of Opportunity Project suggest that the many taxpayer dollars invested in America’s most affluent universities support the social mobility of only a very small number of middle- and low-income students, while disproportionately assisting yet more upward mobility for the already well-heeled. Consider this: students from families in the top 1 percent of the income distribution are 77 times more likely to attend the most elite universities (the eight Ivy League colleges, plus four others) than are students from families in the bottom 20 percent of the income distribution.

Put another way, because of various tax breaks, over the past three years the 52 private universities that have endowments of over $1 billion have received an average annual taxpayer subsidy per student of over $26,000, yet less than 4 percent of the students in these universities come from families who fall within the lowest 20 percent of America’s income distribution. These lucky few have a pretty good shot at moving from the bottom to the top 20 percent–over half have done so. But because so few poor students have won admission to these elite schools, less than 2 percent of all the students in these schools will move from the bottom to the top.

Few students attend these elite private schools. In contrast, the vast majority of American students enrolled in four year schools attend regional state universities. These unassuming institutions are the workhorses of American higher education. Yet compared to the level of taxpayer subsidies received by their rich private brethren, these regional campuses are grossly disadvantaged.

These colleges expect poor families to pay more than half their earnings to cover costs

Among the 281 regional campuses we identified, we calculate that over the last three years these public colleges and universities received in taxpayer support an average of just over $7,000 per student annually, versus $26,000 for campuses with endowments of over $1 billion. One consequence of that disproportionate flow of taxpayer dollars to the elite private universities is that last year, according to federal statistics, the billion-dollar-plus campuses were able to spend over $41,000 on instructional services for each student. In contrast, regional campuses spent only about a quarter as much ($10,700) on instruction per student.

Yet regional campuses contribute more to social mobility than the heavily subsidized private elite schools. We estimate that over 96,000 current students at regional schools will move from the bottom to the top 20 percent of the income distribution by the time they are in their 30s. In contrast, only about 7,000 current students in the billion-dollar-plus universities will get that far. In short, the contribution of regional campuses to making the American dream of social mobility a reality is nearly 14 times greater than that of the elite private campuses.

Wallis Simpson, Duchess of Windsor, is credited with saying that “You can’t be too rich or too thin.” But it may be the case that we have a set of universities that violate the first half of that aphorism. Perhaps it’s time for Congress to recognize that these universities are indeed too rich for the public good and revisit the utility of their extensive tax breaks.

Want to read more about college endowments? Check out:

College endowment returns sink to their lowest level since the financial crisis

Universities in D.C. avoided $111 million in local taxes last year

The rich get richer in higher ed: 40 colleges hold two-thirds of the wealth, and growing

Why should rich universities get huge property tax exemptions?