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July 26, 2007

STUDENT-LOAN FOLLIES:

Sen. Edward M. Kennedy, fresh from an investigation of the student loan industry, is out with a plan he says will “help reverse the crisis in college affordability.” Kennedy’s Robin Hood approach takes $18 billion from lenders and applies it to reducing loan repayment costs for students, among other purposes.

The student loan business is a lucrative one. But the senator is going after the wrong folks if he’s trying to rein in the biggest “fat cats” in academe. That mantle should rest on the shoulders of colleges and universities themselves. Legislators setting policy with regard to higher education should realize that colleges and universities are our nation’s richest — and possibly most miserly — “nonprofits.”

Colleges and universities are sitting on a fortune in tax-free funds, and sharing almost none of it. Higher education endowment assets alone total over $340 billion. Sixty-two institutions boast endowments over $1 billion. Harvard and Yale top the list with endowments so massive, $28 billion and $18 billion respectively, that they exceed the general operating funds for the states in which they reside. It’s not just elite private institutions that do this; four public universities have endowments that rank among the nation’s top 10. The University of Texas’ $13 billion endowment is the fourth largest nationwide, vastly overshadowing most of the Ivy League.

These endowments tower over their peers throughout the nonprofit world. The Metropolitan Museum of Art is America’s wealthiest museum. But the Met’s $2 billion endowment is bested by no less than 26 academic institutions, including the University of Minnesota, Washington University in St. Louis, and Emory. Indeed, the total worth of the top 25 college and university endowments is $11 billion greater than the combined assets of their equivalently ranked private foundations — including Gates, Ford and Rockefeller.

Higher education endowments also are growing much faster than private foundations. The value of college and university endowments skyrocketed 17.7 percent last year, while private foundation assets increased 7.8 percent. Just 3.3 percent of the increase in academic endowments is attributable to new gifts. Most of the gain is a result of stingy, outdated endowment payout policies that retain and perpetually re-invest massive sums. This widespread practice results in a hoarding of tax-free funds.

Yeah, I was doing some math on Yale, trying to figure out if they could abolish tuition entirely based on their endowment earnings. I'm pretty sure the answer is yes, which makes me less interested in donating when they call.