December 11, 2015

HIGHER EDUCATION BUBBLE UPDATE: College Endowments Are Flourishing Again — And Critics Are Taking Note.

That column got the attention of Malcolm Gladwell, the best-selling author, who took to Twitter and National Public Radio to complain about how taxpayers were subsidizing the income of hedge funds and private-equity funds through elite-college endowments. “I was going to donate money to Yale,” he tweeted. “But maybe it makes more sense to mail a check directly to the hedge fund of my choice.”

Mr. Gladwell also called attention to research by the Nexus Research and Policy Center, which found in an April report that taxpayer subsidies for the elite private institutions dwarf subsidies for public institutions when you consider that endowments aren’t subject to tax. The report found a per-student subsidy at Princeton University of more than $100,000, compared with a per-student subsidy at Rutgers University, a nearby public institution, of just $12,000. …

An often-cited benefit of endowments is the cushion they provide during downturns. But Brian Galle, a professor at Georgetown University Law Center who studies endowments and taxation, testified at the hearing that Harvard has taken its “rainy day” account to an absurd extreme. The endowment could cover Harvard’s entire budget for 12 years.

I think it’s time to repeat my call for common-sense educational reforms to reduce inequality:

What is to be done? Well, in the name of ending inequality, I have a few modest proposals.

We should eliminate the tax deductibility of contributions to schools having endowments in excess of $1 billion. At some point, as our president has said, you’ve made enough money. That won’t end all major donations to the Ivy League, but it will doubtless encourage donors to look at less wealthy and more deserving schools, such as Northern Kentucky University, recently deemed “more inspirational than Harvard” in the London Times Higher Education magazine.

We should require that all schools with endowments over $1 billion spend at least 10% of their endowment annually on student financial aid. That will make it easier for less wealthy students to attend elite institutions.

We should require that university admissions be based strictly on objective criteria such as grades and SAT/ACT scores, with random drawings used to cull the herd further if necessary. That will eliminate the Ivy League’s documented discrimination against Asians.

Since inequality is the most pressing social problem we face, except maybe for climate change, I think that these reforms should get front-burner treatment from the next Congress and President.

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