Recent discourse surrounding the rapidly rising cost of college has increasingly led concerned students to question the source of the rise in price as well as upon whom the burden of the cost should fall. Proposed solutions have mainly centered around the federal government, ranging from capping the supply of federal student loans to federally funding tuition, as Democratic presidential candidate Bernie Sanders notably endorses.
As evidenced by a recent proposal by the Board of Overseers at Harvard University, more and more policymakers and theorists are touting the idea that those responsible for managing the price point of tuition, the university, should be responsible of funding itself. The proposal, entitled “Free Harvard, Fair Harvard,” urges the university to allocate a portion of its $37.6 billion endowment for free education for low-income advocates regardless of race, leaning towards the more conservative viewpoint that affirmative action based on race does more harm than good and the more liberal opinion that higher education should be an economic right. Although the proposition that allocating a portion of a university’s endowment — which is usually valued in the billions of dollars — for free higher education seems obvious, it is ultimately another case of misguided economics attempting to solve a more structural problem.
Those who propose this solution fundamentally misunderstand the purpose of a university’s endowment. At a prestigious university such as Harvard, which produces the most economic and intellectual value through its graduate, doctoral and fellowship research, a large endowment is vital to securing the greatest resources to expand the forefront of academic knowledge. While we would like to believe that helping a brilliant first-generation student get a bachelor’s degree is of great value to higher education institution, that value simply does not surpass the tangible results of new research.
Even though there are dozens of universities with endowments in the billions of dollars — USC’s own reached $4.593 billion by 2014, over a $1 billion increase from its 2013 endowment value of $3.868 — it would not be economically wise for universities to dip into funds explicitly meant to securely pay for operating costs. Harvard’s own website says that it “must fund nearly two-thirds of its operating expenses ($4.2 billion in the fiscal year 2013) from other sources.” An overwhelming majority of a university’s endowment must remain intact in order to protect the school from inflation or other external economic stability. By risking the integrity of the endowment for the sake of providing free tuition for a few, a university funding free education with its endowment is jeopardizing the market value of the degrees of the entire student body.
The risk of dipping into an endowment would be cyclical. With a smaller endowment, a university has a smaller margin to protect itself with in times of external economic distress. This sort of emergency planning may seem extreme for universities with billion dollar endowments, which tend to be prestigious and centuries-old, but schools’ statuses have been decimated by having too small of an endowment at the wrong moment.
For example, Tulane University in New Orleans was once one of the premier research institutions in the South, but Hurricane Katrina in 2005 cost the school $650 million in damages and a priceless fall of prestige and ranking. Without a properly ambitious emergency fund in its endowment, it took until 2011 for all 16 of its Division I athletic teams to return and the same amount of time for admission to reach its previous levels.
By sticking to what an endowment does best that is — funding operational and other profit-yielding costs — donors can glean greater confidence from the school’s performance, providing greater sums back to the endowment, or even, yes, the independent financial aid fund, which would remain untampered with in times of a crisis.
Tiana Lowe is a sophomore majoring in math and economics. “Point/Counterpoint” runs Tuesdays.