Mr. Flahaven is the one who has the misconception. Consumers are not looking for tuition prices, or sticker prices, to drop. Instead, consumers want their actual out-of-pocket prices to drop, especially unmanageable debt. And if, as he says, many gifts are restricted and unavilable for financial aid, perhaps a rule should be created that schools must devote a certain percentage of their restricted gifts to create financial aid grants.

Author, No Sucker Left Behind, at 6:45 am EDT on March 26, 2008

Mr. Davies, I can appreciate the issues just fine. Maybe you’re the one who can’t appreciate the issues, because your kids have been able to attend your college for free as one of the perks you receive. That could be wildly off-base, but I have a hard time believing that you would be defending these practices if you and your kids had been stuck with high costs and debt.

You suggest that endowments are “managed for the long haul.” That’s a joke. From what I’ve seen and read, endowments are managed in a manner to NEVER BE SPENT. Most colleges only spend a SMALL AMOUNT of their PROFITS each year. According to this plan, the actual donations will never be spent. On the face of it, that seems obscene to me.

Colleges always say that they need to save their endowments for a rainy day, but for the many students and graduates struggling with unmanageable costs and unmanageable debt, it’s already pouring. If now is not the time to dip in to the endowments, then when? Why worry about future students when your current students are already being financially crippled? I don’t get it.

And it’s not enough for just the rich schools to dip into their endowments and create “no loan” plans. Since colleges are afforded non-profit status and receive massive tax breaks, we’re all in this together. “No loan” programs for wealthy students will only increase the gap between the haves and have nots. But reducing this gap is supposed to be the goal of financial aid in the first place.

Author, No Sucker Left Behind, at 1:20 pm EDT on March 26, 2008

Response to No Sucker Left Behind

Actually, your personal comment is way off base, and unfortunately was a very misguided retort that was unecessary—especailly since you have no idea who I am or what I do. But, since you brought it up, to respond to your personal hit: Regarding paying for college for my children, I know, according to many sources, that I will need to have over $150,000 saved to send my 7 year old daughter to college. Guess what—savings plan. I hope she gets a scholarship, endowed of course, but we also have to take a personal active plan to see she gets the benefit of higher education. That is our responsibility and we take that very seriously. I know not everyone can do that, but to suggest that she is getting a “free ride” is, well, just misguided and something that a political candidate running for president would say.....

Enough of the personal retorts—Regarding Endowments: You did in fact hit something right on the mark. The basic teanent of an endowment is that the principal gift will never be used—that is right, just as you said, NEVER to be spent. That is the basic fundamental purpose of the endowment—to ensure that the fund is ALWAYS in existence to support the project at approximatley the same level adjusted for inflation. Thus goal is to only spend out of what is earned via investments and that a portion of the earnings are plowed back into the principal so that the following year, guess what, more money is avaiable to be spent to compensate for inflation. Basic rules of investment, risk and return, and managemetn for the long haul—-the long haul being forever. Take the same view towards a retirement plan...don’t you want to make sure that you have enough funds for your entire life; or just the first 75% of the retirement..endowments are for the life of the institution, which is hopefully for a mighty long time...

I also agree with Al that a basic issue at hand is how much is reinvested v. spent is the balancing act that needs to be followed. Harvard, Yale, and others have had exceptional years—did they earn too much....(how can you say that they earned too much in a capitalistic society?)...did they not spend enough is a better phrase....

Al also puts it into great perspective. Our endowment this year at my mid-sized public university earned a whopping 14.5% We spent out 5%—-did we spend enough?? I am sure you will say no....but, keep in mind, a major reason for the increase of 14.5% was increased gifts to endowment principals from donors—take that away, we earned approx. 10%, so we spent half of the interest...doest this make it more manageable?? In my judgment, yes...in others, no—-we could have given out double the amount in scholarship...and guess what, if we did that, next year, becuase of the downturn in the market, we would give out 25% of what we did this year—thus harming 75% more students next year and the following years by not having the funds to give them to not only enter our university, but to continue.

Back to your personal retort and your finanical aid issue,—which really deals with the cost of education and who pays. And this is a much larger philosophical question of higher education and that question is: is higher education a personal beneift or a public good? The way the government’s trends have been lately, it is changing from the public good of a well educated populace needed for a democracy to the personal benefit of “getting a good high paying job.” Now that is a real debate that should be had!

RO Davies, at 5:55 pm EDT on March 26, 2008

Same Page?

Are we on the same page? On some things, we sure are. According to the College Board, and just basic math, tuition and the price to attend colleges is increasing at a rate faster than the normal inflation rate. By doing the math, an average cost of getting a four year degree at a public university, using the mean price now and costs, $150,000 is the going rate for when my daughter is a freshman. I think we are on this same page. Is that too high, too low, or just right? I think that is a real question that we are all struggling wiht. The fundamental question, as I see it—and probably you too— is “who pays for higher education?” Is the the student (and family), the government (finacial aid, state appropriations, etc.) or other (philantropic activities, etc.) At the basic level, to answer this questions, one must ask “who benefits?”

Higher education costs—what it costs to educate someone—is increasing as well and, at least at my institution, those bills must be paid. Salaries of faculty increase (they want to be paid, and they want increases...just like a plumber or a doctor), technology, gas and fuel, etc. all add to this increase. At the same time, in the case of public univesities, delcining rates of appropriations is a major issue. This is a major issue and is at the heart of the access question. At the basis of the question—who pays and who benefits is a key debate.

I think you and I are very much on the same page on this issue—we may disagree with some of the particulars, but in general, access, keeping tuition reasonable, etc. is a fundamental purpose of American Higher Education. Elite universities have thier place (not sure exactly where, but they do) as do state public universities where, for example my institution, tuition is $5,100 for the year.

As for endowments and the purpose of endowments, I think we differ (surprise...) The fundamental reason for an endowment is create a pool of funds that can always be counted on to provide funds that, in real terms, are constant. Invavsion of principal at anytime dilutes that premise. In high growth times, should the amount spent from the earnings increase—sure, no problem. To adjust for this, however, most endowments use a three or five year rolling average and an occassional “bonus” expenditure. But, in bad times, when investments have a negative return, policies also must be place to protect this to continue to support students and other endeavors. It is in these economic downturns when it is critical to have the funds available to supoport students as we know higher education has an inverse relationship with the economy and student support will be in higher demand at this time. I reiterate that the fundmental purpose of an endowment is to fund current students while at the same time not harming future students.

Should the total endowment be liquidadiated to fund current students? If this was done, we would have a short term solution but we would have even more problems in hte next decade. Quicly doing this math, our university’s endowment would be gone in 8 years. Then what?

Another important point too is the wish of the donor. Donors determine if funds are expendable or endowed. If a donor wants all of her $1 million gift to go to studnets today, that this what would happen; if the donor wants to create a fund in perputatuity, then the endowment is created. There are many cases of donors giving very large amounts of money that need to be expended in short time frames.

I agree that most (not all) presidents prefer the endowment due to the longevity factor, but the donor is the ultimate decesion maker. To conclude, where I think we are very much on the same page is the discussion of who benefits from higher education and who should pay. I think the role of universities like mine, a med size public university, wiht a modest endowment, that is committed to access by keeping tuition as low as possibe (2% increase last year which was preceeded by less than 1% increases the preceeding three years) gets lost in the shuffle of this debate. Where we differ is the role of the endowment. Good luck with your upcoming book.

RO Davies, at 10:10 am EDT on March 27, 2008