The undergraduate education is part of the university, but not the primary part. (At UChicago, grad students still outnumber undergrads!) If you want to see what the finances of an institution that primarily educates undergraduates looks like, go to one of the Liberal Arts colleges, or non R-1 state schools, like any of the Cal States in California, or non-flagship schools in other states.
You're definitely right that "educating undergrads" is not the "primary purpose" of these institutions. I definitely did not & do not believe that. If that came through in the essay, I apologize for being inaccurate. If anything, I expected the response to be that I was assuming the primary product of a research university was Investment Returns, which is at least closer to a point I tried to make.
Regarding Research: "Research" in the abstract is -- I believe -- considered a tax-deductible expense in America, and the IRS treats it pretty favorably and that's probably for the best.
However, engaging in "research" to some capacity does not -- to the very best of my knowledge -- allow you to claim a full tax-shield on the Investment Profits of $10 billion+ merely by virtue of the fact that you engage in "research" (compare: Big Pharma, which actually has to write off expenses in order to reduce taxes, or Google or Boston Dynamics).
That is VERY different from how Education works today. To be a University is to be a Charity operating in the Education space. Additional Revenues and Expenses in Research areas are not important for this designation. Once the designation is established, the returns on your Investment Profits (invested in both the open and closed markets) are tax-free, forever.
That's a pretty big deal in the finance world as it relates to your ability to accumulate capital and build Wealth.
Whatever the "primary purpose" of that Wealth might be, the fact remains that (at MIT) that Wealth has grown 1,500% over the last 25 years, while the operating budget has grown ~250%. I believe that is somewhat noteworthy, and I could not avoid noticing how critical the Education-Charity tax-shield was to this compound growth.
The question I tried to raise was: "if your Education was affordable, would we allow the service provider to be considered a Charity?"
Regarding finances & more data: every institution named in this essay has it's 2017-full-year financial report linked, which I spent some time going over to better understand revenue sources (i.e. to understand the truly minimal importance of Tuition) and expenses (to understand the nature of the costs involved).
Sadly that data doesn't appear to segment anything by "research intensity", but it usually pulls research out at least research in all forms. And you're right, that Research usually dominates both "Instruction" and "General & Administrative" in terms of spend. (Quick example here: https://web.mit.edu/facts/financial.html, the other institutions have their fully detailed reports linked in the bullets at the start of the essay )
> Whatever the "primary purpose" of that Wealth might be, the fact remains that (at MIT) that Wealth has grown 1,500% over the last 25 years, while the operating budget has grown ~250%. I believe that is somewhat noteworthy, and I could not avoid noticing how critical the Education-Charity tax-shield was to this compound growth.
This is noteworthy, but is it really out of line? You're comparing apples (Wealth) to Oragnes (Operational Expenses). From a strict financial perspective, the standard advice to ensure an endowment or lump sum lasts is a 4% withdrawal rate. At a 4% rate, a 1500% increase in wealth would result in a 60% increase monies available to spend operationally. 250% is much higher than that, although not all of the operational increase comes from the endowment.
Is there an accepted rate of expenditure that endowments should target? Is MIT meeting or exceeding that?
So it sounds like you'd be a fan of Trump's tax on university endowments? I was surprised it wasn't mentioned at all in your writeup. https://www.chronicle.com/article/A-Tax-on-Endowments-Became...
I wonder if we will see those school open a "sister school" which enrolls tens of thousands of students, with that school under the same endowment, so that they can remain under the threshold of $500k per student, while keeping the prestige of the original school intact?
...and look at the instructor's salaries. PhD's from top universities who could easily make 300k+ in the private sector but instead take positions that pay 60k-70k. Even with tenure, that's a labor of love.
Blaming highly paid admins would be great, except that university presidents at teaching colleges are the highest paid (reminder: branch campuses and liberal arts colleges never have Div 1 sports programs) and still make $50k-100K less than a green phd out of a top 10 CS program (200k is good money for a president of a branch campus or liberal arts college -- and remember, that's typically a person with 30+ years experience and a uniquely positive track record).
I worry about what will happen to the American teaching college (public or private) over the next 50 years if the current war on college -- which this article typifies -- wins out in the public mind.
If you doubt a single word of this feel free to reply to this comment. I'm extremely familiar with both markets. When I say that (even tenure-track) CS teaching requires a 200k paycut, I really do know what I'm taking about.
When people talk about the cost of university administration, they're not always talking about the cost of the most highly-paid, but rather the aggregate cost:
"Since 1980, the number of administrators per student at colleges has about doubled; on most campuses their numbers now match the number of faculty,” the study reads. “Here are some of their titles: senior specialist of assessment; director for learning communities; assistant dean of students for substance education; director of knowledge access services."
I don't doubt that's true; I see it at my college. But I also see at my college that the percentage of students who need extensive administrative attention has shot up in the past ten years. (I teach at a SLAC, so if I have a concern about a student then I call an appropriate administrator and they genuinely try to see if the student is OK. For instance, not too long ago I called about a student and it turned out to be a suicide risk and my call and others prompted an intervention, and the student is OK. I don't know how many hours of administrator attention was clocked on this one person but I expect it was a lot.)
Note: I am not at all saying this applies to suicide risks, which obviously are not new and which colleges have had support staff for going way back.
I'm sorry, I don't know that person. But we try our best to deal with who we have in front of us. I don't know what else we can do, in good conscience.
I am not saying that all additional admins are accounted for by this kind of thing. I don't know enough about it.
(Actually the cost is a mystery to me but I've never been an admin of any kind.) I'm only saying that some of the increase I see on the ground is in response to trying to meet real needs.
We've also added a lot of services for disabled students, transfer students, etc. All to the good, I would say give more students access to a quality education, but the services needed for 6,000 students of 80,000 applicants is way different from when they were enrolling 3,000 students of the 5,500 who applied.
Most students are hardly adults. They look it, but they are not necessarily yet fully equipped to manage themselves.
And what if the people the same age who didn’t attend college— well, I would push for more and improved social programs to help them. Of course then you could reduce the staff at the colleges.
I’m all for being proactive about rising needs like social and mental health issues, but I also think a reactive response needs to take place in the interim.
The approach of “here’s a helpline phone number, now deal with it” hasn’t proven effective so far so why lean into it?
But when i was at law school my contracts prof was the semi-retired former dean and all the admin taught at least a couple courses. Admin was a secondary duty to teaching. That old school still exists in places.
Mathematics is as close to "humanities" as the STEMs get in terms of compensation and employment options for PhDs, and even top 10 mathematics PhDs can make 2x in the private sector with at least 2 years fewer opportunity costs.
Basically the only fields where what you're saying is true are the humanities and social sciences, but those aren't expanding programs or cost centers.
Work-life balance is one of those things that you would think would better in academia, but is often actually not.
The broader point is that outside of R1, prices mostly reflect the fact that for most students education doesn't scale very well and experienced human labor is more expensive than ever. Those are self-reinforcing, for obvious reasons. Case-in-point: the would-be educator who can't afford a 200k pay cut because of the loans they took out for their own education.
Education scales fine with motivated students or with mechanisms to help students with their motivation. I did a MicroMaster’s with EdX that covered ¼ of a Master’s degree. Now I’m doing a Master’s with SOAS, University of London. Exam and essay marking aside marginal costs per student are close to zero. MOOCs work with motivated students.
For students who are tackling subjects with steeper learning curves scheduling and project based learning seem to work very well along with initial selection. Lambda School is 40 hours a week for 30 weeks. It’s entirely online but the lectures are live so it’s cohort based and you are on the same schedule as the rest of the class. They have a university like method with TAs and lecturers, where the TAs can solve most problems. It seems to be a pretty good system, people have gone from lambda school to MicroSoft and Google.
Education scales fine. The fact that it hasn’t been scaled yet means we’re getting started.
Education is not about what works for outliers.
>The broader point is that outside of R1, prices mostly reflect the fact that for most students education doesn't scale very well and experienced human labor is more expensive than ever. Those are self-reinforcing, for obvious reasons. Case-in-point: the would-be educator who can't afford a 200k pay cut because of the loans they took out for their own education.
The challenge here is that for the 85% of students getting an education from a public school, is the increase in tuition costs they've seen due to increases in expenditures (which I haven't seen any supporting data for), or a decrease in state funding of tertiary education (which is wide-spread)?
"Robert Brown earned nearly $2.5 million in 2015, according to the most recent tax filings." (President of BU)
"Three other leaders had seven-digit earnings in 2015: Harvard President Drew Faust, who will retire at the end of the school year, earned $1.57 million; Northeastern President Joseph Aoun notched $1.45 million; and MIT President L. Rafael Reif took home $1.03 million."
Maybe the OP isn't talking about the same tier of school, or maybe Boston is an unusual place for university president salaries, but those numbers are pretty far from $200k.
I'm talking about places with words like "south eastern" and "central" and "state" in their names. And SLACs with endowments below ~100M. In other words, I'm talking about the vast majority of universities and colleges -- the ones that aren't (literally) Harvard or MIT. Places that don't have phds programs, and maybe don't even have sizable masters populations.
Conditional on them existing students are forced to attend in order to keep up in the credentialism race, but a supra-market force like the federal government could impose a more globally efficient solution.
(Even at 400K, "highly paid administrators" doesn't pass the smell test.)
The only person making $400k+ is the Chancellor of the whole system, the majority of people making $300k+ are presidents of the individual CalState schools, and the administrators over $250+ are almost universally CFOs and senior executives at each school. Many presidents of the smaller schools are in the $200k range. You only start getting to non-executive administrators under $200k.
PS: There are people getting $400k-$500k total, but over $100k of that is benefits.
Not to say academics don't take a pay cut compared to industry, but at least in CS $60k-$70k is very low for a tenure track position. Here's a good indication of where salaries are in CS: https://cra.org/wp-content/uploads/2018/05/2017-Taulbee-Surv...
$90k (9 month salary) is the bottom 10th percentile for a starting assistant professor in CS. $200k (9 month) is the 90th percentile for a full professor with 16+ years.
This obviously varies by school and region, but $60k-$70k is what you would expect for an instructor at a very low rank school, which is not a position PhDs from top universities would be applying for.
> $90k (9 month salary) is the bottom 10th percentile for a starting assistant professor in CS.
That's only because your data includes professors at R1s and also not including instructors at R1s. This is doubly misleading, since those professors you are including spend most of their time on research and those instructors you aren't including are the ones doing the bulk of the teaching.
And outside of R1, 90k is damn good for ast professors.
If you are teaching for a living, as opposed to doing research, $90k is in the upper 10th percentile at the asst prof rank, and $100k is a ceiling for tippy-top candidates at the asst prof rank.
> $200k (9 month) is the 90th percentile for a full professor with 16+ years.
...and is also bottom 10th percentile for wet-behind-the-top- ears top 10 PhDs, who don't have 16+ years experience on top of their 5+ year phd...
> This obviously varies by school and region, but $60k-$70k is what you would expect for an instructor at a very low rank school, which is not a position PhDs from top universities would be applying for.
Sure, but outside of top 10 $150k is still pretty typical industry salary for phds.
The same problem exists at every scale.
Your assertion is also fairly confusing; lots of smart people decide to teach at places where they can have the greatest impact, which is typically not a large-endowment private school...
There are literally hundreds of liberal arts/teaching colleges...
Also, Colgate definitely isn't in the tuition-dependent, take-all-comers mold of the vast majority of teaching-oriented colleges and universities in the USA. Their acceptance rate is below 30%, whereas most teaching-oriented colleges take 70+% of applicants (and draw from a much less well-prepared population of applicants to begin with).
Conrad if you wrote a book about this I would buy it. Super fascinating stuff. Colleges are clearly massive financial instruments that need to be analyzed further.
Building alternatives to universities that are driven by grass-roots movements are the perfect way forward here. Home schooling, MOOCs and startup businesses are some of the developments that have started diminishing the need of expensive degrees.
As long as there's a need for degrees as a signal for baseline competence/barrier to entry, it seems those needing it will be at the mercy of the systems that provide it.
The signal is valuable. The unnatural barrier to entry is, at best, unethical.
Ideally, the barrier to the opportunity to earn the credential would not exist. It should be available to everyone worldwide.
Individual research positions should be applied for. Certain practical skills must be taught in labs, etc. But the vast majority of intellectual effort in a Harvard degree should already have all its coursework and testing available to everyone, and at reasonable cost. Otherwise it is not an open competition, it is an institution promoting socioeconomi status.
That may or may not be why some of the elite schools open up their courses but not their accreditation online. It may not be in the institutions best interest to be as open as the ideal you describe.
Its crazy! Over time the tax advantage could make university endowments (as well as wealthy religious entities) the largest owners of capital in the world, along with sovereign wealth funds.
I'm not focused enough right now to put a book together -- although I agree that there is more to be said on and around this specific topic. Some good nuggets are in this comment section -- as is usually the case for HN.
The essay format allows me to spend a month writing an essay about the intersection of Game Theory, Anime, Military Strategy, AI, and Political Economy without stressing about any grander narrative, which I very much enjoy...
26 USC 501(c)(3) explicitly lists an organization operated exclusively for educational purposes as being tax exempt. Charitable organization is listed as a separate type.
Also worth considering is the example of Cooper Union: It charged no tuition and therefore offered no financial aid for most of its history. While one could argue that that is a form of aid so too would any other tuition reduction enabled by an endowment. This further suggests that universities do not set tuition in order to maintain tax exempt status.
He's not really saying that there is some "50%" magic number in tax law. What he is saying is that, imagine a situation where the price of admission was much more reasonable (i.e. hadn't gone up 300+% in the last generation) so that only, say, 10% of students needed aid. This means 90% of students would be paying full price. Well, if 90% are paying full price, he imagines the political pressure would come to say "Why the fuck are these absolutely gigantic, small country-sized endowments able to earn all this profit, and compound it, tax-free, and still 90% of students are paying full price!"
Thus, he argues that the large universities play this fuzzy-math shell game to consistently jack up the price of tuition so that the majority of students require aid. That way they can argue their endowment profits should remain tax-free because they are going to subsidize the students' education.
That's just my summary, but all-in-all I think the whole essay is powerfully argued. In my mind (and I say this as an Ivy league grad) I agree that getting an Ivy league degree 25 years ago is basically like buying real estate in SF 25 years ago. The overall supply has remained artificially constrained which has made prices go through the roof, with the social signalling and economic benefits accruing to those who graduated when admission rates were higher and tuition was lower.
I’m skeptical both that: Lower tuition would make taxing endowments more likely and that universities believe that that’s the case.
In a world with lower tuition, endowments grow somewhat more slowly and are easier to justify because they are the thing that enables low tuition.
For a more direct set of examples of how much inertia we have, consider the way wealthy individuals use foundations to avoid taxes. I haven’t heard people crying out to tax the Gates Foundation despite its endowment growing over time because it can’t keep up with its contributions. Nor is there a massive uproar about donor advised funds which (particularly in CA) can be 80%+ taxpayer funded while effectively lacking minimum disbursement requirements as part of a larger organization.
Yes, if the tuition were reduced by increased endowment subsidy, the political cover for the endowment would not be much affected.
But that strategy would limit the value of that cover (for the university staff) by 1) ultimately limiting the size of the "politically justified" endowment and 2) limiting the overall resources they control.
Re: 1), if the university contains cost inflation below endowment retained returns, the endowment eventually grows to fund 100% of tuition. At that point, the question "why do they need more?" becomes obvious and unanswerable.
Re: 2), note that the article implies an "agency" effect with university personnel, in that they benefit by their control of the institution's resources. In companies, such effects are seen in executives taking higher than market salaries and excess perks. All that diverts income from equity owners to managers. In a university these might be above-market salaries, research budgets, job security, prestige, trips, subsidized housing, etc etc etc -- diversions of endowment returns from "teaching" to the staff.
The agency model argues that university staff benefit from _growing_ costs, which give them more resources to control. The story that education costs rise faster than inflation and middle class incomes removes the limit on the size of the cost base / resources controlled. It also "politically justifies" an ever-growing endowment.
Thus lowering tuition simply by paying ever increasing portions of tuition does not serve the university staff. The point of the article, I believe, is that those staff have an ongoing interest in _increasing_ the costs to be subsidized by the tax-free growth of their endowments.
(It is also worth noting that such arguments justify more than protection of endowment returns: state funding for public schools, federal "overhead" payments for research grants, etc. We might even wonder if the endowed universities play a "cost-setting" role for higher education generally. They operate at ever-higher cost, sustained internally by the endowment returns; those costs then help justify the budgets of unendowed schools. "Hey, if you want the kids of Michigan to have a first-rate education, this is what it costs, just look at Harvard." If so, and MIT, Harvard et al began controlling costs, those controls would then ripple over time throughout the whole system through those benchmarking effects. Thus even unendowed schools would have long-term political interest in protecting those endowment returns.)
Note that we don't have to fully believe the whole story to learn from it. The "market" for higher education market is clearly pretty weird, and explaining that will require so pretty involved stories.
This is a very good articulation of my points, thanks for laying it out so crisply. Worth noting that this is already a reality at a select few places. While there is continual agitating in America for our Gov. to provide free college, it turns out that some elite private institutions are already in a position to do so, or will be in the next decade. Food for thought, including the follow-on social implications of the headline: "Tuition Now Free At Harvard! Still $50,000/year At Your Local State University Though"
Regarding agency effects / moral hazard:
Someone asked me on another forum what predictions, if any, I would be willing to make in defense of this article.
I tried to rattle off a few off the top of my head with low conviction. One that I comes back to me still is:
"Professor Salaries will have an increasing Gini coefficient vs. today (i.e. profs at Harvard make a higher multiple of Profs at State Colleges 25 years from now)"
Given that the Top institutions will be competing for talent with Compound Returns while everyone else must compete with Tuition increases, I think this would be interesting to study & observe. I have zero data on this unfortunately, so it's just an unsupported hypothesis for now...
> Professor Salaries will have an increasing Gini coefficient
I think your own model says this is too noticeable. Better strategy would be harder-to-notice changes, like smaller teaching loads, more sabbaticals, earlier retirement, travel abroad to conferences, etc.
The comparison to artificially-constrained SF housing is very apt (as a current SF resident, I know it well).
Most of the money is used to make more money tax free. i.e., it's invested & managed by Wall Street.
Edit to add I wasn't suggesting the type of entity mattered re: 501(c)3 status but rather was pointing out that the endowment fund is an entity separate and apart from the educational institution.
See https://www.irs.gov/charities-non-profits/private-foundation... for details.
I pointed out it's not the university, but the endowment that needs to spend a certain amount to maintain tax-exempt status and that most of it is invested to make more money, which is not an educational purpose.
You've just pointed out that the IRS requires the endowment to make certain distributions. And you've even noted that the IRS required distribution is often much lower than the actual investment income earned. What does this mean? It means even after making the qualified distributions the endowment grows.
Let's say the investment pot has $100 principal and earns 8% a year. At the end of the first year the endowment has $108. Most endowments FBO educational institutions distribute 5% of the total assets:
Year Prin. Int. Dist.
---- ------- ---- ----
1 $100.00 $8.00 $5.40
2 $102.60 $8.21 $5.54
3* $105.27 $8.42 $5.68
4 $108.00 $8.64 $5.83
5 $110.81 $8.87 $5.99
As you can see as the endowment grows the amount of money that needs to be distributed grows as well.
It's interesting to note that the specific rule you've cited came into effect in 1970 precisely because endowments were reaping the benefits of tax-free earnings without actually using the money for the benefit of any of the tax-exempt activities. When did college tuition start skyrocketing? The mid-1970's.
 Professional experience: I'm a securities & investment attorney.
*Edit: Skipped a year's worth of numbers
Not in real terms it doesn't. When was the last time typical moderate risk investments had long-term returns more than 5% above inflation?
If you had $1000 1970 dollars in 1970 and it increased by nominal 3% annually until last year, you would have $4012 in 2017 dollars. That isn't a real >$3000 gain, it's a >$2400 loss (in 2017 dollars), because $1000 1970 dollars is $6418 2017 dollars.
> When did college tuition start skyrocketing? The mid-1970's.
This is also just after the Higher Education Act was passed, giving out low interest student loans.
The asset allocation for a $100MM+ endowment FBO educational institution typically includes about 10% PE, 5% VC, and 20-25% in alts (hedge funds, derivatives, long/short plays, etc). These aren't even close to "typical moderate risk" investment vehicles.
And the bigger the endowment, the bigger the percent allocation to those types of investments. For example, a super endowment like Harvard probably has closer to 50% of the portfolio in alternative strategies.
In terms of average long-term returns they are, if not worse. Major index ETFs have a very inconvenient tendency to edge out actively managed funds as a general rule, and university endowments are no exception.
I think right after the Catholic Church, universities and colleges collectively hold the massively large tracts of land as investments/REITs and as physical asset.
Some of them..like the 2 year community college in my town in Bay Area, CA...are selling it to real estate developers. Federal and bond money ...public money meant for education is going to a speculative activity like real estate
I’d wager that most of American education is funded by speculation. Ivy leagues have land in South America and invests outside the country. Even public schools are funded by property taxes(at least in California..)...which to me is a speculation. Considering the insane house prices in California, our burgeoning population and prop 13. Throw in unionized teaching staff, it’s no wonder that most of the best and brightest minds come from outside the country. We attract immigrants because they really can fill a gaping vacuum in the labour and skills market. And they can work for less aka demand less because they don’t have the burden of student loans.
I am not sure if any of the above is relevant but those were my first thoughts after reading the article.
Depending on their country of origin, they also are comfortable with lower standards of living. Which puts negative pressure on wages.
Local K-12 education is funded by property taxes, but I don't think this applies to the CSUs and UCs.
Also, I don't think it's appropriate to refer to this as speculation. Are property taxes in CA driven by high prices? Yes. Is the bottom likely to drop out? Given the "burgeoning population" that you note, probably not. Also, if property values crash, incomes and consumer spending will likely also crater as part of the same event. So if we chose to fund education through income or sales taxes, it would be similarly "speculative".
It's the set of ramps up the west side of Darrel K. Royal Memorial Stadium.
I think looking at top level figures could be problematic because we don't really know how classification was done.
What will happen when this bubble bursts is that we will bail out the bad loans using US taxpayer money. This is another reason why universities can continue to raise tuition rates: they know there is significant political support to having the government "help students pay for college". The government tipped their hand regarding being open to outright forgiveness of debt by including a rule that they do full debt forgiveness if you go work for a non-profit right after school. This turns out to be a fantastic deal if you go to medical school. You can rack up hundreds of thousands of dollars in med school loans, go get a job at non-profit hospital for several years (and get paid market rates for your skills!), and then saddle the US taxpayer with your med school loans.
I have heard it said that indebtedness in student loans is interfering with the ability of many to take out loans for cars or houses, in other words, getting too much debt from the government to get any from the private sector. I don't like banks all that much, but I think they are politically powerful, and if they perceive student loans as impinging on their ability to make money, I would think they would get something done to change the situation.
Who has more powerful lobbyists, universities or banks? Both way more powerful than I am, but I would not bet on universities.
Perhaps at some point an equilibrium is reached where these institutions extract exactly as much as the degree is worth, minus the little bit left that will incentivize people to take the deal. After all, the 'value' of these degrees has only gone up. Overproduced malthusian elitehood has to be better than starving with the unnecessariat, maybe.
We are after all already at the near-apocalyptic scenario. Economically disenfranchised liberal arts graduates are roaming the earth and using the only skills they have to extract resources from the environment. In practice this amounts to a sort of Trust Me I'm Lying dystopia of manufacturing outrage with one hand and selling solutions on the other.
For calibration, many students in the UK have turned to literal prostitution.
The only question is when it stops growing because it has run out of space.
A simple example is that if Caesar had invested one gram of gold after the conquest of Gaul at 3% compound interest today it would be worth 2.64e24 dollars. Or a trillion times larger than the world economy today.
In fact, I could pay even less and do the 2+3 program and go to an even cheaper school for the first two years and stay at home?
On the other hand, I graduated from a no name state school in the mid 90s and within three years I was sitting by people who went to “prestigious” schools making just as much as they were making with no student loan debt. My entire four year tuition was less than they spent in one year.
(1) - https://www.paysa.com/blog/harvard-vs-mit-which-tech-grads-m...
(2) - https://www.ajc.com/news/education/this-how-much-alumni-geor...
Not that I’m disputing the 10 year salaries.
According to the article, 58% of MIT students received aid (averaging to 2/3 of tuition (?)).
But it’s not 100% anymore. It’s actually 90% now.
The TL;DR of this essay might perhaps be:
- College degrees are more valuable than ever in post-industrial economies, so applicants to top-tier schools are up 240% over the last 25 years
- Meanwhile, available spots at top-tier colleges in America have increased just 2% over the last 25 years (Thanks to Tyler Cowen & others for complaining about this publicly)
- Microeconomics 101: Fixed Supply + Increased Demand = Increased Price
- That’s the obvious part
- The non-obvious part is that this is intentional...
- ...because the Charity-status ( 501(c)(3) ) of Colleges in America depends on more-than-half of their students being unable to afford the education (read: “receiving financial aid”)
- That Charity-status protects the Investment Returns of College Endowments from Uncle Sam & the IRS
- Investment Returns Compound over time, and there is no more powerful force on Earth — anyone not playing the game to maximize Compound-returns will lose to everyone who is
- Thus: if Colleges want to keep their Investment Returns tax-free, Tuition MUST remain unaffordable for at least 50% of undergrads
I wasn't aware of this at all. Do you have a source? Non-profits don't generally need to give away their money.
I tried to touch on this idea in the “Case for Charity: A Charity Case” section, but my approach is to view it idealistically / as things should or might be.
And in a hypothetical world where Colleges charge double-digit fractions of a family’s net worth, while generating as much investment profit as our best companies and hedge funds, but where 0% of students received any “aid”......
.....and the institution was still allowed to remain a non-profit and have returns tax-sheltered....
....I can’t imagine that such a state of affairs would be allowed to continue.
Which organizations are allowed to be considered 501(c)(3) and on what basis and what privileges that affords them is a matter that is hypothetically at the prerogative of Congress.
I know trust in Congress/the political process is pretty damn low these days.
But my point with the “best play it safe” comment was basically...if I were colleges, I wouldn’t roll the dice.
I doubt that's changed much. The "sticker price" for elite colleges has always been too high for most families to afford, but most students' families don't pay that price.
If you want to prove that maintaining charity status is a cause of tuition increases, you'll have to try harder.
Room and Board is a major driver of the increased cost of colleges.
Do you see a problem with universities increasing the quality of student housing, sports programs like football, and college administration, and that this desire to spend more to get more students to pay more tuition dollars is an undesirable feedback loop that perpetually increases tuition costs over time?
Can we all agree that this is an awful idea societally and for the individuals involved? If you couldn't get credit to go, it's because the market is sending a signal that it's a really bad idea to go. Yeah, it sucks if your dream is to do [insert unmarketable degree here] and there are few jobs for people who do that and the training costs just as much as an engineering degree. The idea that "society" should subsidize that is narcissistic at best.
And one of the major reasons for that is that we continue to produce an oversupply of liberal arts graduates, who then get stuck in food service rather than actually working as a teacher or psychologist, while their existence suppresses wages for anyone who can actually find work in those occupations because the employers can choose the lowest bidder from a desperate population of qualified applicants.
It's like saying corn farmers are having a hard time, so let's subsidize the production of corn. Well, then there's too much corn, and what does that do to the price of corn?
This is a loaded question based on a faulty assumption. A societal shortage of people in these professions would cause their compensation to increase accordingly, incentivizing more people to enter them until an equilibrium is reached. This is basic supply and demand. Also...
> So it's individually quite stupid to major in anything _other_ than engineering, business or premed.
This is based on the faulty premise that everyone has the same skill set and can succeed at engineering, etc. as opposed to other fields where they may have a comparative advantage.
This is similar to any other area, really.
Wouldn't it make sense to bring college education back to its original purpose?
Even "public" school salaries are determined by the market.
Second, to exaggerate just a wee bit, engineers need big expensive labs and modern computers, whereas French literature majors only need a supply of French literature.
This would still be true even if college cost 10x less than it does now. Very few 18-22 year old full time students can afford any level of tuition.
This seems to be the latest legal reference with regard to colleges and universities retaining 501c(3) status.
> Of total endowment distribution, 56 percent were made for scholarships, awards, grants and/or loans in the amount of $3 million. 29 percent of total endowment distributions were made for general university operations in the amount of $3 million.
> Half of the systems reported that at least one of its five most highly paid employees received NCAA income.
Tuition-dependent colleges and universities tend to look very different from their large endowment counterparts.
The best way to think of MIT is not as a school but as a research lab with a small school attached.
- You make an organization that just examines people in various subjects.
- You hire a bunch of professors in each field.
- You make sure everyone thinks the exam is hard.
- You make sure the exams are fair. Rent exam halls, get invigilators to pace up and down. Biometric scans. Passports. Etc.
- You make the syllabus and practice exams freely available.
- You make a secure website to show everyone who passed.
There must be something similar, somewhere. Perhaps the Chinese civil service exams. Or the CFA exams.
It's the same for a professor who got involved - everyone else in the field would assume they couldn't get a university position, or really needed the money. For the people who could give credibility to such a venture, there's only downside.
2. When the exam is cheap and the only source of credit, fraud is a much bigger risk than for normal university exams. Apart from anything else, outright bribery is now a risk at every level in the process, because a good exam result is worth far more in lifetime earnings than you can afford to pay anyone involved.
But you can see the questions yourself. If you did a degree you'd know if it was the sort of level that you'd expect from a university student. If someone can answer university level questions, why do they need to go to university?
As for the profs, you can hire them from the same universities. They're allowed to work on the side.
> 2. When the exam is cheap and the only source of credit, fraud is a much bigger risk than for normal university exams. Apart from anything else, outright bribery is now a risk at every level in the process, because a good exam result is worth far more in lifetime earnings than you can afford to pay anyone involved.
Sure, so rent a hall, make people walk through a metal detector, etc. Make sure the papers are seen by several randomized people.
It's a trust building exercise, that's true. But plenty of businesses depend on trust, and it's not like nobody has managed to build trust before.
Sure, but how long are you going to spend reading the syllabus/example questions for some qualification you've never heard of, versus just assuming it's junk like most of the other random qualifications you haven't heard of that people list?
> As for the profs, you can hire them from the same universities. They're allowed to work on the side.
They can, but people will talk. At professor level the people in the same field know each other and reputation is important, especially for the very top level.
> plenty of businesses depend on trust, and it's not like nobody has managed to build trust before.
Bootstrapping an alternative trust basis in an area where one already exists is inherently much harder, because everyone assumes (not unreasonably) that you're probably doing it because the existing system doesn't trust you, probably for good reason.
I wonder how much of a difference the tax-exempt status is a factor in the growth of e.g. MIT's endowment.
Was this tax-exempt status ever in jeopardy? It's unclear from the article whether this status was part of the failed anti-trust suit, but the article does seem to suggest this is the underlying problem.
I am working in Germany now (in a "good" university) and I often visit top tier US universities.
Due having money, US universities at a similar relative rank have vastly bigger faculties, vastly better supply of researchers and usually better admin. And it is not even close. Network effects among researchers are much, much stronger.
Combine this with the fact that the German system has unecessary deficiencies. The appointment system is f'ed beyond repair and it is virtually impossible to offer positions to good prospective researchers. The "Mittlebau" lacks any and all good career track and is made up of disillusioned and hopeless people on 2-year successive contracts (and nowadays, it is missing entirely). And of course, there is no real tenure track, which means a lot of Profs are really bad and would have never gotten tenure in a meriocratic process.
Since we have a couple of privately funded places that do the US system here in Germany, we can see that it just simply works much better.
On the other hand, in terms of long term stability and the average quality of education, I agree that the US system has issues. Relying on inflated undergrad fees, especially from international student, seems dangerous in the long term.
There's a pattern here in public policy-making that needs further attention. We have slogans and phrases that become untouchable. "Clean water" is one. Who isn't for clean water? I've never met anybody who wanted water to be dirty or poisonous. In the states we've had a very powerful movement called "Mothers Against Drunk Driving". Once again, who the hell would be in favor of allowing drunks to drive? These titles are self-evidently good things.
It goes on and on. I'm a fan of learning more about Universal Basic Income. We solve poverty by, well, giving people money. We do it anyway through social programs. Why not give it directly? (I don't know. Let's see what happens in various experiments)
"College" is yet another one of these magic phrases. Who isn't for college? Higher education? I just read another commenter on here that said we should stop this "war on colleges"
That's why I'm commenting.
The pattern is this: there's a phrase or slogan that nobody in their right mind would oppose. Lots of people and emotional energy is put into making sure we have this goodness for everybody. People who provide any sort of feedback at all aside from unanimous support are shunned. And they should be! After all, they're against $GOODNESS_X
Then we start spending money and making public policy around the phrase -- and the results can be quite mixed. Since the phrases themselves mean little, it's all about the tiny details, the implementation. Some groups do this thing very well. Some suck at it. Over time, however, in every one of these situations, architectural cruft accumulates and people figure out how to game the system to make it do things nobody ever intended.
Well then we're kind of stuck, aren't we? You can't provide any feedback aside from full support, otherwise we'll shun you. We established that when we started this movement. Colleges not working at the things the common person thinks they're supposed to be working at? Prices way up, graduates sometimes deep in debt with useless skills, use of the collegiate corporate structure as a proxy for a modern country club? You point that out and you're one of those anti-intellectuals fomenting a war on colleges.
The public discussions around dozens of policy initiatives suck. And they suck because the concepts have been so bowdlerized that we're all forced into false dichotomies. And technology, by continuing to promote the concepts that these huge, intricate, and detailed policy issues can be discussed at in terms of 140-character tweets or something similar? We've got a huge hand in making things as sucky as they have become. We're making a buck off of making people stupider than they would normally be and having them fighting over things they would normally mostly agree about. In my mind this is a terrible thing that my community is mostly responsible for.