A Small Gesture Toward Spreading Higher Ed Wealth

Consider for a moment that almost 90 colleges and universities have endowments of a billion – that’s with a “B” — dollars or more. At 5% interest, a billion earns $50 million a year. Harvard, of course, is the big winner at nearly $37 billion, an amount so large that others have noted that the institution could stop charging tuition altogether and still be raking in dough.

I knew that part. But what I hadn’t considered is that when donors make a charitable donation to a billionaire college, they write the money off on their taxes. Therefore, as the rich colleges get richer, the taxpayers subsidize the inequity.

Higher ed and student debt are topics I generally leave to others, but I’ve been haunted by what seems like a doable, easily defended idea. To wit: end tax deductions for donations to rich universities. It’s brilliantly simple. The IRS has the data easily at hand, so a single regulation could disallow those institutions above the billion-dollar mark. Donors can still give money; they just can’t take it off their tax returns. No biggie. Any hue and cry against such a measure would be embarrassing to those protesting. The reg would hurt no one. Not even the rich universities. It would be a little drop of reason and kindness in a harsh and unfair world.

I got this idea from Glenn Harlan Reynolds, a University of Tennessee law professor and prolific writer. His recent opinion piece for USA Today, called “To reduce inequality, abolish Ivy League,“ went a little off the deep end. No one’s going to close Yale, or dictate any college’s admissions policies for the sake of social engineering or equality, as he suggests. But his push to end that tax break seems irrefutable.

A terrific education isn’t nearly as valuable as the networking.

Those in the know understand that it’s not the quality of education at Harvard, Stanford, or Princeton that prepares students to walk among the powerful. It’s the contacts they make, the friends cultivated for future deal-making, allies and lucrative marriages. It’s a rigged game. Very rich schools serve a disproportionately large number of very rich kids on their way to fame and fortune. If your kid got “C”s in high school while getting high with their romantic attachment, but you have the means to endow a wing on the art complex or a professorial chair, voila! The kid still gets the fat acceptance envelope at what is for everyone else one of the most competitive universities in the country.

A smart kid can get a terrific education at any number of less prestigious colleges, including excellent public institutions. She just won’t be rubbing elbows with the First Families.

Public colleges tend to have very small endowments at best. Their support comes mainly from state budgets, tuition and some donations. Because of the recent recession, states have been cash-strapped and skimping on support to higher education.

A deserving charity?

In his article, Professor Reynolds uses some of former Labor Secretary Robert Reich’s research. Reich says, “Private university endowments are now around $550 billion, centered in a handful of prestigious institutions. Harvard’s endowment is over $32 billion, followed by Yale at $20.8 billion, Stanford at $18.6 billion, and Princeton at $18.2 billion. Each of these endowments increased last year by more than $1 billion, and these universities are actively seeking additional support. Last year, Harvard launched a capital campaign for another $6.5 billion. Because of the charitable tax deduction, the amount of government subsidy to these institutions in the form of tax deductions is about one out of every $3 contributed.”

This means, therefore, that each kid at Princeton, say, is publicly subsidized, through tax deductions, roughly to the tune of $54,000. Their undergraduate population is about 5,000, so do the math. Likely a good number of the donors would still give money even without the write-off. Alternative, if knocking down a tax bill via donations is important to them, certain donors would give to a more worthy cause. One can always hope.

Granted, ending this tax subsidy would not so flood the federal coffers that Pell grants would overflow. Nor would the dynastic succession of certain powerful families stop. But the simplicity of the fix, which appeals to me, would make the rich universities work just a little harder at financial invincibility. It might provoke a conversation about how far higher education has strayed from the Horace Mann ideal of a leveled playing field for an educated citizenry. And how much it has become an ugly rigged game for those who have the upper hand in the first place.