Growth in colleges' endowments is not bringing lower tuitions

Published: Sunday, Sept. 23 2012 10:24 p.m. MDT

Scholarship recipient Steven Phelps takes a class from Pete Nicholas at the University of Utah's College of Social Work.

Laura Seitz, Deseret News

Steven Phelps is accustomed to overcoming obstacles. A progressive disease that is stealing his eyesight didn't impede Phelps' plan to earn dual graduate degrees at the University of Utah. Thanks to donors to the U.'s endowment fund, financial need won't stop him either.

Retinitis pigmentosa has reduced Phelps' visual field from the usual 180 degrees to a mere 15 degrees, and the disease is still advancing. Undaunted, Phelps is working toward master's degrees in social work and public administration with help from an endowed grant, the Maurice & Inez Warshaw Scholarship for graduate students studying social work.

College and university endowments were hit hard by the recession, but many have recovered well and are posting large gains, according to a report by USA Today. Tuition rates continue to climb, however.

"In 2011, 74 U.S. schools had endowments of more than $1 billion, compared with 54 schools in 2009 after the recession hit," according to data collected annually by the National Association of College and University Business Officials and analyzed by USA Today. "By 2011, nearly 70 percent of schools had either recovered from losses or were within 5 percent of their previous maximum amount. Gains include both investment returns and fundraising."

Gifts keep giving

Endowments comprise money donated to an institution, often by alumni or friends of the school. Interest from unrestricted endowment funds can be used for operating expenses and capital expenses. Frequently, though, endowments come with restrictions made by their donors, often to created scholarships or endowed professorships.

In the money game, Harvard is in its own league, with $32 billion in its war chest. That's enough cash to give a full-tuition scholarship to every student at the school without touching the endowment's principle funds. It's not likely to happen, though. Colleges and universities are sitting on swelling endowment funds, although tuition and fees rose an average of 30 percent above inflation between 2006 and 2011, according to the National College Board as cited by USA Today.

One of the voices calling for increased tuition accountability belongs to Sen. Chuck Grassley, R-Iowa, who has questioned whether increased access to student loans allows schools to spend their endowments on fancy facilities instead of using them to lower tuition.

"In addition to the benefit of income tax exemption, private, tax-exempt colleges and universities are able to raise capital through tax-exempt bonds and tax-deductible contributions," Grassley said in a December 2011 statement. "It's important to understand whether these tax benefits are fueling the tuition increases by subsidizing high salaries for college leaders and rock-climbing walls and other non-educational amenities to try to attract students," he said.

"In 2007 and 2008, before the markets crashed, Grassley had built some congressional support for a minimum endowment payout rate despite fierce pushback from higher education groups — and some of the best-endowed colleges raised their endowment payouts through increased spending on financial aid," according to the Inside Higher Ed blog.

Public vs. private

That helps explain why students who can get in, top private schools such as Harvard, Yale and Princeton can be a better bargain than some state universities for students who can meet their academic requirements. These schools have begun using their endowments to offset tuition costs for middle-class students, prompting talk of a role reversal:

"The private schools are in some respects really more 'public' than the so-called 'public' or 'state' universities," said Richard Vedder, author of "Going Broke by Degrees: Why College Costs Too Much."

"Moreover, schools like Harvard, Yale, Princeton and Williams are able to offer lower tuition fees because of their vast wealth, which, in turn, was largely accumulated as a result of tax-exempt privileges granted by the federal government."

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