America’s universities are recognized worldwide as models of excellence. But this high esteem rests on a very unequal distribution of wealth concentrated in the hands of a small group of private nonprofit universities. These schools dominate the rankings through an accumulation of riches beyond the reach of the nation’s public four- and two-year schools.
The list of universities with endowments over $10 billion, such as Harvard ($35 billion), Yale ($25 billion), Princeton ($22 billion), Stanford ($22 billion), and MIT ($13 billion), are joined at the upper end of this concentration of wealth by another 50 or so institutions with endowments of over $1 billion.
Because gifts to these endowments are tax deductible and the earnings endowments generate are tax free, the public subsidizes these universities although few taxpayers have students enrolled in them. Furthermore, these subsidies increase with the wealth of the university so that Harvard or Princeton is subsidized to a far greater degree per student than are the public colleges and universities that educate the majority of the nation’s college students.
Congress has granted endowments tax-exempt status to promote the public welfare. But because so much wealth has accumulated in so few institutions, questions are being raised about the degree to which the inequality in taxpayer subsidies truly serves a public purpose. Unfortunately, these subsidies, generated through complex tax laws, are very real and very expensive but mostly hidden from public view.
Elsewhere, we have documented the differences in the size of taxpayer subsidies to these rich campuses compared to the subsidies received by public institutions. Depending on the year, the per-student tax subsidies at Harvard, Princeton, or Yale compared to per-student government support at nearby state public flagships can be in the tens of thousands of dollars. In 2013, the ratio of the per-student taxpayer subsidy to these rich schools compared to nearby regional public campuses was as high as $22 to $1 and at community colleges it jumped in one case to $44 to $1.
These rich universities are also not doing their share in helping students achieve the American dream of upward social mobility. Consider that high endowment wealth is associated with lower concentrations of low-income Federal Pell grant recipients. Only 12% of the students in universities with endowments between $5 and $10 billion are Pell recipients, and at even wealthier universities only 15% receive Pell grants. In contrast, public four-year colleges average 36% and community colleges, which receive the lowest levels of government or endowment support, serve the highest percentage of Pell students (53%).
Consider too this finding from the Equality of Opportunity Project: students from families in the top 1% of the income distribution are 77 times more likely to attend the dozen most elite universities than are students from families in the bottom 20%. As a result, the disproportionate government tax subsidies end up supporting higher income students who are enrolled in the richest campuses in the land.
This highly unequal distribution of endowments, endowment hoarding, and the miniscule enrollment of low-income students in highly subsidized rich universities, have led to arguments that many schools have more money than they need and are not managing their endowments in alignment with the public interest. In turn, a bright light needs to be shined on the size and use of endowments and the tax policies that have enabled such a concentration wealth.
Mark Schneider is vice president and institute fellow at the American Institutes for Research. He is also the president of College Measures. He served as the U.S. commissioner of education statistics from 2005 to 2008 and is a distinguished professor emeritus of political science at the State University of New York, Stony Brook.
Jorge Klor de Alva is president of the Nexus Research and Policy Center. He was previously president of the University of Phoenix and a senior executive at Apollo Group Inc. He also held faculty positions at Princeton University and the University of California at Berkeley.
 Klor de Alva, J. and Schneider, M. (2015, November), Rich Schools, Poor Students: Tapping Large University Endowments to Improve Student Outcomes. Available at http://nexusresearch.org/wp-content/uploads/2015/06/Rich_Schools_Poor_Students.pdf.