Colleges and universities are increasingly relying on rich people. The damage — to the nation — is just beginning.

By Sam Pizzigati

How would a smart nation go about getting the most bang for the higher education buck? Would a smart nation smother a handful of colleges and universities with more money than they could ever possibly put to sound educational use? Or would a sane nation spread resources for higher ed around, to give every student a shot at a quality education? Any reasonable nation, of course, would choose the latter course.

The United States has chosen the former.

Not consciously, to be sure. Americans have never gone to the polls and cast their ballots for a enrich-the-few approach to higher education. But the United States has taken that route anyway.

And the result has now become too embarrassing to ignore. The enormous wealth now pouring into elite U.S. private colleges and universities — at a time when average families are struggling to afford rising tuitions at budget-cutting public colleges — is finally beginning to become a political issue.

The Senate Finance Committee late last month asked the nation’s wealthiest colleges and universities to turn over financial data on everything from what they give out in student aid to how much bonus cash their investment advisers collect.

How wealthy have higher ed’s wealthiest become? The industry’s scorekeeper — the National Association of College and University Business Officers — now counts 76 institutions with endowments worth at least $1 billion.

But the bulk of this endowment wealth sits with a few handfuls of elite schools — the Ivies, Stanford, MIT, the wealthy liberal arts colleges — that together educate less than 100,000 of America’s 20 million postsecondary students.

Harvard now boasts a $34.6 billion endowment. Princeton has over $2 million behind every student. Overall, the 22 richest higher ed institutions hold more wealth than the entire rest of the 785 institutions the college business officers are currently tracking.

What’s generating this concentration of wealth at higher ed’s summit? The concentration of wealth at America’s summit. The more that wealth in the United States concentrates in elite pockets, the more the wealthy contribute to the nation’s elite universities.

America’s rich don’t give to soup kitchens. They give to dear old alma mater. In 2007, notes the Chronicle of Philanthropy, the gifts America’s 50 “most generous” gave to higher ed “far outpaced” the gifts these 50 deep-pockets gave “to other types of charities.”

The 20 top university endowments, as a group, have seen their total dollars multiply nearly eight times over since 1986.

What have elite institutions done with all this money? Have they welcomed more students from families of limited means?

Hardly. Over the last decade, undergrad enrollment at the Ivies, MIT, and Stanford has actually dropped , by 1.4 percent. And elite institutions are filling their fewer seats with more students from the upper reaches of America’s income distribution.

One recent study analyzed the make-up of student bodies at 19 elite colleges. Only 6 percent of the students at these schools turned out to be “the first in their families to attend college.”

Roger Lehecka, a former dean at Columbia, and Andrew Delbanco, an administrator there now, added last month that “between 2004 and 2006 — an era of enormous private wealth accumulation — 27 of the 30 top-ranked American universities” actually experienced a decline in their percentage of low-income students.

So where, if not to expanded access, are the billions in elite endowments going? They’re going into projects that better fit the priorities of wealthy funders. Elite institutions are building up a storm, erecting lavish new facilities that trumpet, naturally enough, the names of their funding benefactors.

Yale University, the New York Times reports, is “drawing on its huge, rapidly growing endowment” to “renovate 54 buildings and construct 16 new ones.” At Princeton, one new student residence, named for retiring eBay CEO Meg Whitman, offers rooms with “triple-glazed mahogany casement windows.”

Stanford, reports Business Week, “spent $4 million to restore” an equestrian center that “now provides a place for undergraduates to house their own horses at a cost of $500 a month.”

The donors who make all this possible get more than the satisfaction of watching students frolic and horses gallop. They get tax deductions. States and the federal government, in turn, collect fewer tax dollars, a shortfall that translates into fewer revenue dollars for public colleges and universities.

The elite colleges, meanwhile, pay no taxes at all on their endowment investment earnings. But these elites get more than tax breaks. They get preferential treatment.

Foundations, to maintain their tax-exempt status, must spend at least 5 percent of their endowment value every year. The administrators of college and university endowments face no such requirement.

Last year, the 76 schools with billion-dollar endowments spent on average only 4.4 percent of their endowment dollars. Harvard spent just 4.3 percent of its endowment in 2006. By not having to spend 5 percent, the university saved “$245
million in one year alone.”

U.S. Senator Charles Grassley of Iowa, the top Senate Finance Committee Republican, has been suggesting that Congress ought to hold schools like Harvard to the same 5 percent standard that applies to foundations.

The elites, not surprisingly, don’t think much of that suggestion, and they’ve begun taking preemptive
action, hoping to head off any legislation that might hold them more accountable.

Both Harvard and Yale have announced, in recent months, plans to spend more of their endowment dollars on student aid. At Harvard, families earning up to $180,000 will now have to pay no more than 10 percent of their incomes in tuition.

Moves like these, critics charge, will only serve to make higher education in the United States more
unequal. To compete for students from upper-middle class families, public colleges and universities will now have to increase financial aid to these families.

But few of these public schools, note Roger Lehecka and Andrew Delbanco from Columbia, “have enough money to give more aid to relatively wealthy students without taking it away from relatively poor ones.”

Higher ed’s top-heavy distribution of wealth squeezes public colleges in other ways as well. The elites are now
offering huge salary packages to lure star faculty out of public universities. These packages, with research support, can reach $2 million a year.

Public universities must either match these offers — and face cutbacks in other areas — or lose their best faculty. Either way, their students lose.

And the biggest winners in the American elite university status quo? Probably the money managers who’ve been steering more and more endowment dollars into hedge funds and other “nontraditional” investments.

Elite universities have become big-time private equity and hedge fund players. Yale now has over 20 percent of its endowment in hedge funds

The payoffs for managing these nontraditional investments can be handsome. Harvard money man Jack Meyer pulled in $6.9 million one recent year. A bond trader working with Harvard endowment dollars, after one high-yielding annual effort, pocketed $35 million.

In sum, elite colleges and universities aren’t just reflecting — or even perpetuating — an
unequal America. They’re actively shoving inequality ever wider.

The alternative? Simple. Tax the rich.

A half century ago, in the Eisenhower years, America’s most wealthy paid over twice as much of their incomes in taxes — after exploiting all the loopholes they could find – than America’s most wealthy pay in taxes today.

Americans back in the 1950s and 1960s used those tax dollars to create a network of easily affordable public colleges and universities. Postsecondary education became, for the first time in world history, a mass phenomenon.

That mass, today, is hurting. And that hurting won’t ease so long as deep-pockets, not democracy, are driving America’s postsecondary priorities.

Sam Pizzigati edits Too Much, the online weekly on excess and inequality published by the Washington, D.C.-based Institute for Policy Studies. Read the current issue or sign up to receive Too Much in your email inbox.