Higher education, higher wealth - Once a rarity, 47 U.S. schools now have $1B endowments
Among them two in Virginia, one in Maryland
By JUSTIN POPE
Associated Press
Published: Friday, May 20, 2005 10:10 PM EDT
Construction workers work on part of one of the Johns Hopkins Hospital buildings that are part of Johns Hopkins University in Baltimore Thursday, May 19, 2005. Forty-seven U.S. schools now have endowments of $1 billion or more, compared to 17 a decade ago. These institutions have helped make America's higher education system the envy of the world. Their concentration of wealth raises questions about fairness, and whether the billionaire schools should spend more to keep down tuition. The Associated Press has taken an in-depth look at the financial elite, using numbers collected by the federal government and college guidebooks over the last 10 years. AP Photo/Chris Gardner
NEWTON, Mass. - Crossing the main quad at Boston College, visitors can't miss the billion-dollar view.
There is Higgins Hall, the recently renovated science center, with its pricey, Gothic exterior. Behind it sits a new, $41 million office building, complete with coffee bar. Down the road, through well-tended grounds, lies St. Ignatius Gate Residence Hall, home to 322 students in suites featuring instant cable and high-speed Internet access.
"I don't think you can ever overinvest in higher education," says the Rev. William Leahy, BC's president. With a $1.15 billion endowment, BC can invest a lot: The school is in the stratosphere of wealth in American higher education.
But the stratosphere is getting crowded.
Forty-seven U.S. colleges and universities now have endowments of $1 billion or more, compared to 17 a decade ago, according to the National Association of College and University Business Officers. Harvard alone has $22 billion, nearly $10 billion more than No. 2 Yale.
The billionaire schools have amassed their wealth through savvy fundraising, shrewd investing and generous tax laws, and they are the envy of the world. Outside the United States, only England's venerable Oxford and Cambridge are in the same financial class.
In this country, $1 billion has become a benchmark, a point beyond which schools can stop worrying about the day-to-day and dream big.
"It allows a place to take its other sources of support - student revenues or state financial support - and use them as a base," said David Ward, president of the American Council on Education. "And use the rest as a source of excellence."
College senior Stephen Cote sits in his living room, March 28, 2005 at St. Ignatius Gate Residence Hall, opened September 2004 at the college in Boston. AP Photo/Chitose Suzuki
To shed light on how these schools are using their unprecedented wealth and why they still cost so much to attend, The Associated Press analyzed thousands of numbers collected by the federal government and college guidebooks over the past decade.
Mix of objectives
The AP found an increasingly varied mix of private and public schools in academe's financial elite, a group spending heavily on new construction and aggressively recruiting top faculty.
They also are a clique that can induce tuition sticker-shock as never before: Despite tripling its wealth over the last decade, the average billionaire college has nearly doubled its price. Tuition and fees at the average private billionaire college hit $29,002 in 2004; at public universities in the group it cost $7,230 to attend the typical flagship campus.
A significant boost in financial aid means many students aren't paying full freight, yet the costs have provoked criticism that the richest colleges should use more money from their savings than they do now - at most schools, about 5 percent per year.
Some also worry the wealthiest colleges take too big a piece of the financial pie.
The 47 billionaire schools possess nearly two-thirds of the endowed wealth in American higher education. They are indisputably engines of life-improving research but, excluding the branch campuses of billionaire public schools, they educate fewer than one in 25 American undergraduates.
"There are hundreds and hundreds of small colleges," said Ian Newbould, president of North Carolina Wesleyan College, a school with an $8.5 million endowment that ranks No. 702 of the 741 schools in the college business officers' latest endowment survey.
"There is the democratization of education, but in fact, there are a large number of students who need support and need resources."
The billionaire schools, meanwhile, seem flush. But though they are grouped together at the financial peak among America's 2,300 four-year colleges, they aren't all alike.
Each of the eight Ivy League colleges is a billionaire, perhaps unsurprisingly, as are other private schools that wouldn't be hard to guess - Stanford, Duke, Chicago and Notre Dame among them. Yet there also are small liberal arts colleges, such as Grinnell in Iowa, and 14 public universities, up from four a decade ago. The newcomers among public schools include Ohio State, North Carolina and Illinois.
A billion dollars goes a lot farther at a small school than a large one. Wellesley College, an all-women's school outside Boston, for instance, ranks 39th on the endowment list with $1.18 billion. Purdue University is one slot higher with $1.20 billion, but the Indiana school has 17 times more students.
Age a factor
What all these schools have in common is that - by American standards, anyway - they're old. Their average age is 168, ranging from 93 (Rice) to 369 (Harvard). Colleges need decades - even centuries - to build a reputation, reap the rewards of compounding investment returns and produce generations of alumni who can be tapped for donations.
Ask any president of a billionaire college about the endowment and you'll get a lecture on how little $1 billion really is: Spend too much each year and there isn't enough left for the future. And many endowment funds are for specific purposes, from scholarships to professorships to landscaping.
That's why the presidents say their endowments can do little more than put the brake on tuition increases.
The AP's analysis found tuition and fees rose 63 percent at the average private billionaire school over the last decade, slightly less than the increase faced by students at four-year colleges nationally. The University of Richmond alone plans to raise tuition and fees by $8,330, or 31 percent, to $34,850 next year.
At the 14 public schools on the list - many still dealing with state budget cuts and more dependent on tuition than a decade ago - tuition and fees at flagship campuses are up 106 percent, compared with an increase of 90 percent for students at four-year public colleges nationwide. That translates to an increase of $3,712 at the average public billionaire.
It's no surprise, then, that the debt loads of students who borrow to attend the billionaire colleges stands above $16,000 at both the flagship public universities and private schools.
Some surprising trends
Still, for many, billionaire colleges have become more affordable.
That's partly because the percentage of students receiving loans is down and the percentage receiving grants is up.
The private schools have increased grant aid and tuition discounts by two-and-a-half times in the last decade. That's money students don't have to give back.
Private billionaires are meeting almost all of what's called "demonstrated need" - that is, getting students the cash they must have to stay enrolled. Public flagship schools are meeting 84 percent of demonstrated need.
Princeton recently replaced loans entirely with grants, and Yale and Harvard eliminated tuition for students from low-income families. Among public schools, the universities of Virginia, North Carolina and Michigan have recently implemented or announced more financial aid for low-income students.
"Right now, the wealthiest schools are remarkably accessible to low-income students," said Gordon Winston, a higher education economist at Williams College ($1.23 billion), which recently reduced or eliminated loan burdens for students from families earning less than about $60,000.
At the wealthiest schools, even middle-class families may qualify for at least some need-based aid, though tuition still doesn't come cheap. "It's a sacrifice in terms of the extra things," said Neale Mahoney, a graduating senior who has attended Brown University ($1.65 billion) on a partial scholarship, and whose parents are both educators. "My parents have never bought a new car."
In 2002, Boston College joined the small group of colleges that promise to find funding for all accepted applicants. It spends about between $55 million and $60 million annually on undergraduate, need-based financial aid.
BC is now "much more attractive to a range of students who might at first be put off" by the school's list price of $41,950, including room and board, said Leahy, a Jesuit priest who does his bit to keep costs down by declining a salary.
For a school founded to serve impoverished Irish immigrants, the financial aid policy is a source of pride. But no matter how wealthy BC gets, Leahy doubts it ever will stop raising tuition.
"A billion dollars is a great amount of money, but it by no means eliminates all the pressure," he said, noting the costs of heating oil, health insurance and technology. At BC, endowment income accounts for only 10 percent of the operating budget.
In part, prices rise because it's hard for colleges to offset costs as a company would, by increasing productivity. And in part, they rise because the market allows it: The average private billionaire school gets four applications for every available slot.
But mostly, prices rise because there are so many things the billionaire colleges want to do.
Wealthy universities "have many more ideas than they have money to spend on them," said Charles Clotfelter, a Duke economist and author of "Buying the Best: Cost Escalation in Elite Higher Education." "If their leaders don't feel that way, they probably need to be replaced."
BC is whittling down a list of 200 proposals for new initiatives. Leahy wants to make BC a top-tier science power but also boost Greek and Latin programs, which are close to his heart and increasingly popular among students.
With money, "the appetite intensifies to do great things," Leahy said. "We could use another billion." And the school is planning a new campaign to raise it.
But where's it going?
Critics, meanwhile, have a suggestion for American schools feeling pinched: Spend more of the money they've already raised.
"Endowments represent money that's not being spent on education," said Henry Hansmann, a Yale law professor, who has criticized endowment stinginess. During the recent economic downturn, Stanford froze hiring, MIT closed its campus over the holidays and Dartmouth tried to eliminate its swimming program before alumni stepped in. But few schools significantly adjusted their 5 percent endowment spending rate for fear of long-term consequences.
"Should we tax this generation of students so we can spend it on the next?" Hansmann said. "That doesn't make much sense, because the next generation of students is almost certainly going to be more prosperous than this one."
The billionaire colleges say they have to be cautious, given the uncertainties of the stock market. And they answer price-gouging charges by saying students are getting more for their money - in and out of the classroom.
Many, including BC, Richmond and Swarthmore, have built or renovated science labs. But much of the campus building boom is about "atmosphere" and "experience." The charms of decrepit dorms and bad plumbing are quickly fading in a race for the best, most well-appointed facilities possible - better food, cutting-edge computer networks and health-club-style gyms. Duke ($3.3 billion) even experimented with giving iPods to all incoming freshmen.
"We don't have dormitories anymore, we have 'living and learning units,'" said Ronald Ehrenberg, an economist at Cornell University ($3.24 billion). "We don't have dining halls any more, we have 'dining kiosks.' It is not sufficient for any college students to be housed in buildings that were put up in the 1940s. What these students are getting facility-wise is enormous."
Boon for sports
Along with weekend jocks, varsity athletes also have fared well. Vanderbilt ($2.3 billion) recently opened a $2 million soccer-lacrosse complex. Virginia is spending $130 million on a project that includes a 15,000-seat basketball arena - for a men's team that hasn't made the NCAA tournament since 2001.
The billionaires also are spending on academics, from student research jobs to travel grants to the salaries of celebrity professors.
Including the University of California system, 11 of the 15 American Nobel Prize winners in the last two years work at billionaire schools - not to mention 2003 literature winner J.M. Coetzee, a South African who has taught at Stanford.
Wealth doesn't guarantee quality, but the correlation between money and reputation, at least, is hard to ignore. Each of the top 21 universities in the latest US News & World Report rankings is a billionaire.
"It seems to me there's something really useful about having the really turned-on kids go to schools that provide them with the really turned-on resources," said Winston, the economist at Williams.
But the "arms race" for superstar faculty is costing many nonbillionaires their best talents - researchers such as Hanna and Antonio Damasio, two neuroscientists who recently left the University of Iowa to start a brain institute at the University of Southern California ($2.4 billion).
The drain to richer colleges is a "huge problem," said William Kirwan, chancellor of the university system of Maryland. "As talent ebbs away, and I think we're seeing that happen, it really affects public higher education." In some states, public universities have asked their legislatures to set up "defense funds" to make competitive offers when wealthier schools try to poach faculty.
The wealth disparity is unlikely to disappear, even as more and more schools crack the billion-dollar barrier. Fifty colleges and universities now have between $500 million and $1 billion. The $10 billion endowment soon may be the new $1 billion endowment - and $1 billion a mark of mere mediocrity, not excellence.
Weaving a web by upping the cost - University of Richmond hopes to raise profile
By JUSTIN POPE
Associated Press
RICHMOND - As president of a billionaire college, you can expect a generous salary, a spacious office, a staff and maybe a house.
And, particularly if you're University of Richmond President William Cooper, you can expect to hear the same question, over and over: "If your college has a billion dollars, why is my tuition going up so much?"
Richmond and the University of Virginia are the only Virginia schools among 47 American colleges with an endowment of $1 billion or more. Despite having a huge endowment, next year Richmond will raise undergraduate tuition and fees more than $8,000, or 31 percent, to $34,850. Including room and board, Richmond's list price will rise to $40,510.
Cooper says the increase will merely bring Richmond's charges in line with competitors, and it will help the 3,000-student private university build a national reputation. At the moment, its sylvan, suburban campus is being dug up with a half-dozen construction projects, including a $35 million science center renovation and a new, $12 million recreation and wellness center.
Cooper also says he plans to lower UR's already enviable 9-to-1 faculty ratio, boost its unique undergraduate leadership school and temper the tuition increases with more financial aid.
"Great universities have to have all their fuel sources on at all times," he said.
Students, however, are skeptical - even though the increases won't be as sharp for students currently on campus as for newcomers. In a student government survey of 572 students last fall, 75 percent said they opposed the increases. Some say they think Richmond is great the way it is.
"People aren't sure what we're trying to become [by] doing this," said Ken Kraper, who recently completed a term as a student government vice president. "One of the things we've heard is we'd like to become the Princeton of the South. But some people here say we're not the Princeton of the South, that's not who we are."
Richmond is just one example - though an extreme one this year - of the trade-off many of the billionaire colleges have made when it comes to college costs: Charge more to those who can afford it, give away more to those who can't.
Kraper says he sees the value in Richmond pursuing excellence, but isn't sure the tuition increase is how to do it.
"A lot of that middle class that defines Richmond right now will get wiped out," Kraper said. "A lot of people think it will just be the rich kids paying for the poor kids."
Building wealth a full-time job
By JUSTIN POPE
Associated Press
NEWTON, Mass. - The first billion is the hardest.
America's richest colleges - the 47 with endowments over $1 billion - have a combined $160 billion, on par with the gross national product of Hong Kong. And they are going all out to get even more.
Last year, they raised $7.2 billion, or just under one-third of all the money donated to American higher education. Harvard alone raised $540 million.
Having money means having the resources to raise more of it, and to invest it shrewdly.
Development officers still use the old tricks, like making the rounds at football tailgate parties, and calling on elderly alums who may be thinking about their wills. But these days, they also use direct-mail software, host alumni golf tournaments and organize cruises.
At Boston College ($1.15 billion endowment), the fundraising staff numbers 150, not including the Rev. William Leahy, a Jesuit who has taken a vow of poverty but estimates he spends up to 40 percent of his time raising money for the school. Last year, BC took in $65 million.
Three staffers do nothing but work to get young alumni in the habit of giving annually, even though it may be years before the donations they solicit even cover their salaries.
"It's a long-term investment," says James Husson, BC's vice president for university advancement.
The billionaires' greatest resource is rich alumni with fond memories of college.
"I think part of it is American students bond with their universities more than anywhere else," said David Ward, the American Council on Education president.
But school spirit isn't the only ingredient.
U.S. law is extremely - even uniquely - generous to colleges. Congress makes contributions tax-deductible and gives schools a break on patent royalties for their researchers' inventions. It also declines to tax the investment earnings of colleges, and allows them to raise money through tax-exempt bonds.
When a big project comes up, wealthy colleges usually don't tap their endowments. Instead, they use their gilt-edge bond ratings to borrow money at low interest rates.
That allows them to continue to earn investment returns on the endowment, which usually more than covers the bond payments. They can keep the extra and plow it back into their endowments.
Harvard, despite its $22.6 billion endowment, has borrowed more than $3 billion over the last decade, according to Thomson Financial.
Wealthy colleges such as Harvard also can afford the most sophisticated financial advice, and can invest aggressively.
Harvard pioneered investing in nontraditional assets such as timber. It caught flak for paying money managers as much as $35 million per year, but those managers consistently beat performance benchmarks and Harvard is billions the richer for it.
Figures from the National Association of College and Universities Business Officers show billionaire colleges earned 12.5 percent annually on their investments over the last decade, compared to 8.8 percent for colleges with endowments under $25 million.
Some experts think it's fine that money flows heavily to schools that have a track record showing they can use it well.
Colleges "that do a good job, that get better, tend to do a better job at finding resources," said Richard Spies, an economist and executive vice president for planning at Brown University. "Those that for whatever reason miss the mark tend to fall away. That's a good thing."
Others see the rich getting richer as a cause for concern.
"What's going on in private education is what's going on in the rest of society," said Ronald Ehrenberg, a Cornell University economist who has written extensively about higher education. "We're just becoming a more unequally distributed society."
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