Fat Cat Universities Don’t Need Any More Money

Posted: Jan 04, 2007 7:51 AM

College affordability is a problem, with tuition, room & board averaging above $31,000 a year. Reason to boost government aid, as the incoming Speaker says she will? Nope: That “solution” will only make things worse. Here’s why:

Colleges charge outrageous prices knowing that Washington always deflects cost. Consider that qualified students are eligible to receive $4,050 in Pell Grants per year and up to $23,000 per undergrad degree in Stafford Loans (the two main sources of federal student aid). That means there is at least $16,200 in Pell Grants and $23,000 in federal loans currently set aside to offset costs. That’s a whole lot of green college administrators can play with—$39,200 to be exact—when calculating the sticker price. What incentives do schools have to be price-friendly and economically resourceful when the opposite behavior will multiply its piggybank? The government’s “helping hand” gives colleges a perverse market incentive to inflate costs.

Think that’s far-fetched? Consider that congressional spending for higher education jumped 686 percent between 1973 and 2005, the Office of Postsecondary Education tells us. Taxpayers shelled out $72.4 billion in 2005 compared to just $9.2 billion (in 2005 dollars) in 1973. Outlays rose 95 percent from 1995 to 2005 alone. Yet this soaring spending has not brought prices down—instead, it’s goosed them up. Tuition’s grown more than twice as fast as inflation over the last 30 years, indeed, faster than the costs of food, clothing, and shelter.

Here’s the ironic part. Whenever tuition prices climb, we don’t get angry at the ones actually jacking them up. Politicians don’t probe college presidents over college affordability. Instead, they just whip out Uncle Sam’s (our) checkbook. What assurances have we been given by the new Congress that increasing aid this time around will do what’s been long promised and lower cost? You’d think from the Left’s rhetoric that there’s a direct relationship between more aid and lower prices. Not so. Every time aid increases, tuition increases. The College Board—which tracks all these figures— reports that since Congress ratified the Higher Education Act in 1965, tuition has escalated 44 percent.

It’s not like colleges and universities are short on cash, either. The endowments of the nation’s top 50 schools all tower above one billion dollars and sport return on investments (ROI) that would make Morgan Stanley jealous. The big players, reports The Chronicle of Higher Education, contain gigantic investment accounts. Harvard’s endowment is more than $25 billion with a 19.2 percent ROI. Yale’s $15 billion endowment raises the bar with its 22.3 percent ROI, and Princeton scrapes by with an $11 billion endowment backed by a 17 percent ROI. Harvard’s endowment, in fact, is bigger than the gross domestic product of some Latin American countries.

The nation’s top 50 colleges and universities are not the only ones sitting on huge investment portfolios. Two hundred and twenty-seven colleges and universities have endowments ranging from $100 million to $900 million. And an additional 141 have endowments that surpass $50 million.

Why is it that when ExxonMobil posts record billion-dollar profits amidst soaring oil prices, liberals demand price controls and government investigations? But when colleges post record endowments despite soaring tuition prices, liberals demand more federal funding? It’s just as outlandish for the government to subsidize ExxonMobil as it is for the government to subsidize academic establishments with abnormally deep pockets. Don’t look for Pelosi to probe any college presidents over “windfall” endowments or swelling tuition prices or demand that they pay their “fair share.”

At least the extra aid goes toward instruction, right? Wrong! Ohio University Professor Richard Vedder saliently noted that from 1977 to 2000 only twenty-one cents out of each increased dollar spent per student actually covered teaching. So where’s the money being squandered? Administrative salaries and fringe benefits, for starters. Those two categories jumped 26- and 31 percent respectively over the past 5 years, even though the consumer price index only increased by 14 percent. Another reason: bloated staffs and needless vice presidents, deans, provosts, and campus life directors—many of whom are pocketing salaries that average $195,000 a year and controlling six- and seven-figure budgets, reports the Chronicle.

Boston University’s administration, for example, includes one president, two provosts, and 11 vice presidents. There’s a vice president for government and community affairs, a vice president for operations, a vice president for auxiliary services, a vice president for information services, and a vice president for enrollment and student affairs, to name a few. Many colleges and universities are administered the same way, clogging staff with too many deans and chief diversity officers who carry out politically correct agendas. We often complain about government bureaucracy growing out of control. The same has been occurring in higher education.

As taxpayers, we should demand that Congress review the real reasons behind skyrocketing tuition: federal funding and explosive bureaucratic growth. Pelosi and her liberal allies in Congress do not plan on addressing these concerns. Instead, their sights are set on dumping even more of our money into higher education—a move that will only expand the problem of affordability while allowing schools to amass even larger fortunes on the backs of beleaguered American taxpayers.

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