Crossposted from The Economic Populist.
In the Middle Ages, one of the chief means by which a man could absolve himself of his indiscretions was the purchase of an indulgence from the Church. The promise of release from eternal damnation brought with it much abuse, and the presumption that money could be called upon to put one in God's good graces was the subject of condemnation by Luther and those who protested against the excesses of the Catholic Church.
Much as medieval indulgences were presumed to absolve the penitent, the practice of charity in modern society has assumed much the same function.
Get caught killing trade unionists in Colombia?
Fund scholarships for kids going to Columbia.
Give a little money, grease the wheels of higher education, and society just might forgive you for how you got the money in the first place. Don't get me wrong, done right higher education and philanthropy are a great combination that produce real benefits for society. And it isn't always the case that the money given to universities has blood on it. A recent article from the NY Times tells the story of one school that's been able to make excellent use of endowment money to provide access to education for those who otherwise might not be able to get it: Berea College.
"You can literally come to Berea with nothing but what you can carry, and graduate debt free," said Joseph P. Bagnoli Jr., the associate provost for enrollment management. "We call it the best education money can’t buy."
Actually, what buys that education is Berea’s $1.1 billion endowment, which puts the college among the nation’s wealthiest. But unlike most well-endowed colleges, Berea has no football team, coed dorms, hot tubs or climbing walls. Instead, it has a no-frills budget, with food from the college farm, handmade furniture from the college crafts workshops, and 10-hour-a-week campus jobs for every student.
Berea’s approach provides an unusual perspective on the growing debate over whether the wealthiest universities are doing enough for the public good to warrant their tax exemption, or simply hoarding money to serve an elite few. As many elite universities scramble to recruit more low-income students, Berea’s no-tuition model has attracted increasing attention.
Yet, Berea College is the exception, not the rule. As is noted later in the article linked above, only one in 10 of the students at the nation's most selective institutions come from the bottom 40% of the income scale. Higher education in America is increasingly becoming segregated by class, while at the same time statistics indicate greater ethnic diversity because of access afforded to foreign nationals funded by their governments or wealthy parents. It's the perfect swindle, because it allows the folks in charge to feel better about have they've gotten where they are without doing a damn thing about improving how the other half lives.
And the tragic thing is that with remarkably little action, it would be possible to channel the vast riches accumulated by university endowments to the purpose of expanding educational access for all Americans.
During the 2008 Democratic primary in Indiana, one of the gubernatorial candidates proposed a simple plan for the state's public universities. They would be called upon to spend any amount in excess of a 10% annual increase in the university endowment to provide scholarships for in state students. I wrote at that time what the impact of that at the state's two largest universities would be.
IU and Purdue both have roughly 40,000 students, so that would mean $2,150 in tuition relief to in state students. At BSU there are roughly 20,000 students, so that's around $330. ISU is about 20,000 so that's about $40 annually in tuition relief. As you see with a lot of these issues, IU and Purdue are what's driving the need for a respose. BSU, ISU, and the other state schools have been much better at dealing with this.
At Purdue, a full time resident student can expect to pay around $3,708 a semester. So if we cut that $2,150 in half we get $1,075 a semester. That's a 29% tuition cut. At IU, annual in state tuition is $7,837. So if we apply that $2,150 from Jim's plan to the tuition that takes tuition down to $5,867 annually. That's a 27% tuition cut.
Sadly, the candidate who proposed this plan lost the primary, and I haven't seen any evidence that his opponent from the primary has said that she will pursue this if she's elected. And it's not just Indiana. The National Association of College and University Business Offices (NACUBO) compiles a list of university endowments ranked by size. Just to give you an idea of what the impact of Schellinger's plan applied on a national scale would be I'm going to show what would happen at the Big 10 schools. Arguably, I'm going to be understating the impact, because I'm not going to have numbers to separate out of state students or foreign nationals.
Sources: For enrollment numbers. For Endowment numbers.
A few things first. Yes, there are 11 schools in the Big 10. Second, the enrollment and endowment numbers can be tricky because these schools have branch campuses that may or may not5 be included in the enrollment and endowment numbers.
What's surprising here is that these are public universities with the exception of Northwestern, and you can see that Northwestern has a much higher endowment gain per student than any of the other schools. I'm certain that a similar list o Ivy League schools would show the possibility of even higher per student tuition cuts.
And that's the question.
Money given to universities is tax exempt, yet it's often hard to see a benefit to the public from the money that's in these endowments. And because they are tax exempt, some portion of the money in these endowments represents lost tax income. So in effect, by giving money that may go a long way to securing their offspring a spot at universities, wealth individuals can skip out of their tax responsibilities to society.
Maybe endowments and indulgences aren't really all that different after all.
If there is no social mandate upon philanthropy in higher education, it may come to serve to benefit those who need it the least by releasing them from tax obligations and glossing over their economic indiscretions.