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Elite colleges debate how to use new wealth
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Wick Sloane, who graduated from Williams College in 1976 and earned a graduate business degree from Yale in 1984, loves his alma maters but not their persistent pleas for money. With the endowment at Williams cracking the $1 billion mark last year and Yale's worth 10 times that, he doesn't see why they want more.
''It's almost like raising money is a drug addiction,'' says Sloane, a Boston businessman who is saving to put two kids through college. But ''no one tells me what they need it for.''
College financial officers, long familiar with such criticism, typically dismiss it as a failure to recognize the peculiarities and complexities of non-profit higher education. They say raising money is a never-ending job because there is never enough money to do everything they would like to do.
But many of the best-endowed colleges and universities are enjoying remarkable good fortune in recent years, thanks to soaring stock market returns and record-setting fundraising campaigns. More than 40 colleges now report endowments of $1 billion or more. Even some small liberal arts colleges, such as Pomona College in Claremont, Calif., are on that list.
The call for accountability is getting louder.
''This excessive wealth is beyond the necessary level to ensure a good education and a fair admissions policy,'' says Leon Botstein, president of Bard College in Annandale-on-Hudson, N.Y., a school with a modest $115 million endowment.
In Troy, N.Y., where an anonymous donor recently gave an already robustly endowed Rensselaer Polytechnic Institute (RPI) a $360 million donation -- the largest in higher education until last week, when a $400 million gift to Stanford University topped it -- a county legislator has urged the school to give 1% of the gift to the financially strapped city.
Student activists, who a generation ago persuaded universities to stop investing in socially irresponsible companies, today are calling on administrators to share more of their wealth. At Harvard, protesters have staged a sit-in to try to force the school to increase pay for campus janitorial and service workers to at least $10.25 an hour.
Congress, too, has taken notice that colleges are wealthier than ever. In a Senate committee hearing last year addressing rising tuition, Sen. Joseph Lieberman, D-Conn., said that many private schools could ''use their endowments to offset costs and lower tuition.''
Some schools, such as Rice University in Houston with a $3.4 billion endowment, do that. Others, led by Princeton, have stopped requiring needy students to take education loans and instead have increased scholarship grants.
And Sloane, for one, suggests Williams or Yale dip into their coffers to fund libraries or charities. ''At best,'' he says, ''these places are diverting an awful lot of gift money from other causes that don't have these huge endowments.''
Trustees, however, stress that such suggestions conflict with the purpose of an endowment. An aggregate of assets that grows primarily through a combination of gifts from alumni and other donors and from returns on investments, the endowment is a way to ensure an institution's viability into perpetuity.
For trustees, three rules are held sacred: Never touch the endowment principal. Plow most of your investment returns back into the endowment. And keep your spending focused on your educational mission, no matter how worthy a charitable cause might be.
That's probably still the best philosophy for most of those institutions lucky even to have an endowment at all.
Most college endowments are fairly young. The idea, centuries old, took root in U.S. higher education during the 1960s and inflationary 1970s, when many colleges and universities were struggling financially. But even in today's uncertain economy, some economists wonder whether spending rules ought to be rewritten when higher-education endowments reach a certain size.
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