Wednesday, February 06, 2008

Rich universities, poor universities

Two articles addressing an important issue in higher education -- the growing disparity between rich universities with endowments the size of some countries entire GNP and universities, like mine, that are clipping coupons -- appeared in today's and last week's New York Times. How university endowments affect operating budgets, scholarship funds, tuition rates, room and board costs, student activity fees, student and faculty amenities is a tremendously important issue for anyone connected to higher education -- students, of course, but faculty, staff and anyone whose livelihood depends on the financial health of the university.

Here's the first question, though: what exactly is a university endowment and how is it spent?

The first part of that question isn't terribly hard to answer. An endowment is a fund that acts as "mattress money" for a university. Take the wealthiest university in the country, Harvard, which has an endowment of $34.9 billion. It will not spend more than 5% of that endowment in any one given fiscal year. But suppose it does. That comes to about $1.75 billion dollars. Take a not-so-wealthy university like mine, American University. Our endowment is $340 million. Five percent of that is $17 million. Our operating budget is approximately $327 million per fiscal year. Of that amount, approximately 90% comes from student tuition. So why don't universities provide more services or simply cut the cost of attending college by spending a greater proportion of their endowment on their operating budget?

Two reasons. The first is because they don't want to, that's why. Harvard could, if it wanted, cover the cost of tuition for all its students by spending $300 million a year, an amount that would seem well within the capacity of a university endowed with $34.9 billion. American could never, ever do that. Our financial aid system, like most universities, is a labyrinth through which only the most determined and adventurous students and families tread. No one really knows who gets financial aid, or for what, or how much, or whether they will get money next year simply because they got money this year. No student can say for sure that his books will not be taken hostage in exchange for a financial aid supposedly forthcoming but, in reality, is lost in a system that resembled the ball kits into which small children are dropped while their parents shop for sleek looking but incredibly crappily made furniture at Ikea. Will this semester produce a student who, like in almost every other semester proceeding this one, tells me seven weeks into the term that his financial aid check never came through and hasn't been able to buy his books for my class or, for that matter, any other? Of course, the same student appears to have eaten since the semester began, gotten a haircut from time to time, come into class looking hungover once or twice or six or eleven times. But the basic point is this: universities hold onto their endowments for that "rainy day" (or "shock losses") that never seem to come.

Here's another distinction between Harvard and American. Harvard draws only about 66% of its budget from tuition. American, on the other hand, it somewhere between 90-95% tuition dependent. The endowment when I first came to American in 1990 was below $20 million. Harvard's endowment was $4.4 billion. Harvard's endowment has grown by $30 billion, while American's has grown by $320 million. This gap just points to the difference between the wealthiest private college in the world and one, like mine, that is barely less tuition dependent in 2008 than it was in 1990. Does American's endowment really matter if our operating budget is still as tuition dependent as it was almost 20 years ago? Having witnessed the dramatic improvement in our physical plant, the astronomical growth in student amenities, the investment in technology and the money devoted to promoting the university's image and recruiting good students (and sometimes, but far lower down in priority, notable faculty), American's rise to middle-class status among private colleges and universities through endowment income and other major gifts is directly related to money. But we are still quite restricted in how much money we can spend compared to schools that we consider our "peer" institutions. We still charge students an awful lot of money to come here, and I am not convinced that we are asking more of our students than we did when I first came here many, many years. My own view is that are asking a lot less of our students because the university has ceded so much decision-making authority to undergraduates. The almost complete control that students have over determining a professor's "teaching effectiveness" is just one example of how extraordinarily unqualified people are given power to determine if a professor is a good teacher. The professor-student relationship is not a relationship of equals, and our job is to sometimes break unpleasant news to students or make them do things they don't want to do, like read books, write papers and come to class. Professors have less incentive every year to run a tough classroom or make students read and write more than they want because they don't want to feel their students' wrath in their course evaluations. Our students now are no more or less capable than they were a generation ago when I first started teaching here. They are, however, much more determined to get what they want, and the consumer mentality that many of them bring when they arrive on campus is felt by professors and, I should point, the professional staff that advises them, cleans their rooms or makes sure the Stairmasters are working properly.

Endowments are also tricky to understand. Having a $340 million endowment doesn't mean you have cash assets to spend that much money even if you wanted to. Some of that money is tied up in property and other non-liquid assets. Think of an endowment as like having lots of houses or hotels on Monopoly properties. Your properties are worth more now that you've improved them, sort of like replacing the old linoleum floors in your kitchen with custom hardwood. But you can't eat the floors or repair the car with them. Cash value only materializes when you decide to sell your home, and what you get back depends on how long you wait to sell. A modern kitchen in 2008 will not hold its value for 25 years. It will become the "icky," dated kitchen you saw when you bought your house 15 years before you renovated it. Having an endowment tied up in real estate and mutual funds, a common investment strategy for large institutions, means that the "value" of the endowment can fall as quickly, sometimes more quickly, than it can rise. Moreover, many gifts made to universities have specific conditions attached. If I decide to give $15 million dollars to the University of Missouri to endow the Sheryl Crow Professorship of Hotness and Voice Training, that money cannot be used for any other purpose, nor can the investment income my gift earns over time.

But having a $34.9 billion endowment lets you do a lot of things. It lets you modify your tuition so that you can attract the best students in the country by pricing the cost of attending college at or below what public universities in their home states would charge. Billions and billions of dollars lets you turn residence halls into Taj Mahals for the students who live in them. It lets you offer impossibly creative approaches to teaching and research. Next month, I am going up to Harvard to teach one afternoon class to graduate students enrolled in a seminar on religion and democracy. By own calculation, my visit to Harvard will cost about $1200, an amount that is about half to one-third of what we pay an adjunct at American to teach an entire course. There's airfare, hotel, meals, parking and other ancillary expenses routine to business travel. For just one class, one afternoon. And the rest of the semester features a different professor every week. Our payment scale for adjuncts is pretty consistent with what any adjunct professor, on the average, would earn at any other university in the Washington, D.C. area.

Watching the rich get richer isn't easier for universities like mine, which desperately, and sometimes earnestly, want to get better in reputation and in actual quality. We will never be able to fly in a different professor every week to teach a small seminar of graduate students. We still struggle to offer financial aid to students based on merit and need that takes away from any prospective applicant the financial variable in making a decision about where to attend college. But status anxiety among middle and working-class universities like American lead it to spend money in sometimes questionable ways, emphasizing amenities and gloss over academic rigor and high expectations. Faculty salaries and compensation have remained fairly flat in the time I've been here. Administrative costs, on the other hand, have soared, as campuses continue to expand their student services and "professionalize" their marketing and development programs. Another hidden cost saver sometimes unseen by students is the clever expansion of class sizes. Each semester, I teach a GenEd class with an enrollment of 35. I turn down the 15 or 20 requests I get for blue cards because I don't want to teach a class of 50 students after we "marketed" our university as one that emphasizes a low professor-to-student ratio. But now I get notes from mysterious sources telling me that my "real" class size is the number of seats in the classroom I've been assigned to teach. Just because I can put people in my class without violating the fire code doesn't mean I should or that I will. But you would be surprised at the number of students and administrators who see nothing wrong with adding five or eight or 14 students to a class as long as there are seats for them.

I suppose the ultimate test for a university's real wealth is the quality of education it offers its students. I haven't seen much change in my own faculty benefits. I am still limited to $75 from the Honors Program to provide an end-of-the-semester lunch for my students, although we all know that such a small amount of money isn't going to feed 20 hungry and generally poor undergraduates. So I absorb the rest out of pocket. I still can't find chalk in most of my classrooms. Our office supplies are locked to prevent faculty and staff from taking more than they should. On-campus parking for people who work here is outrageous, and I still have to pay, although, I will admit, a pretty small amount, to belong to our gym, and separately to pay for a locker where I can keep my stuff. The university still allows commercial vendors like Einstein Bagels and the former Wagshal's, now the American Cafe, to extort students for food and drink when it should find a way to subsidize on-campus meal choices, or at least offer more reasonably priced alternatives to students who basically have no where else to go. (Brainstorm: replace Wagshal's with Potbelly's. It's way better and much less expensive). There's little in the way of free entertainment on or near campus, something that was readily available to me at the two public universities I attended as an undergraduate.

One constant in all of this, however, is this: the amount of money we charge students to attend American University will increase year after year, despite the increase in our endowment over a nearly twenty year period by $320 million. Numerous factors go into tuition prices other than just operating costs, such as the "discount" given to families who qualify for need-based financial assistance, whole or partial academic scholarships given to students who earn them based on merit, projected increases in everything from energy costs to better amenities to perhaps a regular supply of chalk in our "wireless" classrooms. But one factor you won't hear about is status, and the social importance of charging as much as the other schools we claim as our competitors. Lost in all this discussion of large endowments and reputational status anxiety is how any of this affects the quality of education for the student and the professional environment in which professors do their work. That's what a college education is all about, and I hope, at some point, inquiring minds, which are in much shorter supply at universities than you might believe, start asking some good, hard questions about where all this money is coming from, how it is being spent, and for what end.

No comments: