More Money, More Responsibility
Wealthy Institutions Can — and Should — Invest More in Low-Income Students, Says Ed Trust
WASHINGTON — Amid intense national conversations on income inequality, a new report by The Education Trust finds that extreme wealth stratification is occurring not only among individuals, but among institutions of higher education as well. The research reveals that in 2013, roughly 3.6 percent of colleges and universities — 138 in all — held a whopping 75 percent of all postsecondary endowment wealth. Yet despite their vast wealth, too few of these colleges are investing enough in students from low-income families.
In 2013, 138 institutions — dubbed by Ed Trust as the “$500 million club” — held at least half-a-billion dollars in endowment assets. These institutions benefit tremendously from their endowments since there is no required spending threshold and these funds are tax-exempt.
But as Ed Trust research reveals, nearly half of institutions in the “$500 million club” are in the bottom 5 percent nationally for their enrollments of first-time, full-time Pell Grant recipients. Moreover, nearly 4 in 5 of these institutions don’t make it very affordable for the low-income students they enroll. With an annual net price for low-income students that exceeds 60 percent of their total annual family income, these institutions are effectively pricing out many young adults.
“Leaders of wealthy institutions have real opportunity and power to use their wealth to extend the American dream of higher education to more low-income students,” said José Luis Santos, Ph.D., vice president of higher education policy and practice and co-author of the report. “But instead of jumping on this opportunity and prioritizing educating Americans from all walks of life, too many of these leaders have allowed their institutions to become playgrounds for the wealthiest in our country and the world.”
Using available federal tax information and other data, A Glimpse Inside the Coffers examines endowment contributions and spending at 67 of the nation’s wealthiest nonprofit, private institutions. Among the findings: These institutions have gotten much richer in recent years. At the beginning of 2010, the collective wealth of these institutions totaled $149.5 billion, and four years later, it totaled $202.3 billion. In addition, the average annual rate of return on their endowment investments was 11.1 percent. Despite this tremendous growth, slightly more than half (35 institutions) of the 67 institutions Ed Trust studied aren’t even spending endowment assets at the 5 percent rate that’s required of private foundations.
The data reveal clear opportunities to better serve low-income students. If the 35 institutions spending below 5 percent increased their spending rates to the 5 percent required by other private foundations that enjoy tax exemption, they would generate an extra $418 million. If these funds were unrestricted and entirely used for financial aid, they could be used to enroll an additional 2,376 low-income students at the current net price for four years — a nearly 67 percent increase in enrollment based on first-time, full-time low-income students in these institutions in 2012-13. Similarly, this same $418 million could also be used to reduce the net price for low-income students at these institutions by an average of $8,000 per year for four years.
According to tax data, the University of Pennsylvania, for example, had an endowment of $6.4 billion and a spending rate of 4 percent in 2013. By increasing its rate by 1 percent, the university could generate an additional $64.62 million. With this, the University of Pennsylvania could afford not only to double the enrollment of entering low-income students from 109 students to 218 students, but also to cover costs for all 218 students for four years. And institutional leaders could do this while leaving nearly $37 million to spend on other priorities.
“It’s common for institutional leaders to say that endowment spending is all about preserving the excellence of their institutions for years to come. But our data show that most could easily afford to do more to educate more low-income students now without compromising their futures,” said Andrew Nichols, Ph.D., director of higher education research and data analytics and co-author of the report. “By choosing to serve more low-income students, these wealthy institutions could be leaders — not just in riches, but in extending opportunity.”