Wednesday, August 22, 2007

Harvard: The Good, The Bad and the Ugly

By Richard Vedder

The Good

Harvard has now admitted Kim Woo. Kim was the immigrant child from a disadvantaged background who, while working several jobs, managed to get through Bunker Hill Community College with top grades. Bright and determined, she applied for transfer admission to Harvard-- and appeared to be heading for rejection. Many, including our indefatigable friend Wick Sloane and CCAP itself, argued that she should be admitted, if extraordinary merit and consideration of family background were truly relevant anymore. Harvard has admitted her. Congratulations to both Harvard and to Kim.

The Bad

Is it good public policy to allow institutions with vast endowment resources to get additional gifts induced by tax deductions? I doubt it. Yet Harvard's increment to its endowment of $5.7 billion over the past year-- over $300,000 a student-- would be enough to finance (from investment income, not principal) most of the total budget at a typical school of comparable size. Why do we let schools with such huge resources get tax breaks, or implicit public subsidies? Should Harvard be taxed or subsidized?

The Ugly

Harvard's endowment is now $34.9 billion, or close to $2 million for every student, including those at the graduate and professional schools. At the beginning of the fiscal year 2007, Harvard's endowment was $29.2 billion, and it spent somewhere around $1.1 billion in income from the endowment on financing programs during that fiscal year --about 4 percent of the beginning principal, and perhaps 3.5 percent of the average principal during the year. If Harvard had spent 5 percent of its endowment principal (as required of non-university foundations), and if it had devoted the added spending to reducing tuition, fees, and room and board charges, all such charges could have been eliminated for all students attending Harvard College.

Our CCAP associate Lynne Munson has been arguing long and hard for universities to spend more out of their endowments, and in this case a prudent, conservative adoption of her suggestion could eliminate all tuition at Harvard, and perhaps revolutionize American higher education. Why don't they do it, and eliminate their undergraduate office of Student Financial Aid?

To nudge them along the way, why does Congress not force colleges to spend 5 percent of their endowments, just as other foundations do? Alternatively, why not tax investment income of colleges where endowments exceed $1 million per student --enough to generate $50,000 in per student income?

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