The High Price of Tuition

Ralph Nader,  consumer advocate and a graduate of Harvard’s Law School and Ron Unz, a Silicon Valley entrepreneur and outspoken conservative who  lost his bid for the Senate in 2016, ran with 3 others for positions on Harvard’s Board of Overseers, the college’s second highest governing body, under the banner: “Free Harvard, Fair Harvard.”

Their rationale for offering Harvard College tuition free is Harvard’s endowment currently stands at $37.5 billion, and “the investment income the university receives from its endowment’s private equity and securities holdings averages 25 times larger than the net tuition revenue of its 6600 undergraduates.”  So why, the  argument goes, should Harvard College charge $180,000 for four years of tuition?

Putting the argument into simple dollars and cents, Harvard’s annual tuition is  just under $50,000 a year. That is a gross tuition revenue of $330,000,000. Currently, based on information from College Navigator, Harvard grants financial aid of $195,000,000 a year to  undergraduates, about 43% of the class gets an average financial aid package of $43,000. Had the ‘Free Harvard, Fair Harvard’ movement won,  then Harvard would have lost $135,000,000 a year in tuition.

Most institutions endowed with billions generally don’t like leaving $135 million on the table.  The administrators who manage the ledgers  don’t like capping viable sources of revenue. I If this movement had found success at Harvard, similar movements would likely have started at other generously endowed campuses such as Yale (25 billion), University of Texas (24 billion), and Princeton and Stanford (each with $22 billion).   

While  using Harvard’s endowment  to counter tuition costs has mainstream support, there are opposing views, one being Harvard College’s Director of Financial aid Sally C. Donahue, who just retired in August 2018. She believes using Harvard’s endowment to offset tuition “would diminish Harvard’s resources and give free education to families who can actually pay the tuition.”

Moreover,  Harvard’s endowment consists of 13,000 donors, many of whom have placed restrictions on how the donated funds can be allocated. Accessing funds for expenses outside those intended by the donor can result in a breach by the university and a lawsuit.  

Yet what’s equally frustrating is getting transparency to determine how your hard-earned tuition dollars are actually spent. That was an assignment taken on by Nathan Lewis, a contributor to Forbes magazine in his 17 February 2017 article US Colleges: Where Does the Money Go? One of the schools he profiled was Colgate University in Hamilton, NY, an elite liberal arts undergraduate institution.

In 2013 Colgate spent $162 million (net of scholarships) on students, which works out to around $56,000 per student. However, among the money spent was 11.8 million on ‘outside consultants’; 8 million on travel expenses; 4.2 million on ‘top officials’; and, $25 million in undisclosed ‘other expenses’. Unaccountable spending is a robust $50 million.

Rather than examine this farce by line item, Mr. Lewis, made some logical estimates as to what he thought costs really were. Online he discovered faculty salary information and estimated teaching faculty (including benefits)  $42 million—this came to  $14,500 per each of the 2872 students. Then he added administrative costs  at 50% of the teaching costs, bringing costs to $62 million, $21,700 per student, 45% of the tuition being charged. 

To pay for this the college received $36 million in grants and donations. 5% of the endowment, by law, must be spent per year (endowment is $610 million),  another $30 million. So, there is $66 million to cover the $62 million estimated costs. That would translate into tuition free. Possibly the budget analysts at Colgate should sharpen their pencils.

Lastly, Mr. Lewis discovered a study of the California State University system. Two figures became prominent. In 1973 CSU had 11,600 full time faculty and 3,800 administrators. By 2008 it had 12,020 faculty and 12,180 administrators. This is a cancer that is embedded in postsecondary education. Eradication is a concern to all of us.