Burn the Funding Model

Harvard's endowment losses joined other endowment losses in the New York Times today. The endowment lost 22% of its value in the last 4 months, or $8 billion. It could be quite a bit more than that, the article suggests. The breakdown of holdings is incomplete, and it would be amazing if only 11 percent of the endowment has been in private equity, as the article states. Their huge past returns (up 21.3% in 2007) meant huge risk even if they didn't really know the risk at the time.

This is the end of an era, since Harvard's endless endowment growth had a revolutionary impact on the funding of all of higher education. Reports constantly marveled at its enormous size. This was in turn taken to be a tribute to the triumph of private investment, of privatization, of private equity, of philanthropy and wealth as the root of enlightenment itself as embodied in a great research university like Harvard University. Articles were filled with tributes to size majesty:

If you took just the gain in Harvard’s endowment in 2007 ($5.7 billion), that sum alone would be larger than the endowments of all but 15 universities.

Or

Harvard’s gains alone are more than the combined endowments of every historically black college in the country (and plenty of other categories of college, too)

Or

If you added the endowments of Johns Hopkins University, Cornell University, Duke University and the University of Chicago, you wouldn’t equal the total of either Harvard or Yale University, which is in second at $22.5 billion.

There was obviously a gigantic disporportion and educational injustice in the comparison with historically black colleges. And yet in the general discourse intellectual greatness coincided with financial greatness: there was no contradiction, there was only mutual support. Bigger was better, bigger was institutional goal one, staff, resources, talent, thinking within the university poured increasingly into the project of raising endlessly more money.

The huge stupidity of American (non) thinking about the meaning of life was incarnated in Harvard's endowment.

The sickening corollary was that all over the country public university leaders quietly consented to decades of state funding cuts in the arithmetically absurd belief that private money like endowments could make up the lost public funds. The private money they that could coerce they did coerce from thee - tuition and fees, going up year after year at 2-3 x inflation, except for years when some big politicians were looking for votes.

Last week's prize in the Thinking Nothing Has Changed department went to Chancellor Bob Birgeneau at UC Berkeley, who wants to charge higher tuition at Berkeley than at other UC campuses - that is, charge a status premium. See the same idea for Buffalo coming from its current President, aka UC Santa Cruz's former Executive Vice Chancellor John Simpson.

Simpson does have a good point about the way New York subsidizes private and church schools while cutting its publics. But the obvious solution is to shift public money towards the publics, not raise tuition at the publics. These guys have been making the same mistake for decades: increasing tuition decreases public support for publics. If Simpson raises Buffalo tuition, it means more cover for the state to subsidize privates. Um, duh.

These guys really bug me. This is the generation that was created by the boom in low-cost / no-cost higher ed and that is now, in its upper reaches, abandoning the institutions that made them. Leaving aside the strategic folly, the sheer disloyalty of it amazes me.

Organizations keep trying to rebuild the public base (another very good report is here). These folks have done the actual math. They are undermined by the shortsighted heads of their own university members.

the Era of Harvard's Endowment correlates with, and, as we continue the research, will be shown to have caused, 2 things:

- unaffordability going up up up (see the story about the report in which 49 of 50 states flunk)
- educational attainment going down down down

As Patrick Callan put it, "Already, we’re one of the few countries where 25- to 34-year-olds are less educated than older workers.”

Big endowments and big tuition have hurt higher education. It's time for something completely different.