the rich get richer, again

Last week NY hedge fund manager John Paulson took a lot of grief for his record $400 million gift to Harvard University, his business school alma mater. Personally, I admire Mr. Paulson for supporting higher education. It is a noble gesture. He could have spent that cash on private jets or his own third world island nation. But Mr. Paulson made a glaring mistake: he gave his money to a school that does not need, and does not deserve, that money–and the $200 million or so he’ll save on taxes would do America and the state of New York more good than Harvard University.

Every day we read about America’s gigantic $1.2 trillion in student debt. This amount now exceeds all credit card debt. The average college graduate leaves school with over $30,000 in loans. Many owe much more. This financial ball and chain is the result of tuition increases since the late 1970s that are fourfold larger than the consumer price index. Public universities that were almost free 40 years ago (like California’s UC system) now charge underclassman $20,000 or more each year. And private schools, especially ‘prestigious’ ones like Harvard, charge close to $60,000.

Sadly, to date no elected official, except for Iowa Senator Charles Grassley, has called into question why we continue to allow universities to raise prices at will. Seven years ago Grassley proposed mandating that the largest college endowments make the same 5% minimum annual payout as private foundations are required to do. For years many colleges have spent much less, provoking criticism that they are hoarding their staggering wealth. Harvard’s endowment is $36 billion, followed by Yale at $24 billion and Princeton and Stanford at roughly $21 billion. Yet all four schools have very small enrollments. Harvard’s total undergraduate population is 6700; while Yale and Princeton have 5400 undergrads and Stanford has 7000. This combined population is about half the number of enrolled students at Ohio State or Arizona State, which charge much less in tuition and room board.

It is obvious these elite schools care more about preserving their exclusive status than striving to educate as many kids as possible at an affordable price. These schools even brag about how many freshman applicants they reject each year. Good for them. But I think it is time to consider legislation that would eliminate the tax exempt status (called 501c3) for any university, public or private, that charges more than a predetermined amount for annual tuition. Maybe that amount is greater for private schools, given they receive no state subsidies.   But the maximum amount needs to be much, much less than today’s prices: maybe $25,000 ‘all-in’ at a private university, and $15,000 ‘all-in’ for in state tuition at a public university. Furthermore, schools that exceed these levels will also pay taxes on the annual realized investment gains from their endowments. This idea might quickly force down tuition, leading to less student debt. This would benefit America as once again college would be affordable, which should entice more kids to attend school. Our economy would benefit as well, because with less debt the next generation will be more likely to buy homes, cars, and start new businesses.

As to Mr. Paulson’s donation, thank you. But next time I hope he considers a school that charges much less and educates a much greater number of students. That would do much more for America.

One thought on “the rich get richer, again

  1. wisdom8020

    I agree that Paulson did something good but he could have done something greater by donating money in other areas such as improving education in inner cities. However, it is Paulson’s money and I am very very thankful that he donated to education instead of buying an island.

    In terms of education, I think we have an important debate going on whether colleges are worth its value. Here is a nice debate on NPR.

    The good news is that we are seeing more online education platforms making education more effective and affordable (e.g. Coursera, edX, Udacity, datacamp, codementor, duolingo, and khanacademy).

    I have seen the change in online education for many years now and I am confident that the quality and affordability of education will improve in the future.


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