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Universities racking up the endowments

Forty-seven U.S. colleges and universities now have endowments of $1 billion or more, compared to 17 a decade ago, according to the National Association of College and University Business Officers.
University of Richmond president William Cooper poses in front of a fountain on campus in Richmond, Va. The university received just over $1 billion in endowments in 1994, more than twice as much compared to a decade before.Steve Helber / AP
/ Source: The Associated Press

Crossing the main quad at Boston College, visitors can’t miss the billion-dollar view.

There is Higgins Hall, the recently renovated science center, with its pricey, Gothic exterior. Behind it sits a new office building, and nearby a dormitory that opened last fall where 322 students enjoy cable and high-speed Internet access.

“I don’t think you can ever overinvest in higher education,” says the Rev. William Leahy, BC’s president. With an endowment that hit $1.15 billion last year, BC can invest a lot: The school is in the stratosphere of wealth in American higher education.

But the stratosphere is getting crowded.

Forty-seven U.S. colleges and universities now have endowments of $1 billion or more, compared to 17 a decade ago, according to the National Association of College and University Business Officers. Harvard alone has $22 billion, nearly $10 billion more than No. 2 Yale.

For American colleges, $1 billion has become a benchmark, a point beyond which schools can stop worrying about the day-to-day and dream big.

“It allows a place to take its other sources of support — student revenues or state financial support — and use them as a base,” said David Ward, president of the American Council on Education. “And use the rest as a source of excellence.”

To shed light on how these schools are using their unprecedented wealth and why they still cost so much to attend, The Associated Press analyzed thousands of numbers collected by the federal government and college guidebooks over the past decade.

Who are the billionaires? The AP found an increasingly varied mix of private and public schools in academe’s financial elite, a group spending heavily on new construction and aggressively recruiting top faculty.

They also are a clique that can induce tuition sticker-shock as never before: Despite tripling its wealth over the last decade, the average billionaire college has nearly doubled its price. Tuition and fees at the average private billionaire college hit $29,002 in 2004; at public universities in the group, it cost $7,230 to attend the typical flagship campus.

They are a group that possesses nearly two-thirds of the endowed wealth in American higher education. But, excluding the branch campuses of billionaire public schools, they educate fewer than one in 25 American undergraduates — raising questions about whether it’s fair for so few schools to have so much.

Their ranks include easy-to-guess schools like the eight Ivy League colleges, Stanford, Duke and Chicago. Yet there also are small liberal arts colleges, such as Grinnell in Iowa, and 14 public universities, up from four a decade ago.

Some of those small schools are among the very wealthiest, when considered on a per-student basis. For example, Wellesley College, an all-women’s school outside Boston, ranks 39th on the endowment list with $1.18 billion. Purdue University is one slot higher with $1.21 billion, but the Indiana school has 17 times more students.

Expert fundraising, shrewd investing and generous tax laws have all contributed to the billionaires’ riches. Another common factor is age.

The billionaires are, on average, 168 years old, ranging from 93 (Rice) to 369 (Harvard). Colleges need decades, even centuries, to build a reputation, reap the rewards of compounding investment returns, and produce generations of alumni who can be tapped for donations.

Despite their wealth, however, the billionaire colleges are dramatically increasing prices.

The AP’s analysis found tuition and fees rose 63 percent at the average private billionaire school over the last decade, only slightly less than the increase faced by students at private four-year colleges nationally. The University of Richmond alone plans to raise tuition and fees by $8,330, or 31 percent, to $34,850 next year.

At the 14 public schools on the list — many still dealing with state budget cuts and more dependent on tuition than a decade ago — tuition and fees at flagship campuses are up 106 percent, compared with an increase of 90 percent for students at four-year public colleges nationwide. That translates to an increase of $3,712 at the average public billionaire.

Ask any president of a billionaire college to explain and you’ll get a lecture on how little $1 billion really is: Spend any more than about 5 percent annually, and there may not be enough left for the future. And many endowment funds are for specific purposes, like professorships or landscaping.

But the presidents will also say they are offsetting price increases for those who can afford it with more financial aid for those who can’t.

The private schools have increased grant aid and tuition discounts by two-and-a-half times in the last decade, the AP found. Private billionaires are meeting almost all of what’s called “demonstrated need” — that is, getting students the cash they must have to stay enrolled. Despite recent budget travails, public flagship schools are meeting 84 percent of demonstrated need.

Princeton recently replaced loans entirely with grants, and Yale and Harvard eliminated tuition for students from low-income families. Among public schools, the universities of Virginia, North Carolina and Michigan have recently implemented or announced more financial aid for low-income students.

“Right now, the wealthiest schools are remarkably accessible to low-income students,” said Gordon Winston, a higher education economist at Williams College ($1.23 billion), which recently reduced or eliminated loan burdens for students from families earning less than about $60,000.

In 2002, Boston College joined the small group of colleges that promise to find funding for all accepted applicants. For a school founded to serve impoverished Irish immigrants, the financial aid policy is a source of pride.

But no matter how wealthy BC gets, Leahy doubts it ever will stop raising tuition.

“A billion dollars is a great amount of money, but it by no means eliminates all the pressure,” he said.

Leahy does his part; as a Jesuit, he declines a salary. But he notes that as costs such as heating oil, health insurance and technology increase, there’s no obvious way to offset them through more “efficient” teaching and researching.

Prices also rise, however, because billionaire universities have an endless list of things they want to do.

Wealthy universities “have many more ideas than they have money to spend on them,” said Charles Clotfelter, a Duke economist and author of “Buying the Best: Cost Escalation in Elite Higher Education.”

BC is whittling down a list of 200 proposals for new initiatives. Leahy wants to make BC a top-tier science power but also boost Greek and Latin programs, which are close to his heart and increasingly popular among students.

“We could use another billion,” Leahy said, and the school is planning a campaign to raise it. With money, “the appetite intensifies to do great things.”

“Great things” require great buildings, and the billionaire colleges are adding them in droves. Many, including BC, Richmond and Swarthmore, have built or renovated science labs in recent years. But they are also adding “atmosphere” and “experience” — better food, cutting-edge computer networks and health-club-style gyms. Duke ($3.3 billion) even experimented with giving iPods to all incoming freshmen.

“We don’t have dormitories anymore, we have ’living and learning units,”’ said Ronald Ehrenberg, an economist at Cornell University ($3.24 billion). “What these students are getting facility-wise is enormous.”

Wealth does not equal quality, but many students at billionaire colleges do enjoy extraordinary opportunities: funding for research, travel to conferences, and the chance to learn from top researchers and scholars. Including the University of California system, 11 of the 15 American Nobel Prize winners in the last two years work at billionaire schools.

In justifying the schools’ spending and expense, some argue that society benefits when the best scholars and students teach, learn and research together.

“It seems to me there’s something really useful about having the really turned-on kids go to schools that provide them with the really turned-on resources,” said Winston, the economist at Williams.

Others, however, contend the richest schools are hoarding their money, that they could spend more of their endowments to temper tuition increases.

“Endowments represent money that’s not being spent on education,” said Henry Hansmann, a Yale law professor, who has criticized endowment stinginess. “That doesn’t make much sense, because the next generation of students is almost certainly going to be more prosperous than this one.”

Others worry the “arms race” for superstar faculty is costing many nonbillionaires, especially public universities, their best talents: researchers such as Hanna and Antonio Damasio, two neuroscientists who recently left the University of Iowa to start a brain institute at the University of Southern California ($2.4 billion).

The drain to richer colleges is a “huge problem,” said William Kirwan, chancellor of the university system of Maryland. “As talent ebbs away, and I think we’re seeing that happen, it really affects public higher education.”

Ian Newbould, president of North Carolina Wesleyan College in Rocky Mount — No. 702 of the 741 schools in the college business officers’ latest endowment survey with an $8.5 million endowment — believes his school could do more with society’s next dollar than could Harvard.

“There are hundreds and hundreds of small colleges,” said Newbould, whose school dips into its operating budget to support financial aid for the 90 percent of students there who require it. “There is the democratization of education, but in fact, there are a large number of students who need support and need resources.”