Attention Returns to College Endowments


September 14, 2016

By Michael Dannenberg

College endowments are back in the news. The House tax committee turned a spotlight to the issue yesterday at a Capitol Hill hearing. The committee and its Senate counterpart already have a standing request for information in to the 56 richest colleges and universities in the country.

money-pinataHopefully going forward the politicians won’t just treat rich colleges like a piñata, but instead challenge them to live up to all of our best ideals for higher education. They do a fantastic job at knowledge development and dissemination, but they should also be advancing goals like equal educational opportunity, college affordability, and student success.

Frankly, some schools have further to go then others. Take the University of Pennsylvania (Penn), for example. It should be doing a much better job on working class and low-income student access.

Penn persistently teeters on ranking in the bottom five percent of all four-year colleges and universities nationally when it comes to working-class and low-income student enrollment. In 2014, barely 14 percent of Penn students were Pell Grant recipients (i.e. a family income of roughly $60,000 a year or less).

According to the ACT, the percentage of high school students nationally who come from working class backgrounds and score in the 90th percentile and higher on their test come is nearly 50 percent higher than Penn’s enrollment of the Pell Grant students.

Among colleges with similar admissions standards to Penn – similar median SAT and ACT scores and similar incoming high school student median GPAs – the college ranks well below its peer institutions on working-class and low-income student enrollment.

In 2014, nearby Brown University, which has similar SAT and ACT scores and similar incoming student high school GPA numbers as its Ivy League peer, had a Pell Grant student enrollment rate that was over 35 percent higher than Penn’s.

In other words, low levels of working class student enrollment at Penn and similar colleges are not a function of unavailable academic talent.  Nor are they a function of a lack of college, as opposed to family, resources.  In 2012, Penn, Donald Trump’s alma mater had a $6.4 billion endowment.

Federal tax law requires foundations to spend out five percent of endowment assets each year to maintain nonprofit status, but there’s an exception for colleges and universities. It appears that Penn, like many other engines of inequality, takes advantage.

According to the Education Trust, Penn’s Form 990 report to the Internal Revenue Service shows it spent only 4 percent of its ample endowment resources in 2012. That one percentage point difference from what is required of other foundations might not seem like a big deal, but it is.

If Penn were held to the same five percent standard as other foundations, like the Bill & Melinda Gates Foundation or the Lumina Foundation, it would’ve spent an additional $64 million in 2012 – money that could’ve gone to things like making college more accessible or affordable for undergraduates.

In fact, just a fraction of that $64 million is enough to double the number of Pell Grant recipients at Penn. It’s enough to give a debt-free ride to every low-income student at the University. Think about what it could mean for educational opportunity in the City of Philadelphia and beyond.

Now, we think that super wealthy institutions of higher education like Penn and their affiliated foundation endowments should be required to spend out five percent of total wealth each year as a condition for non-profit tax status just as the Gates Foundation, Lumina Foundation, and other much smaller charitable foundations are required to do.

We think federal resources – be they conveyed through direct spending or tax expenditures – should be targeted to schools and students most in need.

We think Congress should establish minimum access and success standards for colleges (see pp. 57-59).

If some schools – particularly the wealthy, low endowment spend out ones like the University of Pennsylvania – have to invest more in working class and low-income student recruitment or need-based financial aid, fine. And if they don’t improve on those metrics, well then they should be held accountable for not doing so. Let’s send some of their funding to struggling high access colleges in Pennsylvania.

Penalize unethical colleges, help under-resourced ones, and protect students from those that persistently and grossly underperform even after receiving added help.

College shouldn’t calcify existing inequality. It should operate as an engine of socioeconomic opportunity.