Universities Build Massive Endowments, Students Take Big Loans

"US families owed $1.5 trillion in student debt, while the well-endowed hoarded $617 billion."

Brian Mark Weber · Dec. 13, 2019

College students across America are about to cram for final exams before heading home for Christmas break. But while many of them believe they’re on the right path to success, nearly half will never earn a degree, while many that do will enter the workforce saddled with tens of thousands of dollars in student-loan debt.

What many students don’t realize is that the very government-backed student-loan programs that allow them to attend elite colleges are also enabling those same schools to keep jacking up their tuition year after year. College costs have long been rising faster than the rate of inflation. It’s quite a racket, actually.

Many elite schools are knowingly and intentionally tapping into the generous student-loan program in order to build their endowments and turn their campuses into country clubs. Whether their students actually become employable is not their worry. Nor is whether their students are able to pay back their debt. It’s a win-win situation for top universities. Even when students drop out, these schools benefit from a never-ending supply of money.

Jonathon Trugman writes at the New York Post, “College and university endowments — largely shielded from taxes by ‘not-for-profit’ status as ‘educational institutions’ — amount to hundreds of billions of dollars. It’s the biggest tax scam the world has ever known. At the end of last year, US families owed $1.5 trillion in student debt, while the well-endowed hoarded $617 billion, according to the 2018 NACUBO-TIAA Study of Endowments.”

He adds, “The 10 largest of the 802 college endowments in the study held $217.7 billion at the end of 2018 — or 35% of university endowment assets. Each year, the national student debt goes up, and each year, the Ivory Tower economists watch their university endowment billions grow tax-free. Look at it as the world’s most powerful socialist cartel: A few control the fate of the millions of dollars the minions pay into their treasure chests.”

Trugman’s solution is to impose a tax on universities and use the money to reduce the overall debt burden. Yet there’s something about a tax-the-rich mindset that never gets to the root of a problem like this. Nor does the ruinous “free college for all!” solution of Bernie Sanders and Elizabeth Warren.

One school, however, is taking the lead.

Purdue University’s creative approach is designed to limit tuition, hold down costs of books and supplies, and help students to manage their debt. Next year will be the eighth year in a row without a tuition hike at Purdue. It’s just the sort of efficiency we’d expect from Purdue President Mitch Daniels, who’s also the state’s former governor and was the nation’s Office of Management and Budget director under President George W. Bush.

The editors at The Wall Street Journal write, “As for student debt, last month Purdue signed its 1,000th contract for an income-share agreement program it launched in 2016. Called Back a Boiler, the program offers students the choice of borrowing what they need for their education in exchange for paying Purdue a fixed percentage of their income for some years after they graduate. This is Purdue’s answer to the nation’s growing student loan burden, now at $1.6 trillion and one of the worst public-policy blunders of the last 50 years.”

This seems like a good way to rein in a university’s temptation to build its endowment off the backs of gender-studies majors with $50,000 in taxpayer-backed student-loan debt. Will other schools follow Purdue’s lead?

Carlo Salerno writes at Inside Higher Ed, “New ideas are warranted, and sometimes we miss the simple ones hiding right under our noses.”

Another of these ideas is known as risk sharing, which requires colleges and universities to co-sign student loans and help pay back part of the loan.

Salerno adds, “Risk sharing is inevitable, and Congress can use the opportunity to radically alter the way American higher education does business. How? By just requiring colleges and universities that participate in the federal government’s Title IV aid program to cosign the student loans that they expect their students to take out.” Salerno recognizes the challenges that risk sharing entails, but he also reveals some of the key benefits.

Let’s be honest: Free college tuition is a pipe dream. But doing nothing isn’t a solution either. Universities owe it to college-bound students and their families to provide a more affordable way for students to earn a degree.

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