Endowment Hoarding means you get fired
Rise in tuition, less financial aid, the same "quality" education
During this pandemic, we see the moral hazards left and right.
I wonder what these endowments are for?
How can these university administrators decide to lay off thousands already struggling to get by? Are they sacrificing their wages for the future?
I dug a little deeper, and I am disgusted.
Before the crisis: There were a total of 774 Colleges and University Foundations in 2019.
The median endowment was $144.4 million.
There was a total of $630 billion in endowment funds at US universities.
3/4 or $473 billion of this was invested in equities and stocks before the market plummeted at the start of the coronavirus.
"Bucknell University in Pennsylvania says it's lost $150 million from its endowment after recent investment losses."
That is why we see endowments suffering. They put their money into the markets instead of back into their students. This behavior from the universities is a contradiction in their role of providing a public service.
We will most likely see universities disappear and shut down. With millions lost in the market, the request for student refunds reduced donations and decreased attendance of international students. About 70% of universities predict more than a 10% loss in revenue. Now they will face the same problems with less money and almost no reserves. They have to make difficult decisions about the financialization of higher education.
But should the staff and students suffer for the poor decisions made from higher education financing? Do they have a moral obligation to their workers? Should their priority be maintaining the "quality" of the institution or to their public response to the crisis of today?
A survey of 285 College presidents reported, 72% of the plans to lay off staff.
Boston University laid of 1,636 student workers and part-time students, thereby sending a message to the university community.
Harvard, with its 41 billion dollar endowment, laid off many of its dining hall employees, custodians, security personnel, people who were already living paycheck to paycheck.
Students and parents are also taking the schools to court. Colleges are facing lawsuits and petitions from parents and students, which are allowing them to prorate and do partial refunds to students. Students were vocal about the cost to value dilemma, trying to raise the refund from $1,200 - 2,500 on room and board. The University of Minnesota for all 6 of its locations is projected to lose up to $100 million.
From 2017 until January 2020, Colleges were dependent on international students' tuition. Studies are showing that colleges rely on international students to bankroll their operations. They were ranging from 3,000 students to 15,000 students per university, about 70% of them who pay full price to attend.
But under all this pressure, not all presidents have responded the same way. They understand that they are responsible for managing so many people. And it's their job to set the tone during this crisis.
MIT has agreed to pay for dining hall workers till May 22.
The University of California sets the tone for a no-layoff pledge to all its employees at ten campuses and five medical centers, adding up to 227,000 member workforce until June 30.
Here the cracks in the ivory towers dig deeper. If the endowment was a rainy day fund, why aren't they using them?
A study in the American Economic Review in 2014 found that university endowments prioritize the maintenance of the endowment during negative shocks.
Keeping the endowment large provides the prestige
Most endowment board members are also university trustees
67% of the time the university president sits on the investment committee
The goal is to grow or maintain the endowment within 10% of the value of the endowment from the start of the president's tenure
The president is compensated based on endowment size (Ehrenberg, Cheslock, and Epifantseva 2001)
They hoard assets at the taxpayer's expense (Grassleyy 2011)
University leadership cares about the size of the endowment over the endowment's contribution to the universities operations
Endowment hoarding - To maintain endowment size they will decrease payouts and reduce the number of future tenure faculty, reduce support staff, adjunct professors, and maintenance workers by half
There were no significant consequences or effects on university administrators
What exactly do many admins now do, with no students on campus?
Even before the pandemic, endowment returns were low. The IRS requires them to spend at least 5 percent a year to be tax-exempt, but last year the distributions from the endowments averaged at 4.5%.
If this remains the endowment priority, there will be costs to the students and faculty. Most likely, wealthy schools will try to reduce spending from endowments, giving less to arts, hiring more part-time employees to reduce paying for benefits, and, most importantly reduce the number of financial aid grants given out in the future.
I think it's crucial to point out that the board of trustees and tightening the belt to account for future or potential loss to the endowment, and this determines how they plan the budget and who to lay off.