Okay, feel free to correct my very rough math here, but…

… I’m thinking that if this bill passes (it won’t; we’re just playing around), Harvard will have a whopper of a problem on its hands.

A U.S. Congressman is floating an idea that’s likely to find opposition from the wealthiest colleges: devote 25 percent of a school’s annual endowment income for financial aid or lose tax-exempt status.

So I figure this would mean Harvard would have to give out close to $500 million each year in financial aid. How the hell do you dispense that much money? Where do you find the students?


I mean, maybe I’m wrong. In 2012, “Harvard spent about $242 million from its endowment on tuition assistance.” Maybe they’ve doubled it since then? (UD can’t find current figures.)

Even more appallingly, under this bill Harvard might be forced to reduce the tens of millions of dollars it pays many of its fund managers. Talk about income inequality!

Quotation of the Day.

“Of course there’s income inequality,” says John Griswold, executive director of the Commonfund Institute, the research arm of Commonfund, which manages college endowments. “To say that a small number of wealthier colleges should try to solve that is utter nonsense.”

UD loves the let-them-eat-cakery of this statement about American universities with endowments in the tens of billions of dollars. First there’s the languid of course. Of course some universities are richer than half of the world’s economies. Routine stuff. Totally unremarkable. Only an idiot would want to make something of the disparity among college endowments that these numbers represent.

And then there’s the even better, second part of Griswold’s statement, in which he violently disparages a claim that no one has made. No one says that Harvard should “solve” endowment inequality. What people say is that Harvard should stop hoarding so much of its money. What people say is that Harvard graduates should consider directing their donations to needier causes. What people say is that Harvard should give its students a serious break on tuition and other costs. What people say is that if Harvard doesn’t act more responsibly in regard to its unconscionable accumulated wealth, there should start to be tax implications.

But of course… utter nonsense! It’s the Lady Augusta Bracknell school of public utterance.

As American Law Schools Troll for Applicants, They Adopt the Arguments of the For-Profit Colleges.

All the way down (and I mean way down) the line, Noah Feldman’s defense of basically accepting any applicant for law school follows the talking points of the scummy for-profit colleges.

Law school has always had a shaky time thinking of itself as flying at a similar altitude to med school, but as the profession downsizes, and schools like UD‘s own George Washington University, for instance, start stealing students from American University, while Georgetown University steals students from GW, things are really moving toward the death spiral.

Feldman’s argument against the “infantilization” of people who want to assume $200,000 in debt to law school (even though their scores and grades make it obvious they won’t be good students and will either drop out with lots of debt or will fail to get a job that will allow them to repay the debt) is just as inspiring as Corinthian College’s spokespeople who for all the years it was in existence (it was recently forced to shut down its federal-tax-syphon operation) remonstrated against us for the same thing: How dare you, in an America founded on personal liberty and Horatio Alger etc etc etc how DARE you keep every person who fantasizes that she can be a lawyer from going to law school and sticking the American taxpayer with their loans? Our law schools are heroically reaching down into non-traditional places (the for-profits, for instance, hang out at homeless shelters and sign people up) and finding the inspiring social activists of this country’s future…


Feldman argues that “A standardized test score, taken alone, shouldn’t determine your future.” Hell yeah!

But no school accepts students merely on the basis of their scores… Jordan Weissmann is even unpleasant enough here to suggest that Feldman’s “very much arguing against a straw man” throughout his essay…


Feldman teaches at Harvard and is very worried that schools like his will be “accused of elitism and denial of opportunity” if they don’t override the conspiratorial pope-like “infallible admissions process” with its oligarchical buttressing of this country’s evil “technocratic elite.”

Thank God this doesn’t come anywhere near describing the Harvard of today, and thank God Feldman’s right there to make sure nothing like that happens in the future.


UPDATE: Paul Campos, a friend of this blog, adds this:

[Feldman] ignores the rules under which law schools are actually required to operate. ABA-accredited law schools have something close to a complete monopoly on qualifying American students to sit for state bar exams (California is the major exception), and in order to be an ABA law school, you at least in theory have to abide by the organization’s rules of accreditation, which both forbid schools from admitting students who don’t appear capable of passing the bar, and threaten with de-accreditation schools that have insufficiently high bar passage rates.

… Bar exams, ABA rules, and indeed law schools themselves are all designed as barriers to entry. This is especially true of law schools, which require people to invest three years and many hundreds of thousands of dollars in direct and opportunity costs after acquiring an undergraduate degree, before their graduates even have the right to try to take the bar exam. Now the public-regarding justification for these barriers is, not surprisingly, to protect the public from incompetent and/or crooked lawyers. Nowhere in his piece does Feldman even allude to this core regulatory function.

Glenn Reynolds means his modest proposal – abolish the Ivy League – in the same way Jonathan Swift meant his about eating the children of the poor.

But who cares? Those of us who want the obscene endowments of schools like Harvard Yale and Princeton seriously spent down will take our allies where we can. And UD thinks Reynolds is serious about these specific things:

We should eliminate the tax deductibility of contributions to schools having endowments in excess of $1 billion. At some point, as our president has said, you’ve made enough money. That won’t end all major donations to the Ivy League, but it will doubtless encourage donors to look at less wealthy and more deserving schools, such as Northern Kentucky University, recently deemed “more inspirational than Harvard” in the London Times Higher Education magazine.

We should require that all schools with endowments over $1 billion spend at least 10% of their endowment annually on student financial aid. That will make it easier for less wealthy students to attend elite institutions.

Many are called. None are chosen.

University Diaries has long
chronicled the efforts of dozens of
thoughtful people who feel called
to do something about this:


All sorts of people have stepped up
with good ideas about how to stop
one school from hoarding billions
and billions of dollars. Hoarding
them. Not using many of them, for
educational or charitable or whatever
uses. Just sitting on them. Or handing
out huge gobs of them to their
fund managers.

How did the money grow so fast and
get so big? A combination of
tax benefits – “Harvard’s income
from capital gains, interest, and
dividends is all tax free,
and the donations it receives
are tax deductible.”

and the inexhaustible ego of
hedgies who can’t think of anything
better to do with hundreds of millions
of charitable dollars than throw
them at one of the world’s richest
institutions. That way, they get
their name associated with Harvard.

All sorts of proposals have come
forward, most having to do
with messing up those exemptions,
although a few appeal directly to
Harvard alumni to divert their
contributions to actually worthy causes.

About ten years ago, when people realized
that this non-profit was paying several
of its money managers 35 million a
there was an upsurge in outrage
and in proposals for change.
You can type harvard endowment into
UD‘s search engine if you want to track
years and years of reform proposals from
many different people.

As my post’s headline suggests,
none of this reformist activity
has had the slightest effect.
Harvard keeps hoarding what it
has and supplementing it with
hedgie vanity thingies.


If you’re aware of this history,
you tend to respond to the like-clockwork,
beginning of the academic year,
New York Times op-ed about this
with a certain wryness. You begin to
recognize the ritual by which
Harvard acknowledges the fact of
complaint and bats it down with
the familiar bullshit (Everyone needs
a rainy day fund!)
and then the
whole thing goes away for another year.

But anyway. (Deep mournful breath.)
Here’s the latest gesture, this one from
a professor who’s a tax attorney.

“We’ve lost sight of the idea that
students, not fund managers, should
be the primary beneficiaries of a
university’s endowment. The private-equity
folks get cash; students take out loans.”

So (world-weary sigh) here’s the latest
go-nowhere proposal:

“Congress should require universities with
endowments in excess of $100 million to spend
at least 8 percent of the endowment each year.
Universities could avoid this rule by shrinking
assets to $99 million, but only by spending the
endowment on educational purposes, which is
exactly the goal.”

Yes, yes, hear, hear, good fellow.
Jolly good fellow.



Some good snark from Malcolm Gladwell.

Yale’s endowment spent $480 million paying its hedge fund managers last year and $170 million on its students.


I was going to donate money to Yale. But maybe it makes more sense to mail a check directly to the hedge fund of my choice.


Why doesn’t Yale spin off its university division and concentrate on its core money management business?


It came down to helping the poor or giving the world’s richest university $400 mil it doesn’t need. Wise choice John!

[John Paulson Gives $400 Million to Harvard for Engineering School

The gift from Mr. Paulson, a billionaire hedge fund manager, is the largest in the university’s history.]


If billionaires don’t step up, Harvard will soon be down to its last $30 billion.

“We’re … subsidizing wealthy organizations sitting in the middle of poor towns. Yale University has an endowment of about $25 billion, yet it pays very little to the city of New Haven, which I (as a resident) can assure you needs the money. At the prep school I attended (current endowment: $175 million), faculty houses, owned by the school, were tax-exempt, on the theory that teachers sometimes had students over for dinner, where they talked about history or literature or swim practice.”

And there’s more.

Conservatives are footing the bill for taxes that Planned Parenthood, a nonprofit, doesn’t pay — while liberals are making up revenue lost from the National Rifle Association. I could go on. In short, the exemption-and-deduction regime has grown into a pointless, incoherent agglomeration of nonsensical loopholes, which can allow rich organizations to horde plentiful assets in the midst of poverty.

Readers who’d like to (re)visit UD‘s long-running amazement that Harvard University, sitting on close to 36.4 billion dollars (No, that’s silly. That’s crazy. “[W]hen it comes to these fancy universities the official endowment figures are a drastic understatement of the real wealth of the university. Harvard’s real-estate assets are mind-bogglingly valuable, for example, but not part of the endowment.“), continues to enjoy non-profit benefits, can click on the category harvard: foreign and domestic policy. You’ll find it at the bottom of this post.

Snark Round-Up …

here. None of it’s quite good enough to be included in the body of this post. But you might see something you like.

“Harvard University – a tax exempt organization – [has a] $36.4 billion endowment, a fund that grew – tax free – by 15% last year. Overall, Harvard reports about $36.4 billion in assets (even more than the NFL).”

And the NFL just gave up its tax exemption.

Just sayin’.

There’s always an ugly rich guy.

There’s always a guy – Vinod Khosla, Tom Perkins, Todd Henderson, Glenn Hubbard and Frederic Mishkin, Dick Fuld… There’s always an ugly rich guy whose greed, aggression, and general dickishness launch him straight up into the news-of-the-world stratosphere for a week or two.

This week it’s $800 an hour consultant and Harvard business school professor Benjamin Edelman, who threatened massive legal retribution against a local Chinese food merchant who overcharged him by four dollars. Now, in the long tradition of God opening a door when he closes a window, embarrassed students at Harvard have started an online campaign in honor of those precious four dollars:

Jon Staff launched a fundraising campaign called ‘Harvard Gives: $4 to Fight Hunger’, encouraging Harvard students to donate four dollars to the Greater Boston Food Bank, in response to an article on Boston.com, which publicised a dispute between Edelman and the Sichuan Garden restaurant in Woburn.

… ‘In accordance with our community values, we are calling on all Harvard students to flip the script by donating $4 to provide for for those in need’, [the campaign organizer] wrote.

[The organizer also said he hopes this campaign] will remind people that Harvard is a big, diverse place full of almost universally wonderful people behaving well.’

Gregg Easterbrook does the math.

Disbursing about 5 percent a year from an endowment ensures its principal will not shrink over time. At 5 percent, Harvard’s endowment would generate $1.8 billion annually in perpetuity. So how can Harvard possibly need more? That sum equates to $2.6 million per undergraduate per year — almost 50 times the school’s sticker price. Harvard already has ample endowment for every undergraduate to attend free, with vast reserves remaining for other purposes. Yet Harvard is in the midst of a capital campaign, demanding another $6.5 billion.

At least, however, struggling taxpayers get to help generous Harvard donors:

The deductibility of donations to higher education means [Robert Griffin, who just gave Harvard $150 million,] really gave Harvard about $100 million, with taxpayers covering the balance. Ordinary people whose children are buried under student loans, and can only dream of attending Harvard, will be taxed to fund the transfer of another $50 million to the Crimson elite.

The same occurs any time donations from those in the top bracket go to the Ivy League, Stanford, Williams, Amherst — average people are taxed to pamper the children of affluence. Grant Hill just gave $1.25 million to Duke University, his alma mater. Good for him! After the deduction, Hill pays about two-thirds of the announced total. The rest comes from average taxpayers who can only dream of a child attending Duke.

Easterbrook’s recommendation:

[E]nd the deductibility of donations to colleges or universities whose endowments exceed $1 million per enrolled student.

UD calls endowments like Harvard’s…

benddownments. As in bend down (I guess bend over would convey it better) and take it. We already have $32.3 billion, but you still have to pay almost $60,000 tuition and we’re going to dun you for huge donations for the rest of your life, even though

Student tuition at places like Harvard is now almost an afterthought. It runs on a budget of about $4.2 billion a year in spending. Tuition, fees, room and board at the full price of $58,607 for its 6,700 undergraduates would amount to $393 million, or less than 10 percent. And after taking need-based tuition reductions into account, the university collects only about half that projected total from undergrads. So for $200 million a year, Harvard could be totally free to all undergraduate students.

And does it sometimes run through your mind to wonder what just a few … afterthought expenditures from the tens of billions of dollars sitting in Harvard’s funds might do for the… uh… world? Well, shush. It’s all gonna be okay. You’re gonna grow up to be a hedge fund manager with the sort of ego that needs a biz school building at Harvard with your name on it much more than you need to help some obscure village full of suffering people. People who need schools or whatever. Relax.

Harvard: English Only.

A candidate for tenure at Harvard was told, she claims, that her “scholarly work in Spanish did not count toward tenure.”

“A few hundred alumni have formed Harvard Alumni for Social Action, to try to channel 25th-reunion giving to destitute universities in Africa. In three years, we’ve raised $425,000 — a lot for the University of Dar es Salaam but hardly a match for our annual class ‘gift.’ And evidently not enough to win the respect of President Faust, who has begged off meeting the group. Harvard clearly doesn’t like any effort that might divert a dollar away from its Cambridge coffers.”

That was back in 2008, and you can measure how far this effort’s gotten by noting that you’ve never heard of this group but you are starting your morning by reading headlines all over America about the latest hedgie who can’t think of anything to do with $150 million other than feed it to “a $40 billion tax-free hedge fund with a very large marketing and PR arm called Harvard University that has the job of raising the investment capital and protecting the fund’s preferential tax treatment.”

Randy Cohen, the New York Times ethicist, patiently and earnestly lays out here why you should not give to massively over-endowed, massively stingy Harvard. Matthew Yglesias has been on a don’t give campaign for years. Brad DeLong, in a devastating comparison of Harvard and the University of California system, questions “the judgment of those who have tried to satisfy their charitable impulses by giving $15B to my alma mater over the past two generations.”

Gawker gawks. Jordan Weissmann titles a recent piece
Is Harvard So Rich That It Should Literally Be Illegal?

Robert Reich writes:

I see why a contribution to, say, the Salvation Army should be eligible for a charitable deduction. It helps the poor. But why, exactly, should a contribution to the already extraordinarily wealthy Guggenheim Museum or to Harvard University (which already has an endowment of more than $30 billion)?

Even the major news outlets busy panting about the latest hedgie’s hundreds of millions dedicated in significant part to business buildings with his name on them pause to wonder for a sentence or two…

With an endowment of more than $32 billion, the famed Cambridge, Massachusetts, school isn’t hurting for money and has been ramping up its financial aid in recent years.


See, here’s what worries ol’ UD. With the wise words of Tom Perkins about an imminent American Kristallnacht still ringing in her ears, she asks: What will be our Bastille? We already know when it’s likely to occur: July 14, 2014. But where will the storming begin? What will be the epicenter of this violent populist revolt?

Maybe here.


Update: Yglesias weighs in.

[W]hen it comes to these fancy universities the official endowment figures are a drastic understatement of the real wealth of the university. Harvard’s real-estate assets are mind-bogglingly valuable, for example, but not part of the endowment.

There’s something about a 17.5 billion dollar endowment for a school with …

… fewer than ten thousand students that concentrates the mind. The town of Princeton seems sort of amazed, in an ongoing way, about its university’s remarkable tax exempt wealth, and it’s clearly on a campaign to chip away at it.

The latest thing is that a judge has refused Princeton University’s request to throw out a case against it brought by residents and the town in which they claim that a number of buildings on campus should not be tax exempt since they’re non-educational.

Another, broader, charge in the case argues that

the University is not qualified for the tax exemption because it in fact makes money and distributes profits, especially proceeds from patents registered by the University.

Princeton is now lawyering up to defend its exemptions.


Princeton’s got the same problem Harvard (well on its way to a forty billion dollar endowment) does; maybe their lawyers can work together. As one observer points out:

Viewed purely in terms of economics, Harvard is really a $40 billion tax-free hedge fund with a very large marketing and PR arm called Harvard University that has the job of raising the investment capital and protecting the fund’s preferential tax treatment.

The trick is that this hedge fund can’t remit earnings to investors, and has to keep them in the company’s account, renaming these retained earnings as an “endowment”. So how do the insiders extract value from this business? One way is by giving themselves cushy jobs that pay a ton of dough. Those who manage Harvard’s money are well-paid. The prior investment head, Jack Meyer, left after criticism of a compensation plan that paid some investment management professionals more than $35 million each in a single year...

When tax-advantaged non-profits start to accumulate billions of dollars of cash through investment gains, and the insiders seem to be doing very well, it creates legitimate pressure for some legal changes. There is a broad range of alternatives: capital gains taxes on investment income, directly taxing the endowment, placing limitations on employee compensation, and forcing the distribution of a fixed percentage of the endowment are all obvious choices. Sanctimonious talk about “the mission of the university” is not likely to stop this …

Actually, I think sanctimonious talk, done well, can probably hold the line for a school. UD has always privately felt that the switchover from Lawrence Summers to Drew Faust as Harvard’s president had in part to do with the, uh, incompatibility of Summers and sanctimony.

Summers is A-Goin’ Out

Since leaving government, [Lawrence] Summers took a lot of money from Citigroup. As one of the key architects of the bailout, he was responsible for the decision to prop up Citi with hundreds of billions of dollars of public money and Federal Reserve cheap capital rather than breaking Citi up. As Fed Chair, he will be a principal regulator of too-big-to-fail banks including Citi.

At the very least, this looks terrible. He saves Citi management and shareholders, then he gets a nice pile of money from them for not much work, and now he is regulating them again.

… [At Harvard,] Summers’s questioning of the intellectual capacity of women contributed to his downfall, but in many ways it was the least of his problems. Far more serious were his penchant for overruling the Harvard endowment’s professional money managers with impulsive investment decisions that cost Harvard billions, and his involvement in the Andrei Shleifer affair.

… Summers is also vulnerable for his activities since 2010. Harvard has a strict rule requiring that full-time faculty spend at least 80 percent of their professional time on Harvard business. With all of his extracurricular Wall Street affairs, there is no realistic way that Summers could have met this rule. Either Harvard bent its own rules, or the companies on whose boards Summers served were violating their legal duties by using Summers as a marquee name or paying him in the expectation of future IOUs, but not as a true fiduciary…

There’s a recurrent theme here of personal and institutional greed – get-rich-quick credit swaps that turned out to cost Harvard billions, massively self-serving Wall Street “affairs.” It always seemed bizarre to UD that a man this crass and cynical would be placed in front of the Senate for confirmation. What was the Obama administration thinking?

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