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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.

Margaret Soltan, October 29, 2014 5:22AM
Posted in: harvard: foreign and domestic policy

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7 Responses to “Gregg Easterbrook does the math.”

  1. johnshade Says:

    He doesn’t do it very well. $1.8 billion in annual income equates to $2.6 million per undergrad only if Harvard had 700 undergrads. It actually has about 7000, so he’s off by a factor of ten. And of course nobody, not even Harvard itself, thinks that its chief mission is educating undergrads.

  2. Margaret Soltan Says:

    johnshade: If you’re right and Easterbrook’s wrong (you’re certainly right about the number of undergrads), that still leaves Harvard with around $260,000 per year per undergrad.

  3. johnshade Says:

    Yes, but it also has a law school, med school, public health school, B-school and lots of PhD programs to run. Easterbrook’s analysis is little more than a miscalculated sound bite. (I am right on the math, which is simple division.) Interestingly, he notes later on that the principal of the endowment is $5.3 million per undergrad, and here his division is correct; he failed to notice that his annual per-undergrad number would, if true, represent a fifty percent annual return on the endowment, which not even Harvard’s vaunted money managers could claim.

    I actually don’t disagree with his bottom line. I don’t give to Harvard; they don’t need my money. They could easily go tuition-free, like Olin and Cooper Union, but then they couldn’t use financial aid (which I gather is genuinely need based, and generous) to price-discriminate against the rich parents who send their kids there.

    God, I can’t believe I’m even half-heartedly defending Harvard. That’s depressing. I guess I dislike superficial pundits like Easterbrook even more.

  4. Margaret Soltan Says:

    johnshade: Glad to hear you don’t give to Harvard. I suspect quite a few others have made the same decision. Indeed I’ll predict that giving to Harvard will soon look like giving to politicians in this country: It’ll be largely about absolutely enormous contributions from a handful of super-rich.

  5. John Says:

    If the very affluent are willing to give to educational institutions relatively unfettered*, what’s the complaint?

    it beats what governments are willing to do…

    if the institutions accept fetters, its on them, not the rich guys.

  6. Margaret Soltan Says:

    I think the complaint is similar to the complaint people make about rich people taking over the business of donating to politicians. Ultimately of course much of this activity is about influence and power.

    To take a smaller example, about which I’ve written a lot on this blog, Phil Knight and Boone Pickens have bought their way to a significant degree of control over university football programs. And that means significant control over universities.

  7. University Diaries » Many are called. None are chosen. Says:

    […] 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 […]

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