Episode 13

The Interests of Universities and Students Don’t Always Align

Do the priorities of faculty, administrators, and college boards of trustees always align with those of their students?  Who is looking out for the interests of the college students? We will answer these questions on today’s episode.  I am Larry Bernstein and welcome to Charging U.

"Your immediate environment is comprised of coffee shops, supermarkets, websites, apps and all kinds of things - none of which has an interest in your long-term or short-term financial well-being." Quote from Dan Ariely, Professor of Psychology and Behavioral Economics.  

I would add colleges and universities to the list of establishments that do not have an interest in your financial well-being.

Harvard University attracted attention in 2022 when it lobbied Congress to repeal the 2017 law which imposed a 1.4% tax on the income of college endowments over $500,000 … per student. That's a tax on income, not unrealized capital gains or on the total endowment itself.  Harvard was due to pay over $50 million on its endowment earnings of $3,941,626,201. The reason I give the exact number is because if I said $3.9 billion I would be rounding off almost as much as the tax itself. While the repeal was included in initial legislation, it was removed from the bill which Congress eventually approved. Harvard's website at the time noted five staff members in the Office of Federal Relations. They include the Vice President of Public Affairs with a compensation of $467,509. Presumably, he has other responsibilities as well. Also included are a Senior Director, a Director, and an Associate Director. In addition to this, Harvard paid $285,000 to outside lobbying groups. Since the federal gravy train is so large, it is in Harvard's interest to spend money to get money and favors back in the form of, according to its website, "student financial aid, admissions, scientific research and other policies." If Harvard had been successful in getting Congress to repeal the endowment tax, it would have been money well spent. But would Harvard then have reduced total tuition by $50 million?  It is highly unlikely that Harvard would have done so.  So, while students pay for part of this lobbying service, there is a disconnect between the students’ investment and the potential return. 

The interests of college boards of trustees, administrators, and faculty do not always align with those of the students they are meant to serve. Students are simply spending four or five years passing through an institution which is one or two or three centuries old and plans to continue remaining in operation for just as long.  After graduation, few students have the time or interest to continue pressing for change.  Students come and go.  Legislators come and go and have other issues with which to deal.  But for university boards, administrators, and faculty, this is their livelihood and they have staying power.  They are able to wait out those that oppose them.

 Trustees on college boards are made up of the wealthiest and most influential members of the community. In their role as board members, they have no incentive to pinch pennies. According to former university president John Lombardi, the priority of college board trustees is to maximize the financial status of the university and improve the institution’s prestige.  He does not say it is to serve students. Improving the prestige entails raising funds to increase the endowment, building conspicuous edifices, creating highly visible research centers, and developing sports teams that are regularly seen winning on television. Increasing student learning is not a top priority. 

Research by James Koch, an economist who studies college spending and a former president at Old Dominion University, found that public-university trustees approved 98% of the cost-increasing proposals they reviewed, often unanimously.  Warren Buffett has commented elsewhere that the directors on a corporate board tend to behave like agreeable cocker spaniels rather than pit bulls that challenge the actions of the rest of the group. In the absence of real student or parent empowerment, there is no one with a seat at the table during board meetings looking out for the interests of non-wealthy students.

One component of generating the funds necessary to attain the goals of the college is the bundling of all services together in mandatory tuition and fees so that the student cannot choose to receive only instruction without also paying for research, new buildings, sports teams, and a student health center. The student is forced to pay for the full line of services in order to receive the one or two components of the package he or she desires.

Once the board achieves its goal of raising funds, tuition is not lowered for all students. Only a small number of students benefit from the tuition assistance the fundraising affords.  Remember, colleges seek to extract as much of the economic surplus as possible from the students.  Lower tuition may be a factor of very high importance to students and the community, but it is not the top priority of the board.

Intercollegiate athletics is another area where the university spends a lot of money to gain attention but most students are not interested and do not benefit.  While some student non athletes may choose to go to a large football or basketball powerhouse because of the big time sports atmosphere, the overwhelming majority attending all the other schools are not there because they want to be spectators at that college’s games.  Attendance at those events is miniscule.  Yet, the students, almost all of whom are disinterested, are still forced to pay for the athletic program.  

In a previous episode we discussed the building boom on college campuses and how students are charged with paying for a large portion of it.  While it is true that current students are benefitting from infrastructure financed by previous generations, the current expansion is many times greater per student than it was in the past; therefore, current students are being more burdened than those in the past.

The example of Rutgers’ costly intercollegiate sports conference realignment, discussed in the episode on Athletics, is another glaring example of actions undertaken by the board which are more costly to current students, do not provide them benefit during their enrollment, and do not further the school’s mission. Yet, students directly or indirectly pay the price for the fiasco over which they had no control.

Contribution to society is generally accepted as one of the three missions of the university. This is frequently fulfilled by public education and the dissemination of knowledge to the community.  It may take the form of agricultural extension programs or cooperative outreach.

University Presses also come under the umbrella of community education. Their purpose is to contribute to the community by publishing and disseminating knowledge.  They were formed  in the late nineteenth and early twentieth centuries as a way for universities to publish the research of their own faculty but, as it became easier for professors to make their discoveries known through scholarly journals, the university presses started publishing the works of academics from other institutions.  Each year they publish approximately 12,000 books written by academics. Few are read by the general public and the presses do not make a profit.  About 100 U. S. universities support university presses with a total of $33 million in institutional funds and $20 million of endowment income.

Colleges and universities may also operate museums as part of their community service. Cornell’s Johnson Museum of Art received $2.3 million of university appropriations in 2018–19 or $104 per student. The University of Pennsylvania Museum received a $9.6 million university subvention (that is a payment not from the endowment) in 2019.  This amounts to $388 per student. These may be worthwhile causes and some students may receive a part of their education there, but should undergraduate students, in general, be forced to pay for museums for middle and high school students to visit during field trips? If the answer is yes, then students are supporting the mission of a nonprofit.  How do they or their parents deduct this charitable donation from their income tax return?

Research is a university mission which we have discussed in depth. $21 billion of institutional funds are spent on sponsored projects and an unknown and possibly larger amount is spent on unsponsored research. Much of this is funded by the students.  It’s not like paying for instruction which is a service that is directly provided to and utilized by them.  

Despite the fact that students pay for a portion of this sponsored and unsponsored research, a minuscule amount is directed toward improving the mission that is most important to students – instruction. There are very few randomized controlled studies examining the effectiveness of different teaching techniques and how students learn best. In addition, faculty assessments, especially with regard to promotion and tenure, are based more heavily on research and publications than on teaching ability or interaction with students.  Neither the evaluation nor the compensation of professors and administrators is tied to objective measures of student success. 

Faculty members and administrators are looking to get the best deals that they can get for themselves, that is, higher pay, a lower workload, less time teaching, teaching courses of interest to them at the times convenient to them, good health care coverage, better retirement benefits, more power, and continuation of the tenure system. There is nothing wrong with pursuing self-interest. That is how Adam Smith envisioned capitalism.  If you are not advocating for yourself who will stick up for you?

But all of the above groups: faculty, administrators, and trustees, lose the moral high ground when they pursue their own interests and those interests don’t align with those of the students. They can't also claim to stand on the side of the underprivileged. They have it in their power to improve accessibility and affordability, but fail to do so. Those that perpetuate the causes of  high tuition must accept responsibility for higher education’s impedance of social mobility.

Students are forced to invest in projects which may not be beneficial or may not pay dividends even when the investment is successful. They are paying into a system which directs funds into activities which do not align with their interests. They do not have the ability to opt out of services they do not wish to receive and for those looking to enter or remain in the middle or upper classes, they do not have the option to forgo getting a college degree.  As my wife always tells me, “They are offering a product and you are the customer.  You can either choose to purchase or not purchase that product, but you can’t change it.”  In upcoming episodes, we will discuss recommendations for improving this situation and expanding the options available.  

Thank you for listening to Charging U.  In this episode we discussed how the interests of trustees, faculty, and administrators often conflict with those of the students leading to higher spending.  In the next episode, we will examine how Purdue University overcame many of these obstacles to freeze tuition and fees for a full decade.  I hope you will listen and be convinced that boards, administrators, and faculty can control costs when leadership and the will are there.  Until then, be well and be safe.