Imagine
a system of college education supported by high and growing government spending
on elite private universities that mainly educate children of the wealthy and
upper-middle class, and low and declining government spending on public
universities that educate large numbers of children from the working class and
the poor.
You
can stop imagining. That’s the American system right now.
Government
subsidies to elite private universities take the form of tax deductions for
people who make charitable contributions to them. In economic terms a tax
deduction is the same as government spending. It has to be made up by other
taxpayers.
These
tax subsidies are on the rise because in recent years a relatively few very
rich people have had far more money than they can possibly spend or even give
away to their children. So they’re donating it to causes they believe in, such
as the elite private universities that educated them or that they want their
children to attend.
Each
of these endowments increased last year by more than $1 billion, and these
universities are actively seeking additional support. Last year Harvard
launched a capital campaign for another $6.5 billion.
Because
of the charitable tax deduction, the amount of government subsidy to these
institutions in the form of tax deductions is about one out of every three
dollars contributed.
A
few years back, Meg Whitman, now CEO of Hewlett-Packard, contributed $30
million to Princeton. In return she received a tax break estimated to be around $10 million.
In
effect, Princeton received $20 million from Whitman and $10 million from the
U.S. Treasury – that is, from you and me and other taxpayers who made up the
difference.
Add
in these endowments’ exemptions from taxes on capital gains and on income they
earn, and the total government expenditures is even larger.
Divide
by the relatively small number of students attending these institutions, and
the amount of subsidy per student is huge.
The
annual government subsidy to Princeton University, for example, is about $54,000 per student, according to an estimate by
economist Richard Vedder. Other elite privates aren’t far behind.
Public
universities, by contrast, have little or no endowment income. They get almost
all their funding from state governments. But these subsidies have been
shrinking.
State
and local financing for public higher education came to about $76 billion last year, nearly 10 percent less than
a decade before.
Since
more students attend public universities now than ten years ago, that decline
represents a 30 percent drop per student.
That
means the average annual government subsidy per student at a public university
comes to less than $4,000, about one-tenth the per student
government subsidy at the elite privates.
What
justifies so much government spending per student in private elite universities
relative to public ones?
It’s
not that the private elites educate more children from poor families. One way
to know is to look at the percentage of their students receiving Pell Grants,
which are available only to children from poor families. (The grants themselves
are relatively modest, paying a maximum of $5,645.)
In
fact, the elite privates with large endowments educate a smaller percentage of
poor students than universities with little or no endowment income.
According
to a survey by
the National Association of College and University Business Officers, only 16
percent of students in highly-endowed private universities receive Pell Grants,
on average, compared with 59 percent at the lowest-endowed institutions.
At
Harvard, 11 percent of students receive Pell Grants; at
Yale, it’s 14 percent; Princeton, 12 percent; Stanford, 17 percent.
By
contrast, 59 percent of students at the University of Texas
in El Paso receive Pell grants, 53 percent at the University of California at
Riverside, and 33 percent at the University of California at
Berkeley.
Moreover,
because public universities have many more students than elite private
universities, their larger percentages of Pell students represent far greater
numbers of students from poor families.
For
example, the University of California at Berkeley has more Pell eligible students than the entire Ivy League
put together.
But
perhaps the far higher per-student subsidies received by elite private
universities are justified because they’re training more future leaders who
will be in a position to reduce the nation’s widening inequality.
Unfortunately,
there’s not much evidence for that proposition. According to a study by
sociologist Lauren Rivera, 70 percent of Harvard’s senior class submits
résumés to Wall Street and consulting firms. In 2007, before the global
financial meltdown, almost 50 percent of Harvard seniors (58 percent of the
men, 43 percent of the women) took jobs on Wall Street.
Among
Harvard seniors who got jobs last spring, 3.5 percent were headed to government and politics, 5 percent to health-related fields, and 8.8 percent to any form of public service. The
percentages at the other Ivies are not much larger.
So
what justifies the high per-student government subsidies at the elite private
universities, and the low per-student subsidies in public universities?
There
is no justification.
ROBERT B. REICH, Chancellor’s Professor of Public Policy at
the University of California at Berkeley and Senior Fellow at the Blum Center
for Developing Economies, was Secretary of Labor in the Clinton administration.
Time Magazine named him one of the ten most effective cabinet secretaries of
the twentieth century. He has written thirteen books, including the best
sellers “Aftershock" and “The Work of Nations." His latest,
"Beyond Outrage," is now out in paperback. He is also a founding
editor of the American Prospect magazine and chairman of Common Cause. His new
film, "Inequality for All," is now available on Netflix, iTunes, DVD,
and On Demand.