Stop donating to Ivy League schools — they don’t need your money. It perpetuates wealth inequality and class divides. And it’s bad philanthropy.
The total endowment value of Ivy League colleges was more than $190 billion dollars during the past fiscal year. Investment returns on these endowments ranged from 34 percent to nearly 50 percent, the result of a strong stock market and investment strategies focused on private equity and venture capital.
While these eye-popping returns are far above the norm and unlikely to be repeated, Ivy League endowments look to be in great shape for the long term. Ten-year average returns at Princeton, for example, are 13 percent year over year. This double-digit growth is more than enough to cover the typical annual spending, or payout rate, of 4 to 5 percent for these schools.
Despite this growing financial cushion, pledges and contributions to Ivy League schools last year were approximately $2 billion. These donations make about as much sense as writing checks to Amazon to help fund its operations.
So, why do donors continue to give money to these multibillion-dollar institutions — especially when those donors include so many successful businesspeople and financiers? Surely these contributors understand the sin of suboptimal capital allocation.
For the highest rollers, the answer is obvious: Donations bring big perks. Harvard keeps a “Dean’s Interest List” that identifies applicants who have connections to substantial donors or individuals the university believes may become substantial donors. These applicants receive special consideration. If you’re willing to break donation records, as billionaire hedge-fund manager John Paulson did with his $400 million donation to Harvard, you could even get a building or school named after you. Harvard named its school of engineering after Paulson.
The most egregious gifts have sparked outrage. Paulson came under fire from writer Malcolm Gladwell and other critics. Observers rightly pointed to Harvard’s existing wealth and the many alternatives Paulson could have chosen if he wanted to help those with the most need.
Better Options
Unfortunately, pointing out better philanthropic opportunities is unlikely to change the behavior of prestige chasers like Paulson. Most donors to Ivy League institutions, however, give sums that are unlikely to buy admission for their children or get their name on a building. For donors with a genuine interest in supporting higher education, there are better options.
The College Mobility Report Card from Opportunity Insights shows which institutions in the United States are the greatest engines for social mobility, as indicated by a measure that combines the share of low-income students at a college with the likelihood that those students will be high earners after graduation. Ivy League schools perform dismally in these rankings. Five of them — Brown, Dartmouth, the University of Pennsylvania, Princeton, and Yale — had more students from households with incomes in the top 1 percent of earners than the bottom 60 percent. The highest performing schools include four-year public institutions such as the City College of New York, which have seen their public funding decrease in recent years.
Many community colleges and two-year technical schools, which tend to serve a substantial number of students from the lowest income bracket, are also struggling financially. Bunker Hill Community College, the largest community college in Massachusetts and located a mere five miles from Harvard, ran an operating loss of more than $40 million in 2019, the most recent year data was available. Nearly half of Bunker Hill’s students are from households with incomes in the bottom 40 percent of earners, compared with 8 percent at Harvard. The school’s mobility score is nearly four times greater than Harvard’s.
Before donors sign that next check to an Ivy League university, they should perhaps instead consider a school that could use the funds and has a track record of promoting economic mobility.
End Preferential Admissions
Wealthy universities themselves also have an important role to play in curbing ineffective, profligate giving. The Ivy League should do away with quid pro quos that encourage donors to continue shoving money into overstuffed coffers. They should eliminate preferential admissions practices that favor legacy students or students with links to donors. And they should stop selling naming rights to the highest bidders. Buildings on Ivy League campuses should not be monuments to wealthy egos that can be purchased like souvenirs. If named for anyone, they should be named for people who best embody the institutional mission.
It is also time for policy makers to consider taxing donations that go to elite and excessively wealthy education institutions.
Such a tax could mirror 2017 tax legislation that introduced a 1.4 percent tax on net investment income for universities with more than $500,000 in endowment assets per student. This affected only the 40 richest universities in the country, including all those in the Ivy League.
Why not apply the same standard to donations to these schools? If donations to wealthy colleges were taxed, donors would be more likely to look at other, perhaps more worthy, places to park their funds.
That $2 billion in annual contributions to Ivy League schools is a staggering sum. Surely donors can think of something better to do with their money.