Monday, December 10, 2012

What is the main business of an educational institution?

Some colleges and universities in the United States have been heavily criticized and accused of perverting the educational process by emphasizing athletics. While professors at some post-secondary institutions survive on food stamps (I'm not kidding), name football and basketball coaches can sometimes earn millions of dollars per year. Proponents of the arrangement claim that these high-profile coaches not only benefit the less lucrative academic programs, but also bring revenue and prestige to the academic institution as a whole.

I could devote an entire blog post to this, except for one thing.

These star coaches are not the real money-makers at educational institutions.

After reading a Google+ share by Don McArthur, I found the source article by Ron Unz. The article is entitled "Paying Tuition to a Giant Hedge Fund." This particular hedge fund is more commonly known as Harvard University.


Harvard’s Division of Arts and Sciences—the central core of academic activity—contains approximately 450 full professors, whose annual salaries tend to average the highest at any university in America. Each year, these hundreds of great scholars and teachers receive aggregate total pay of around $85 million. But in fiscal 2004, just the five top managers of the Harvard endowment fund shared total compensation of $78 million, an amount which was also roughly 100 times the salary of Harvard’s own president. These figures clearly demonstrate the relative importance accorded to the financial and academic sides of Harvard’s activities.

Unz also makes the following claim:

The typical private foundation is legally required to spend 5 percent of its assets on charitable activities, and with Harvard’s endowment now back over $30 billion, that sum would come to around $1.5 billion annually. This is many times the total amount of undergraduate tuition, which should obviously be eliminated, thereby removing a substantial financial barrier to enrollment or even application.

Now it should be granted that Harvard is an exceptional case, and most educational institutions don't have $30 billion endowments. According to U.S. News and World Report, the average endowment of 1,189 colleges that reported figures was around $313 million, and 66 colleges had endowments that exceeded $1 billion.

Endowments fluctuate in value, and Unz noted that Harvard almost went bankrupt in 2008 when the economy tanked. But Unz thinks that this itself is a problem, since the ability of educational institutions to provide services is significantly dependent upon a factor that has nothing to do with education itself.

Some colleges live in fear of the "death penalty" from the NCAA. What if the Securities and Exchange Commission started issuing "death penalties" of its own, and some of these endowments tanked?
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