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Education United States

Elite Colleges Have a Looming Money Problem (msn.com) 89

Posted by msmash from the how-about-that dept.
They gave it the old college try, but America's elite universities are facing money problems partly of their own creation. From a report: It might not seem that way compared with the broader world of U.S. higher education. Ivy League institutions and a handful in a similar orbit like Stanford, Duke and the University of Chicago aren't just blessed to have international cachet and their pick of excellent students and professors -- they also have the most money and the richest alumni. By contrast, public and especially smaller private colleges and universities are cutting staff and programs. Many are closing outright.

A school like Harvard, now well into its fourth century, will almost certainly survive for a fifth one. But there are financial problems below the surface that could emerge if the bull market stumbles and especially if some proposed Trump administration policies are enacted. Harvard's $53.2 billion endowment is so huge that the difference between a good and a so-so investment performance translates to sums that would dwarf most colleges' entire nest eggs.

Former Harvard President and former U.S. Treasury Secretary Larry Summers estimated this year that if Harvard had been able to just keep up with other Ivies and "large endowment schools" in the past several years, it would have $20 billion more. For perspective, he says that just $1 billion could fund 100 professorships or permanently cover tuition for 100 students. But even Harvard's peer group isn't doing as well as it could. Veteran investment consultant Richard Ennis wrote this month that high costs and "outdated perceptions of superiority" have stymied Ivy League endowment returns, which could have been worth 20% more since the 2008 financial crisis if invested in a classic stock and bond mix.

Elite Colleges Have a Looming Money Problem More | Reply

Elite Colleges Have a Looming Money Problem

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  • Too wealthy to fail (Score:5, Insightful)

    by flyingfsck ( 986395 ) on Wednesday December 25, 2024 @09:20AM (#65038311)
    These universities are so rich, they are unable to invest their riches wisely, still charge the students exorbitant fees and still get gov funding. It looks like a ripe DOGE target

    • Re:Too wealthy to fail (Score:4, Informative)

      by dfghjk ( 711126 ) on Wednesday December 25, 2024 @10:17AM (#65038407)

      DOGE needs to start by eliminating carbon credits. The alleged richest man in the world would have nothing without those government handouts.

      • DOGE needs to start by eliminating carbon credits. The alleged richest man in the world would have nothing without those government handouts.

        Replace them with carbon taxes. That will generate revenue for the federal government, reduce the deficit, perhaps enable other tax cuts and reduce emissions more effectively with less market distortion.

    • Re: (Score:3, Insightful)

      by ArchieBunker ( 132337 )

      Wake me when Tesla stops getting subsidies and tax credits.

      • And should those subsidies be cut for the big three automakers, Rivian, etc? Because, of course, your issue is the subsidy, not the politics of the majority shareholder, right?

    • Re: (Score:1)

      by Anonymous Coward

      No need for DOGE. President Elon can do it himself. He’s already barking orders at the administration he paid for. https://www.politico.com/news/... [politico.com]

      Nothing says leopards ate my face like the guy you elected putting your paycheck on furlough.

    • Has nothing to do with DOGE.
    • Did I miss your sarcasm? You’re modded to 5 but not “funny”. The DOGE (I vomited a little just typing the aconym) isn’t a real thing. Do I really have to explain this to a group of adults? It’s not a real governemnt agency. It’s a wacko idea that was ironically put forward by a few prominent people. It’s a bullet point on a powerpoint presentation. Sigh (takes off eyeglasses and robs forehead a bit), it would take a full act of congress to give it any real power bey

    • You think they should be targeted by the government ... because the stock market outperformed the private equity, hedge fund and real estate mix they invested in?

      Harvard has more than three-quarters of its endowment in private equity, hedge funds or real estate and just 14% in publicly traded stocks

      Are you fscking tarded bro? Do you even have a brokerage account? This is how Trump got elected, the dumbest most ignorant fuckheads in the country said "I got this".

  • I always see these types of places called "elite"--they don't appear to be, they're just famous. There's nothing especially better about them than many other universities, from an educational perspective.

    • Re:Eilte? (Score:5, Informative)

      by Baron_Yam ( 643147 ) on Wednesday December 25, 2024 @09:42AM (#65038357)

      From a networking perspective, though, they are clearly superior; you get to pal around with already-wealthy people and build a network of contacts so you can spend the rest of your lives trying to maintain an "old boy's network" and minimize the amount of wealth that leaks out of the group.

      And given that your parents can buy you a pass ending in a degree, that's a kind of educational superiority, from the perspective of a poor performer from a rich family...

      • Re: (Score:2)

        by dfghjk ( 711126 )

        Exactly, the problem here is the assumption of what education is for. "Better" would be defined by within what education is for, and to rich people that means further enrichment. Colleges like Harvard are far "better" in that respect. Harvard is the "rules of the game", rules that rich people get to set.

    • I always see these types of places called "elite"--they don't appear to be, they're just famous.

      I beg to differ. Being a MIT grad, I can attest that the education opportunities available there are superlative. From what I know of other elite schools (e.g. Stanford, Cal, Harvard, Yale), it's comparable. Yes, you can get a great education at other schools. All things being equal, you've got a better chance of getting a better one at the elite colleges.

      Don't take that to mean the any degree from any elite school is necessarily a good investment. $250,000 for a history degree at Harvard is unlikely to hav

      • Beyond the education given at "elite" schools are the relationships and contacts with technology and business innovators that will provide opportunities that attendees at "state" universities rarely get

  • Investing based on ideology (Score:3)

    by Tony Isaac ( 1301187 ) on Wednesday December 25, 2024 @09:32AM (#65038331) Homepage

    Universities make many investment decisions based more on ideology than on the likelihood of good returns on investment. https://www.nytimes.com/2024/0... [nytimes.com] While it may be important for them and their benefactors, to carefully watch what they invest in for various ideological reasons, there is a cast to this kind of investing, and not a small one.

    For most people and institutions, the best way to invest is through a hands-off approach, such as mutual funds, especially index funds, which use a mathematical formula to make investment decisions (rather than relying on human judgment). As soon as you start picking and choosing based on factors *not* related to investment returns, your investment returns will suffer.

    For some, the tradeoff is worth it, their ideals are more important than the highest returns. But it's a decision that has costs that must be considered.

    • Re: (Score:1)

      by dfghjk ( 711126 )

      Right, and the real story here is "you didn't invest in me, so now comes the retribution". The problem isn't investment based on ideology, that not a problem but a mandate now, the problem is that the ideology is the wrong one from the perspective of those in power.

      The idea that an institution would take a lower rate of return in exchange for ideology should not be condemned but applauded. Capitalism should not be worshipped. Question what that ideology is. Is the ideology anti-Trump? Anti-fascist? An

      • I'm neither applauding nor criticizing universities for their investment choices. The article is noting that universities are having trouble with investment returns. If investment returns are a problem for them, they have to decide where their priorities are: good returns, or making a philosophical point.

        • Re: (Score:2)

          by sfcat ( 872532 )
          These are not ESG funds we are talking about. They invested in real estate and fixed income instead of equities. Now we can have a debate on if ESG funds are actually more ethical than just going after the best return. I worked at MSCI during the period when the ESG funds were setup so I have some insight you probably don't. But I'm going to ignore that for now and point out that Harvard's investments were not more ethical by any criteria. They just failed to return as much as the S&P 500.

          • Harvard's investments were not more ethical by any criteria

            If you go back to the original comment above, I included a link to a NY Times story that claimed that indeed, elite universities did make investment (or divestment) decisions based on ideology. Here's the link again, since you seem to have missed it. https://www.nytimes.com/2024/0... [nytimes.com] Whether you agree with their decision is a different matter, but they did in fact make at least some investment decisions for reasons related to ethics. Argue with the NY Times if you wish.

    • For most people and institutions, the best way to invest is through a hands-off approach, such as mutual funds, especially index funds, which use a mathematical formula to make investment decisions (rather than relying on human judgment).

      I agree and would add dollar cost averaging. The idea is to get yourself into a *saving* mindset rather than an *investment* mindset, and to game that mindset to mitigate your risks.

      Say you've got $100 per month of your income that you want to save. The idea is that you pick 3 - 5 mutual funds or exchange traded funds to buy into and you always buy $100 worth, split across the same funds every cycle. No matter what, it's the same amount every time.

      When you do this, you are naturally going to buy more when p

      • Re: (Score:2)

        by sfcat ( 872532 )
        That's a good mindset. However, you probably want to avoid the mutual funds as their cost basis is far higher than the index funds. In many cases your return after several years will only be a fraction of what it could be if you choose manged funds instead of indexed ones. Please don't confuse mutual funds and indexed funds as they are very different animals. Also, never chase the highest returning funds, especially if they are mutual funds. That's almost certain to return less than just picking funds

  • doesn't sound like an "elite colleges" problem (Score:3)

    by dfghjk ( 711126 ) on Wednesday December 25, 2024 @09:51AM (#65038369)

    "...high costs and "outdated perceptions of superiority" have stymied Ivy League endowment returns..."

    It sure sounds like a money management problem, not an elite colleges problem. Money isnt constrained by its own "perception of superiority".

    • The amount of money provided and the competitive value of the service provided certainly is affected by the "perception of superiority". "Money management" is done on top of income and expenses, not as a replacement.

  • Not from most Ivies ... (Score:5, Insightful)

    by Kiliani ( 816330 ) on Wednesday December 25, 2024 @10:09AM (#65038397)

    Given a choice, Ivy (and similar) graduates are usually not my first hiring choice. These schools seem to preferentially instill arrogance and a sense of entitlement, paired with a surprising dollop of ignorance.

    They produce some good students, of course, but overall the intellectual climate at these schools does not appear healthy (anymore?). They put out good students not so much because of but despite their efforts.

    I would not call their inability to maximize their endowments a "money problem" (thanks for the chuckle, slashdot), but a symptom of their effort to deftly move from meritocracy to mediocrity. Apparently they succeed increasingly well. Not sure I am sad about this ....

    • The outstanding students at these schools have VCs waiting to give them money to start their own businesses, which then invariable hire from those same schools

      They don't give a fuck what you think about them

      • Re: (Score:2)

        by sfcat ( 872532 )
        They did. That probably isn't true today but it doesn't depend on a whole range of factors. If you are coming out of a humanities program at one of these schools, the VCs want nothing to do with you and your job prospects probably aren't very good. A few years ago, at least you could have gotten a meeting with a VC and your job prospects were probably excellent. For those with technical degrees, the situation probably hasn't changed that much. But you are still probably standing in line behind the CMU

  • Optimal investments? (Score:3)

    by MMC Monster ( 602931 ) on Wednesday December 25, 2024 @10:18AM (#65038409)

    Investments are not known ahead of time if they will be optimal or not.

    Universities have certain obligations that prevent them from going with the simple 80:20 TotalStockMarket:TotalBondMarket ratio that is reasonable for individual investors. Some of these obligations include money earmarked for certain funds, expenditures (known and unknown), and long term health of their endowment.

    For a university which has been around for 400+ years, long term investing is different than for an individual who is looking for a 30 year retirement. The university will be looking further out on long tail black swan events that individuals wouldn't be concerned about. Reminds me of the story about how Oxford grew oaks to make sure they had the wood to replace the beams in their dining hall. https://www.atlasobscura.com/p... [atlasobscura.com]

    But, yeah. F--- the major U.S. elite universities that don't grow their student body to keep up with population growth. Only one that grew appropriately was the University of California system, which has a mandate to take a certain percentage of students who apply from their state.

  • when the student loan tap is cut off lots of university's will be tapped out

  • The focus on political activism based majors, and the frequently of fraudulent publications including from their last president, along with the "reverse racism" conviction by the Supreme Court and the "calling for the death of all Jew does not violate our school policy" testimony to Congress have disenchanted students, and the donation providing alumni, with Harvard and other Ivy League college's morals and behavior. If so many of their professors lie in their papers as a matter of course, why would anyone

  • Faculty-staff ratios (Score:5, Insightful)

    by bradley13 ( 1118935 ) on Wednesday December 25, 2024 @11:40AM (#65038531) Homepage

    One big problem is the faculty-staff ratio. Faculty are the engine of any university. Staff are, perhaps, the lubrication: enabling the faculty to do their jobs effectively.

    At my institution, over the past two decades, the ratio has gone from 60-40 to 40-60. Those numbers look almost harmless, but consider: previously for 60 faculty we had 40 admins - now we have 90! More than double the overhead! Of course, the top-level administration Aldo needs tools to do their work. Do we have a massive SharePoint site, and apparently whole teams churning out complicated Excel sheets. Which we - the faculty - have to fill in to feed the bureaucracy.

    Want to improve our school's finances? Fire more than half of the staff and terminate most of the Microsoft contracts.

    • At my institution, over the past two decades, the ratio has gone from 60-40 to 40-60. Those numbers look almost harmless, but consider: previously for 60 faculty we had 40 admins - now we have 90! More than double the overhead!

      Serious question: what does your institution include in staff versus faculty? Are non-tenure-track lecturers staff or faculty? How about non-teaching postdocs? How about the lab technicians?

      I've heard these positions can be considered either. Depending on which way your organization classifies positions could dramatically change the reported ratios. If you have more insight, please share.

      • At my university (probably not the same as GP), we have similar ratios of faculty and staff and changes from 60-40 to 40-60. (Haven't looked at these number in the last two years).
        We only count in these discussion permanent employees. So full professors, lecturer, and it directors count. But TAs, adjuncts, and student IT help do not count.

        So for us, postdocs don't count. Lab staffing counts or doesn't count depending on how they are paid. If they are on a state permanent line, they count otherwise not. So t

    • Administration is the cancer that keeps growing, eventually the administration department needs to add administrators to administrate their own department!

      And it's not just at the college level, public schools are at least just as over-administrated.

      As for the fancy colleges with all that money - they are supposed to have some smart people maybe they can figure it out.

    • One big problem is the faculty-staff ratio. Faculty are the engine of any university.

      Not always. Especially in recent years, research grants bring in more money to the university than tuition. You have to look at the overall situation, rather than a ratio.

  • "just $1 billion could fund 100 professorships or permanently cover tuition for 100 students."

    WHOA, I had no idea that tuition at Harvard was $10,000,000!!!!

    • Re: (Score:2)

      by AvitarX ( 172628 )

      I assume they mean the return on a billion would cover the tuition for 100 students.

      If we're conservative and use 3% of nestegg that's a mere $300,000/student (inflation protected).

  • Could have followed Warren Buffett's advice (Score:4, Informative)

    by david.emery ( 127135 ) on Wednesday December 25, 2024 @11:59AM (#65038569)

    And put their endowment into an S&P 500 index fund...

  • I find an odd juxtaposition between this article is talking about how elite institutions are facing money issues and MIT's announced it was dramatically reducing the tuition it is going to collect [mit.edu].

    If you're having money issues, cutting revenue doesn't seem the obvious call.

  • Because they have bloated staffs of non-instructional staff. They are going to have to run like cost focused businesses and trim fat like it's never been trimmed before, or close.
    https://www.forbes.com/sites/p... [forbes.com]

  • How much time depends on their level of financial incompetence that put them in danger in the first place.

    A college is a business in a highly competitive market.
    If a so-called elite school failed to get then remain wealthy that is their choice since they should have ample intelligence to do better.

    There is no excuse for failure where others thrive.

  • "$1 billion could fund 100 professorships or permanently cover tuition for 100 students."

    How the F*** much does it cost to go to school these days?

  • "he says that just $1 billion could fund 100 professorships or permanently cover tuition for 100 students"

    What the fuck? You are spending 10 million per degree at Harvard these days.

    Maybe its a typo. 100 professorships is maybe reasonable. 100k x 100 x 10 years.

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