While I try to not make a habit of openly bashing higher ed mega-gifts, sometimes the opportunity is too irresistible to pass up. Take hedge fund billionaire Ken Griffin and his recent $300 million donation to Harvard’s Faculty of Arts and Sciences, which renamed the Graduate School of Arts and Sciences the Harvard Kenneth C. Griffin Graduate School of Arts and Sciences in recognition of his largesse.
Setting aside Griffin’s politics or the ethical quandaries surrounding naming gifts, I immediately noticed that the gift basically amounted to a rounding error for a school that distributed $2.1 billion from its $51 billion endowment for the fiscal year ending June 30, 2022. Seeing numbers like that, I can’t help but go down the path of thinking, “imagine if?” Imagine if Griffin gave $300 million to two-year community colleges and HBCUs instead of a school that still clings to legacy admissions? Imagine if Griffin emulated Jim and Marilyn Simons and directed that money to a struggling state school with a track record of propelling exponentially more poor and working class students to the middle and upper classes?
It may not be the most sophisticated argument, but that doesn’t change the fact that megadonors would have a greater collective impact if they diverted some of their riches to institutions that boost economic mobility at scale. And I’m letting Griffin off easy — the Times’ Ross Douthat called the gift “indefensibly useless and pathetic.”
This kind of gift also feeds into systemic problems in higher ed, according to Bruce A. Kimball, Ohio State University emeritus academy professor. Griffin’s donation is symptomatic of the “wealth stratification” across a higher ed system in which the rich get richer and, well, you know the rest. In a new book, “Wealth, Cost, and Price in American Higher Education,” Kimball and Sarah M. Iler, adjunct professor of U.S. History at Columbus State Community College and Wake Technical Community College, explore the historical roots of wealth stratification, lay out the advantages that allow rich universities to get exponentially richer, and propose ways to close the gap with less-wealthy institutions, such as asking alumni to look beyond their beloved alma maters.
“We argue that the fundamental issue is to curtail the financial competition among the wealthiest colleges and universities, which now take for granted that they should be ‘cookie monsters,’ searching out and devouring all the resources they can get,” Kimball told me via email. He and Iller call on wealthy institutions to embrace “a new financial strategy of sharing resources and wealth advantages, rather than incessantly trumpeting endowment gains, launching fundraising drives and hiking tuition.”
Affluent institutions’ “wealth advantages”
Affluent schools didn’t get mind-numbingly rich through sheer luck, but instead through a series of what Kimball and Iler call “wealth advantages.” In the 1920s, well-connected trustees started working with leading financiers who helped schools generate high returns. As these institutions accrued more wealth, trustees turned to even more aggressive portfolio strategies that began to emerge in the mid-20th century.
All the while, wealthy universities churned out more rich alumni than less affluent schools. These individuals made large gifts and bequests and their alma maters’ wealth continued to grow. Kimball noted that non-alumni and non-college graduates also give more money to wealthy schools, citing businessman Gordon McKay, who, while neither an alumnus nor college graduate, placed an initial $4 million in trust for Harvard in 1893.
The cumulative, decades-long impact of this one-two punch — more aggressive investing and a nonstop torrent of donations — created today’s environment, where “larger endowments earn higher annual returns by several percentage points than smaller endowments and grow at a faster rate,” Kimball said. “Thus, the wealth gap between the two schools grows wider in absolute terms.”
Substantial wealth brings a host of other benefits, such as enabling administrators to spend less on fundraising per dollar compared to their less affluent peers. And unlike foundations, colleges are not required to spend 5% annually of their endowments. As a result, many rich schools plow excess endowment income back into their invested capital, further boosting the faster growth rates of large endowments.
Rich schools can also issue low-cost bonds to cover their obligations if their portfolios take a beating. “Less endowed schools, particularly HBCUs, find it harder to issue such bonds and pay more in underwriting fees to do so,” Kimball said. “Less-endowed schools therefore cannot afford the risk to invest aggressively because it costs them more to recover.”
Reinforcing wealth inequality
Kimball pointed to data points illustrating the effects of wealth stratification. For example, only 3% of the 3,300 nonprofit colleges and universities own 80% of endowed wealth in higher education. Moreover, the wealth concentration in the top 1% of colleges and universities has exceeded the wealth concentration in the top 1% of the American population. Wealth stratification “reinforces wealth inequality in the nation and vice versa,” he said.
Then there’s the issue of tuition. Leaders at wealthy colleges can increase tuition knowing they have the requisite financial aid to cover the increases. Less affluent schools obviously lack that luxury. Kimball and Iler’s book also looks at how less affluent schools will cut the price of admission to induce students to attend, thereby limiting the amount of incoming tuition revenue and further widening the wealth gap.
These factors shape how Americans perceive higher education — and not in a good way. “Over the last four decades,” Kimball said, “the widening stratification and the intense competition for wealth, particularly among elite colleges and universities, have ignited criticism and resentment against all of higher education, and doubt about its value.”
Funding leaders are paying attention to this problem. Last June, I spoke with Bill Moses, the managing director of the Kresge Foundation’s Education Program. When I asked him what kept him up at night, he cited the “drop in enrollment in higher education, especially among Pell-eligible, first-gen and students of color” and “the decreasing political support for higher education in some circles and even the demonization of higher education.”
Kimball and Iler’s book lays out action items that affluent universities can adopt to dial back wealth stratification and help to “rebuild public esteem and political support for themselves and all of higher education.” They include asking wealthy schools to channel residual unspent endowment income to “carefully designed programs at selected, needful colleges” — an admittedly big ask, given that an endowment often doubles as a metric to measure the school’s prestige. Other recommendations will come at no cost to rich colleges, like requiring their portfolio managers to provide free investment expertise to their peers.
“Good fortune or catastrophe”
All of which brings us back to philanthropy’s role in closing the gap. “‘Wealth stratification’ means that the strata persist,” Kimball said. “Schools cannot rise or sink below their caste, unless they experience some exceptional good fortune or catastrophe.”
This “good fortune” can come in the form of an individual like Warren Buffett, who, as Kimball noted, helped Iowa’s Grinnell College adopt a more aggressive portfolio management strategy after becoming a trustee in 1968. Or it could be a billionaire like George Soros, who, in 2021, announced a $500 million challenge grant to Bard College, a school that was flirting with bankruptcy five years earlier. And of course, there’s MacKenzie Scott, who has made huge unrestricted gifts to institutions — HBCUs, community colleges, tribal schools — with which she had no prior relationships.
But Buffett (who did not attend Grinnell), Soros (who did not attend Bard) and Scott remain anomalies in a higher ed fundraising ecosystem dominated by donors who give to their alma maters. Asking these individuals to reverse the field’s wealth stratification would require a profound psychographic shift, like expecting Griffin to cut a check to Boston’s Bunker Hill Community College or one of Massachusetts’ public schools. Call me a cynic, but that seems unrealistic.
Then again, maybe not. The latest Council for Advancement and Support of Education’s Voluntary Support of Education survey found that of the $59.5 billion raised by universities for the fiscal year beginning July 1, 2021, and ending June 30, 2022, 16% — or $9.5 billion — came from non-alumni individuals. Ann Kaplan, the survey’s author, told me that figure could be higher since the “non-alumni” category didn’t account for giving through family foundations or DAFs.
In other words, individuals aren’t averse to giving money to schools they didn’t attend. It’s just a matter of which colleges they choose to support. This is where officials at wealthy universities can help move the needle. Trustees can encourage donors “to fund partnerships, such as scholarships, between wealthy schools and selected less-endowed schools,” Kimball said. “There are many other possibilities, if the intent and will is there.”
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