If federal spending on wealthy institutions of higher learning can’t be trimmed, where could it be trimmed? If any belt-tightening is impossible for these universities, where in the budget would it be possible?
Let’s presume for so the moment we can’t keep running up huge budget deficits and continuing to increase the public debt, which by May 2025 stood at 36.2 trillion (with a “t”) dollars. To resolve that debt, the country must either raise taxes or reduce spending or a combination of both. I will not enter into the debate about whether raising taxes or lowering taxes will result in the increase in government revenues needed to help offset our current budget deficits, because there is general agreement that tax policy alone will not suffice. So there must be some cuts in government spending if we are to restore some semblance of balance.
Although there is general agreement that federal government expenditures must be cut, there is no general agreement as to which expenditures should be cut. Or, to be more precise, there is general agreement that government spending must be cut and universal agreement that those cuts should not affect me and my group or my industry.
As the philosopher Plato taught centuries ago, it is difficult to reform a society because each group is convinced of its own importance and the value of the benefits they are receiving. No one wants their special interest cut or even trimmed because they don’t consider their “thing” one of those nasty “special interests” that you hear so much negative reporting about. A perfect example can be found in the current distress among institutions of higher learning over any cuts to their federal funding.
When the Trump Administration began its attempts at trimming federal spending, I wrote an article in which I predicted: “Expect a flood of articles in the coming days detailing the gruesome results of how poor person X is suffering because the government is no longer doing Y. I notice in my own area, education, that there has been an uptick in articles bemoaning cuts in government funding.” This was an easy prediction to make and required no special expertise since it was so obvious that it would happen. And indeed, the number and outrage of articles decrying cuts in federal spending on universities increases exponentially as the weeks pass. The online version of The Chronicle of Higher Education can be depended on to inveigh against Trump’s “assault” on higher education nearly every day.
But these complaints are odd coming from progressive institutions that pride themselves on devotion to “the poor” over “the rich.” If we can agree that we need to cut back on federal spending, where should those cuts begin? With Medicare and Medicaid? Or government largesse to wealthy universities that serve a mostly wealthy clientele?
Data from the National Association of College and University Business Officers (NACUBO) shows that, as of fiscal year 2024 (which ended June 30, 2024), 658 institutions of higher learning had endowments totaling $873.7 billion in assets. Other estimates put the figure closer to a trillion dollars. This wealth is highly concentrated, with 86% of the total value held by 144 institutions with endowments of $1 billion or more.
The five institutions with the largest endowments are Harvard University ($52 billion, up 45% over the past 10 years), Yale University ($41 billion, up 73.4% over the past 10 years), Stanford University ($38 billion, up 75.5% over the past ten years), Princeton University ($34 billion, up 62.2% over the past ten years), and MIT (25 billion, up 97.8% over the past ten years). In 2017, a federal endowment tax was enacted in the Tax Cuts and Jobs Act of 2017 in the form of an excise tax of 1.4% on institutions that have at least 500 tuition-paying students and net assets of at least $500,000 per student. How much tax revenue does this generate? In 2022, a paltry $244 million in taxes were raised from 58 institutions.
The new “Big Beautiful Bill” keeps the 1.4% for universities with endowments worth $500,000 to $749,999 per student, but raises it to 4% for endowments worth $750,000 to $1,999,999 per student and 8% for endowments worth $2 million or more per student. The highest 8% rate would only apply to Princeton, Yale, Stanford, MIT, and Harvard. The next highest rate would apply to the next 28 schools, a list which includes Smith, Duke, Emory, Vanderbilt, Rice, Wellesley, and the University of Notre Dame.
On the Wikipedia page for university endowments, one can find this complaint: “The endowment tax provision of the Tax Cuts and Jobs Act has been criticized as funding tax breaks for corporations and the wealthy at the expense of education. Critics note that the tax could threaten financial aid for low-income students, stifle social mobility, and obstruct life-saving research.” On this understanding of things, an institution with an endowment of 53 billion dollars paying a mere 1.4% tax is not “wealthy.” And as for “social mobility”—Harvard, Yale, Princeton, and Stanford? Really? Perhaps, if you mean rich kids from Denver, Dallas, and Chicago move to Boston, Princeton, or Stanford to socialize with other rich kids from around the country. I suppose that’s a kind of “social mobility.”
University complaints about any projected “cuts” in government spending on higher education come at an inconvenient time given the steady flow of articles over the past ten years detailing the increasing bureaucratic bloat in so many colleges and universities. So, for example, among the one-fifth of colleges with the highest staff-student ratios, there is one staff member for every three students. The top quintile has around 45 percent more “administrators” than instructional faculty. Washington University in St. Louis, for example, reports 17,019 full time enrolled students and 17,128 non-instructional staff—meaning there are more non-teaching staff than students, and they are not the only one.
These lavish spending habits are especially alarming at a time when tuition for private U.S. colleges has risen by 144% over the last 20 years — including a 212% growth for in-state public school tuition. In fact, over the last thirty years, the cost of college has increased at five times the rate of inflation, even faster than the rate of inflation for medical costs — increases made possible by federal government loans to students. Total student loan debt now stands at 1.77 trillion dollars. Without those loans, would colleges and universities been able to raise their tuition at five times the rate of inflation? Or would they have been forced to keep those increases more in line with what their customers could afford?
As a February 2024 article titled “Death By a Thousand Emails: How Administrative Bloat is Killing American Higher Education” by Bowdoin College student Lance Dinino points out: “The percent of total university spending accounted for by instruction has decreased from 41% to 29% since 1980, even as the portion of administrative spending has remained steady. According to Department of Education data, administrative positions at colleges and universities grew by 60 percent between 1993 and 2009, which Bloomberg reported was 10 times the rate of growth of tenured faculty positions. Ginsberg reports from 1975 to 2005, the number of “administrators increased 85 percent, and the number of administrative staffers by a whopping 240 percent.” The scale and cost of college administrations are increasingly overshadowing the teaching faculty at the very core of higher education. A recent Department of Education study finds the proportion of spending on faculty has slightly decreased over time, with little to no increases in average salaries and an increasing reliance on part-time faculty. As the New York Times notes, while 45 years ago 78 percent of college and university professors were full time, today half of postsecondary faculty members are lower-paid part-time employees, meaning that the average salaries of the people who actually do the teaching in American higher education are much lower than they were in 1970.” All true. It is also especially interesting that this, one of the best articles on the problem, was written by a college student (class of 2025) writing for a student newspaper.
The timing is also unfortunate for some of these institutions of higher learning given how proudly many of these institutions have trumpeted their recent extravagant building programs. Colleges and universities spend an average of $27.8 billion each year on the construction of new facilities and/or the renovation of existing buildings — this at a time when college enrollments for many institutions are shrinking. Many of those new buildings are new offices to house all the new administrative staff, and of course there are the luxury boxes in renovated stadiums and expensive new sports facilities for NCAA athletes. Coach salaries have long been in the millions of dollars as now payments to players will soon be.
Over 15 universities in the so-called “Power Five” athletic conferences spend at least five times more per student-athlete than they do for their regular full-time undergraduates. That’s one of the main takeaways from a new study scheduled to appear in a forthcoming issue of the Journal of Education Finance, published by the University of Illinois Press and Johns Hopkins Press. Overall athletic expenses at colleges and universities exceed $17 billion with many of the top schools having recently expanded their already large and well-appointed facilities by adding new, multi-million-dollar gyms, courts, and indoor practice fields.
Perhaps one of the problems we currently face is, as Derek Thompson argued in an Atlantic article last year: “No One Knows What Universities Are For.” His sub-title: “Bureaucratic bloat has siphoned power away from instructors and researchers.” Spiraling costs aren’t going to enrich the coffers of most faculty members, since as the statistics show, half or more of the faculty positions in higher education are now held by adjunct faculty for whom the pay is scandalously low, sometimes as little as $2500 per course or less, whereas over 21 college and university presidents make over a million dollars per year.
So, we are left to ask: If federal spending on these wealthy institutions can’t be trimmed, where could it be trimmed? If any belt-tightening is impossible for these institutions, where in the budget would it be possible?
What would happen if universities rediscovered the fundamental purpose that animated their creation: namely, basic education teaching students how to read analytically, write and speak well, and reason clearly. How much would it cost to return to a vision of education as fundamentally involving a book, a professor, and a few students together around a table; education as something fundamentally relational—one spent, as Leah Libresco Sargeant has recently written—”in conversation with human beings who have lived and died long before us, and left us their artistic and philosophical work, as well as with our peers in the present,” rather than in time spent alone in front of computers that must be expensively upgraded every 18 months; education as “the formation of character and preparation to live and die well” and leave behind a valuable legacy to future generations?
We are faced with some serious financial decisions in higher education. Many of them, however, are not based on the quality of education we’re imparting to our students. That’s not what the bulk of the money is being spent on. The bulk of the money is being spent on establishing cultural prestige and political power. And it’s increasingly unclear whether this is an acceptable use of those funds. At some point, we may need to ask: Do we want millions of dollars in government grants for universities to think about poverty, or do we want to spend that money on those in poverty? And if we’re all for taxing “the rich” to help the poor, then are we going to continue to allow the richest institutions of higher education to keep insisting that “the rich” doesn’t include them?
Institutions can continue doing what they please as long as they simply refuse to be tied to the regulations attached to federal funds. This has long been the case. In the past, those regulations were tied to minority set asides or DEI requirements. Institutions that submitted obediently to those federal requirements will be hard pressed to object to an ideologically different set of requirements now that federal power has changed hands. Perhaps the problem was getting involved in a competition for ever more federal money in the first place. Not only did it burden the federal budget, it also often compromised the principles that should have governed the educational and research mission of the schools that received those funds. There is no escaping the fact that with federal money comes federal control. So this might be an occasion for these institutions to rediscover and rededicate themselves to the mission that animated their founding and sustained them before they got themselves addicted to the gracious bounty of the political class’s ever-more lavish control over other people’s money. If they liberated themselves from this dependency, they might discover a new, refreshing freedom. Those of us who work in higher education can’t profess to be “training leaders” if we won’t be the kind of leaders and make the sacrifices necessary to restore the nation’s financial solvency.
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