Here’s a tricky question for American colleges and universities: What to do with their overflowing endowment funds.
Investment returns on endowments surged to 27% in the fiscal year ended June 30, a 35-year high, according to Wilshire Trust Universe Comparison Service data reported by Bloomberg. Strong stock market gains and stratospheric venture capital returns produced stunning results for some of the largest collegiate funds.
Duke University reported a 55.9% return that lifted its endowment to $12.7 billion, while Washington University in St. Louis said its endowment swelled to $15.3 billion on a 65.9% investment return. As my colleague Elyssa Cherney reported, the University of Illinois saw a 34% return that boosted its endowment to a record $3.8 billion.
Boffo endowment returns bolster university finances as they start to shake off the pandemic’s impact on enrollment and campus operations. And greater financial flexibility opens up new possibilities. Schools could launch new academic programs, hire more faculty, upgrade technology, fund more scholarships for low-income students.
Or they could do the unthinkable—cut tuition for all students. A heretical idea, I know. One rock-solid constant in higher education over the past few decades has been steady tuition increases that outpace overall inflation. College costs have climbed 1200% since 1980, well above a 236% rise for the consumer price index.
It might seem like a risky time to change course. Inflation has picked up, threatening to boost college operating costs. And the stock market’s recent swoon could presage a longer downturn that would reverse some of the recent endowment gains.
Still, a tuition cut today would be a smart investment for schools facing longer-term challenges they may not fully grasp.
The effects of ever-increasing college costs are becoming unsustainable for students and their families. A four-year degree from a public university now costs more than $100,000 on average. At private schools, the average tops $150,000. Some elite institutions have breached the $300,000 barrier (and contrary to myth, plenty of students pay full price).
Parents mortgage homes and draw down retirement savings to finance their children’s college education. Students emerge with debt loads that force them to delay getting married, having children and buying homes.
Some colleges have taken steps to ease the cost burden. A handful instituted tuition cuts during the pandemic, which may or may not hold. Others, including U of I, imposed tuition freezes of varying duration.
For the most part, however, colleges continue blithely marking up prices with no apparent concern for the impact on their customers. As long as applications keep pouring in, rumblings of discontent are easily dismissed. Secure in the knowledge that a college degree is still widely considered essential to prosperity, schools overlook forces chipping away at that consensus.
When prices rise, customers inevitably reassess the value of a product or service, whether it’s an oil change or a college degree. And recent data shows young people are increasingly questioning college prices. A survey this spring by left-leaning think tanks Third Way and New America found 65% of students surveyed believe higher education is no longer worth the cost, up from 49% last August. Fully 67% said they’re worried about their ability to pay tuition.
Clearly, price is a large and growing concern for colleges’ customers. By ignoring that concern, universities create an opportunity for new competitors who address it. Recently, colleges have been losing students to online degree programs, computer coding camps, apprenticeships and other less-expensive alternatives.
Students aren’t the only ones discovering alternatives to traditional higher education. In another warning sign for Big Ed, major employers including Apple, Bank of America and IBM have stopped requiring a four-year degree as a prerequisite to employment.
As they push the limits of their pricing power, universities and colleges invite skepticism on other fronts. The recent admissions scandal exposed fraud at the core of the educational-industrial complex. Such flagrant corruption gives prospective students reason to doubt the credibility of the entire enterprise.
Then there’s the politicization of college campuses. Students who enroll expecting an atmosphere of openness and thoughtful debate instead encounter an increasingly conformist intellectual climate.
At some point, these factors will start to affect demand for a traditional college education. When will it happen? Nobody knows. Tipping points become clear only in hindsight.
College officials hoping to avoid a reckoning should act now. They need to address the threats while their institutions are still strong—and their coffers full.
Cutting tuition would be an important first step, for practical and symbolic reasons. A price break would ease the financial burdens on students and families, helping more young people to afford higher education. Competitively, colleges would reduce their vulnerability to rivals offering lower prices.
Tuition cuts also would give colleges a badly-needed dose of favorable media attention, and begin to counter the growing impression that American campuses are bastions of heedless elitism. That, in turn, would buy time for the institutional reforms and soul-searching needed to secure their role in society for the long term.