US colleges’ billion-dollar question: is philanthropy worth the cost?

With wealth and donations becoming concentrated in ever fewer, ever more influential hands, and with some institutions languishing while the elite flourish, Paul Basken asks whether it is time for American colleges and universities to start biting the hand that feeds   

April 29, 2021
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For people who give away their money, philanthropists have a pretty bad rap.

Sure, their immediate recipients love them. And there are plenty of recipients in US higher education. According to the latest annual survey by the Council for Advancement and Support of Education (CASE), nearly $50 billion (£36 billion) a year is donated to colleges and universities, and the trend is still upwards.

But outside that very self-interested circle – and even among equity-focused experts within it – longstanding criticism is taking on a new urgency.

Among the familiar critiques of philanthropy are that wealthy donors are mostly looking for flattery and control and use their largesse to accentuate their corrosive power over society rather than to humbly relinquish some of it. That is seen as especially true when it comes to higher education: rather than helping those most in need, billionaires typically slip their strategic benefactions into the bank accounts of the academy’s elite.

“The super wealthy in America send billions of dollars each year to the most prestigious institutions of higher education in the nation and the world – and receive large tax deductions for their efforts,” says Robert Reich, Carmel P. Friesen’s professor of public policy at the University of California, Berkeley and a former US secretary of labour. “The consequence is to exacerbate inequalities.”

For many, the net costs of a culture of philanthropy accumulate when it is considered against an alternative system of more progressive taxation and greater public-led investment. “The biggest threat to public higher education in the US,” says Cecilia Conrad, a managing director at the John D. and Catherine T. MacArthur Foundation, “is the decline in public funding and support.”

In some corners, there are signs of growing awareness among donors of the wider consequences of their choices of recipients. Last summer’s anti-racism protests, prompted by the killing of a black man, George Floyd, by Minneapolis police, has had noteworthy effects, for instance. One striking example among many is Mackenzie Scott, who helped her ex-partner, Jeff Bezos, to found Amazon. She gave away more than $4 billion last year, with nearly $1 billion going to higher education, mostly community colleges and historically black institutions. Another example is Reed Hastings, the co-chief executive of Netflix, and his wife, Patty Quillin, who abruptly doubled their planned donations of $20 million apiece to historically black colleges Spelman and Morehouse, as well as the non-profit group UNCF, which promotes African American participation in higher education.

Yet there is little disputing Hastings’ concession that such donations are “a drop in the bucket compared to the need”. For all its talk of equity and inclusion, US higher education embodies a wealth divide as stark as anything in the rest of US society, with precious few examples of sustained, meaningful pushback.

Take former New York mayor and 2020 presidential candidate Michael Bloomberg’s landmark gift of $1.8 billion to his alma mater, Johns Hopkins University, in 2018. In explaining his reasons for making the largest donation to a university in US history, Bloomberg stated his concern for all the qualified young Americans who miss out on college because they cannot afford it: all future Hopkins students will now graduate debt-free.

Yet Hopkins was already one of the richest universities on the planet, where students from families in the top fifth of the income scale outnumber those from families in the bottom fifth more than 20-fold. The institution has ended legacy admissions, whereby the children of alumni gain admissions preferences: many other elite institutions have avoided even that step. Nevertheless, many commentators suggested that Bloomberg’s largesse could have made a greater impact on social equity had it been directed lower down the institutional pyramid.

Hopkins’ president, Ron Daniels, pushed back, however, claiming that the institution’s financial aid programme for its poorer students was held together with “spit and bubblegum”.

“Mayor Bloomberg’s staggering philanthropy can’t help but raise the sights of donors at other institutions respecting the importance of access to higher education,” he added.

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The problem has centuries-old origins. The US university system and many of its most celebrated institutions were created out of philanthropy and conditioned to accept it as a natural state of affairs. Large universities and colleges also remain uniquely positioned in US society to keep attracting donations from those most practised in the capitalist arts, says Rob Reich, professor of political science at Stanford University and director of its Center for Ethics in Society.

“They’re one of the few places that are actually capable of absorbing nine- and 10-figure gifts,” notes Reich, who is unrelated to his Berkeley namesake. As an example, he refers to one extremely wealthy individual who wanted to give away a large amount of money quickly, rather than acting like the social justice funder the Ford Foundation and hiring a bureaucracy to identify the most needy – and potentially smaller – recipients.

But such carelessness over recipients can raise hackles. The praise Scott received for acting quickly in the wake of the George Floyd protests, for instance, was counterbalanced by some griping from HBCUs and other institutions that serve low-income and minority students but that missed out on one of her multimillion-dollar gifts.

“We have to ask,” says Patricia McGuire, president of Trinity Washington University, “if the ‘blind research’ her team did to select institutions and the ‘surprise’ nature of such large gifts is really the most effective way for philanthropy to work.”

Trinity is a Catholic all-women campus with a particular focus on black and Hispanic students, and McGuire has seen past examples that suggest donors are more interested in their own agendas than those of the institution they are proposing to serve. She recalls the example of a widower of one Trinity alumna who floated the idea of making a very large gift but asked for it to benefit men since he and his wife only had sons.

“I explained to him that we are a women’s college and do not have men in our undergraduate programme,” McGuire says. “He grew angry and said that we should change our mission and take the gift.”

For her part, Scott made her donations without conditions on how they were spent. But Amir Pasic, dean and professor of philanthropic studies at Indiana University, expects instances of controlling donors to multiply given the increasing monopoly of extremely wealthy donors on higher education philanthropy.

America’s wealth divides remain on a three-decade trend of expansion, with income growth most rapid for the top 5 per cent of families. Annual data compiled by UBS and Pricewaterhouse Coopers show that the nation’s 2,000-plus billionaires hold more than $10 trillion, up from a previous high of nearly $9 trillion in 2017. Those billionaires donated more than $7 billion in the early months of Covid, “the greatest amount billionaires have given in a short space of time ever”. Yet even this figure, the report adds, is a “small number compared with the billionaire class’s total net worth”.

Meanwhile, legislation for the Trump administration’s $1.9 trillion tax cut ended the ability of middle-income Americans to itemise deductions on their tax filing, further discouraging philanthropy from this less elevated source.

Individual control over such a critical public good as research and higher education is not something society should welcome, says Chuck Collins, director of the Program on Inequality and the Common Good at the Institute for Policy Studies: “Charitable giving is not a substitute for a fair tax system and meaningful taxpayer-funded support for higher education,” he says.

Collins is known for his early life decision to give away his portion of the Oscar Mayer fortune, derived from the sale of the eponymous food company founded by his great-grandfather. He is among a number of experts outside the ranks of institutional presidents who believe that society could fairly allocate needed resources for education by simply taxing wealthy donors at higher rates, rather than waiting for them to hand it out.

Diane Ravitch, professor of education at New York University, takes a similar line: “I don’t like that our nation addresses inequality by relying on the richest people to make gifts,” she says.

Indeed, some rich people themselves express similar sentiments. In recent years, a string of billionaires have publicly called for their ilk to be taxed more heavily, including celebrated investor Warren Buffett and Microsoft founder Bill Gates. And earlier this month, Amazon’s Bezos endorsed higher corporation tax as the Biden administration contemplates the first hike in more than a quarter of a century to help pay for its vast stimulus package.

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But Ravitch remains suspicious of such figures’ philanthropic intent. Indeed, Gates is a case in point for her. His philanthropic body, the Bill and Melinda Gates Foundation, is among the biggest and most established working in education. But while Ravitch concedes that the foundation’s funding decisions are probably not specifically designed to benefit Microsoft, examples such as its work promoting advanced technology in education show that it ends up benefiting just the same.

The Gates Foundation also has a reputation for being tough on grantees, often to the point of upending their business models. As an example, Trinity Washington’s McGuire cites the foundation’s loss of interest in a programme that provided college scholarships to low-income students in Washington DC. The effort quadrupled high-school graduation rates to about 40 per cent, but the foundation felt that still wasn’t good enough.

The alacrity with which donors turn off the funding tap means that even when an idea works well, there can be downsides for the recipient, says Richard Ekman, president of the Council of Independent Colleges, which represents some 700 small and medium-sized colleges and universities. Too many times, Ekman explains, donors arrange gifts in the form of experiments that create an expectation that the institution will be able to keep funding it in perpetuity. “It rarely works out this way,” he says.

One of the most notorious examples is the Charles Koch Foundation, which made a practice of giving money to colleges and universities and then including non-public terms that gave the right-wing benefactor the ability to determine choices of faculty and curricula and leaving the institutions to keep funding the arrangements into the future.

After investigations largely driven by students, universities have mostly rid themselves of such contracts, and created processes to prevent them in the future. “People are increasingly conscious of that,” says Indiana’s Pasic.

Still, the wider problem of unwanted influence remains substantial in many places, McGuire says. “No one person, because of wealth, should be able to dictate the terms of existence for a school or university,” she says. “But too often, mega-donors do just that and charities [which include most higher education institutions] accept that as the price they must pay for the investment.”

Harvard’s $41 billion endowment makes it comfortably the richest university in the world, yet even it remains hungry for donations. But if those donations derive from a system that drives inequality, should it be doing more to redress that system?

In fairness, the institution has vigorously defended its affirmative undergraduate admissions policy in response to a lawsuit claiming that it discriminates against Asian applicants. Yet one of the court cases heard that Harvard still gives favourable treatment to white applicants from well-connected families who have made or are expected to make significant donations – such as the $2.5 million reportedly pledged by the real estate developer Charles Kushner in 1998, allegedly to ease the admission of his son Jared, former president Trump’s son-in-law and former senior adviser.

This enduring power of wealth to gain entry to elite universities was put under a particular spotlight by the “varsity blues” scandal that engulfed the US in 2019, in which wealthy and well-known parents were caught bribing their children’s way into elite institutions via falsified sporting and academic credentials. However, there is little evidence that admissions policies have changed in the wake of the scandal, and the eight Ivy League institutions combined still have fewer students who qualify for the Pell Grant – the main federal subsidy for low-income students – than does UC-Riverside, a single campus of the University of California system.

Former Harvard president Lawrence Summers takes pride in the fact that during his tumultuous period in office between 2001 and 2006 he made it policy that any student with a family income below $60,000 pays nothing. Still, the former US Treasury secretary and current professor of economics at Harvard acknowledges that there has been too little follow-up since then.

“I believe that what I did was very much a first step,” he says. “But I wasn’t there that long, and, frankly, since I’ve left, I haven’t been impressed by the progress I’ve seen.”

Summers would also like to see donors apply themselves more creatively to the question of educational equity. “My hope,” he says, “would be that, over time, more philanthropists will find partners in institutions that are trying to disrupt traditional patterns in higher education.”

Examples are relatively few and far between, but they do exist. The Ford Foundation – founded by Henry Ford and his son, Edsel – is leading several philanthropic groups in a $1 billion bond issuance, although that effort is more broadly aimed at raising money from long-term investors to benefit a variety of non-profit groups. Closer to home for the academy is Robert Smith, who became the most famous benefactor of Morehouse College when he told the 2019 graduating class that he would pay off their entire student loan debt – all $40 million of it. Now he is helping to finance a system of bonds that function for students as a low-cost income-based repayment plan.

It’s the kind of innovation, says David A. Thomas, the college’s president, that Ivy League institutions and others with multibillion-dollar endowments could be trying, to act upon their oft-stated concern for educational equity on the scale that’s required. And he sees the scheme as part of a wider project to open students’ eyes to the realities of inequality.

“As higher education institutions,” Thomas says, “we need to put in front of our students, not in a preachy way, a realistic picture of the choices that we all have to make as citizens – about whether we want a society that continues to have the level of income inequality that we’re currently on track to create, which dwarfs the level at the turn of the 20th century, with the Rockefellers, Carnegies, Mellons.”

All three of those controversial figures, of course, were major higher education donors. And the reputational perils that can surround the source of large donations were underlined last October, when Smith settled a tax evasion case for $140 million. However, Thomas says he has not discussed the matter with Smith, adding: “Morehouse has no ambivalence about our relationship with Robert Smith.” Cornell University also says it will not be returning the donations Smith has made to that institution.

Some experts believe that institutional leaders should take a firmer line. At a minimum, says Davarian Baldwin, professor of American studies at Trinity College in Connecticut, the presidents of institutions accepting aid from big-dollar donors could speak out more about the systems that make philanthropy possible – and necessary. College presidents are “caught in an economic bind where they need the money, and of course they’re going to take it, and they’re going to praise these institutions [that make donations]”, Baldwin says. “But they could, at the same time, be vocal about the fact that the current economic system – and the concentration of wealth in the hands of so few people – is what produces a situation whereby we have to go hat-in-hand to individual billionaires.”

Even Berkeley, arguably the most prestigious public university in the country, isn’t immune from serious headwinds. Its considerable fundraising efforts saw it amass more than $1 billion in donations in 2019-20, yet even that figure was less than that amassed by neighbouring Stanford University (which has a third of Berkeley’s enrolment) and still left a $340 million budget gap in Berkeley’s budget.

“America’s prestigious public institutions of higher learning are holding on, but just barely,” says Robert Reich, the former labour secretary, from his perch at Berkeley.

By comparison, “our prestigious private institutions of higher learning are doing very well – largely due to philanthropy, as well as to other tax benefits for endowment income,” he says. “Yet, on average, 60 per cent of their undergraduates come from the richest 1 per cent of families.”

Stanford’s Rob Reich sees much the same thing. “I would love to see the wealthier [universities] support greater public funding,” he says. “Stanford should be more vocal about supporting places like Berkeley at a higher level.”

But, ultimately, students themselves may have the greatest leverage, says Indiana’s Pasic. In the past year, minuscule acceptance rates at the top-ranked institutions have shrunk even smaller as wealthy American families have clamoured for admission for their offspring as a way to offset the effects of the recession. Enrolments at community colleges, meanwhile, are falling, as lower-income Americans increasingly can’t manage the time or the relatively modest costs.

Will students that benefit from attendance at elite institutions really turn their backs on them in the cause of greater equality? There is little sign of that so far, Pasic admits. But the time may come soon, he says, when college applicants make some serious reassessments of institutions they regard as part of the problem in society, rather than part of the solution.

“It’s the students who are going to be the key,” he predicts. “Because student behaviour is the thing that will change [everyone else’s] behaviour in higher education.”

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