University Endowments

Gary Becker and Richard Posner discuss the use of university endowments, and, in particular, the question whether universities should be required to spend a certain proportion of their endowments each year. Posner especially interests me when he writes,

Given the competitive structure of higher education, it is hard to see why government should step in and try to limit tuition. The universities have a competitive incentive to provide financial aid to highly promising applicants who cannot afford full tuition; why those who can afford to pay for it should not be asked to pay for it escapes me. Forcing abolition of tuition would be a subsidy for rich kids. If universities were somehow prevented from charging tuition, moreover, applicants and their families would not have to think carefully about educational options. A free university education would be attractive to many people for whom it would be a poor investment if they had to pay stiff tuition, though it would not be completely free in an economic sense because they would have to forgo income from working.

Tuition increases over the past thirty years have far outstripped inflation—though there is now massive discounting, not only through financial aid but through academic scholarships that were virtually unheard of thirty years ago. Putting that aside, however, and given that some elite institutions are now deciding to offer free tuition to anyone admitted who falls within fairly broad income ranges, it’s worth asking whether free or almost free higher education is a good idea.

My own experience is that it isn’t. My own university didn’t raise tuition for thirty years. By the late 1980s, due to inflation, education here was almost free. The result was that a significant proportion of students placed no value on the education they were (or, in many cases, were not) receiving. “Studying” at the university was better for partying and meeting members of the opposite sex than working at a low level job. Of course, there were still many students who took their educations seriously. But if 20-30% of each class isn’t taking it seriously, isn’t doing the reading, isn’t attending class or paying attention in class, isn’t making any intelligent contribution to discussions, etc., it lowers the level of education for everyone. When tuition was finally raised, many of those students disappeared, and the level of classroom discourse improved dramatically.

This is consistent with my experience teaching at another state university with much higher tuition. Students there worked hard. You assigned reading; they did it. They thought about it. They discussed it and wrote about it as best they could. They were sacrificing to be there, and they wanted to get as much out of it as they possibly could.

The universities with the largest endowments tend to be highly selective private institutions that may be immune to these effects to some degree. But they may not be as immune as they think.

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