Yale, Harvard, and Princeton have billions in endowment money but still get a huge boost from the government

Yale selfie

Harvard University’s endowment sits at $US36.4 billion, Yale’s at $US23.9 billion, and Princeton’s at $US21 billion.

Each year, with the help of in-house private equity managers, those universities can grow their endowments — sometimes by huge margins.

But they also have an extra boost that normal hedge funds and private equity funds do not: They are not taxed on their earnings because they’re nonprofit institutions. That benefit should be reevaluated, Jordan Weissmann argues in Slate on Monday.

Those tax exemptions provided to private colleges can essentially be thought of as American taxpayers subsidizing private endowment funds. At a simplified level, any exemption in one area increases taxes in another area, ultimately falling on the back of the American taxpayer.

What’s more, tax breaks for private universities amount to more money than the federal funding public universities receive, according to Weissmann. He argues that the gap between federal funding for public universities and the tax breaks private universities enjoy on their endowment income necessitates a tax on private endowments.

Slate cites a report by two researchers who compared the amount of money private universities save on tax breaks on their endowments, to government funding provided to public universities.

Mark Schneider, a former Department of Education official who now works at the American Institutes for Research, and Jorge Klor de Alva, a former president of the University of Phoenix who is now president of Nexus Research and Policy Center, found that gap is enormous.

For example, Princeton received $US105,000 in tax breaks per student, while Rutgers University, a public university, received just $US12,300 per student in public funding. Both schools are located in New Jersey.

In Massachusetts, Harvard received $US48,000 in tax breaks per student, while the University of Massachusetts — Amherst received $US9,900 in public funding.

The large discrepancy is leading some higher education pundits to criticise the ability of private college endowments to amass huge endowments without being taxed on income.

Famed author Malcolm Gladwell has recently been highly critical of certain financial decisions at the Ivy League, and commented on the report in a series of pointed tweets.



In typical Gladwell fashion, he couldn’t pass on the opportunity to throw a little snark into his analysis of the issue, mocking the subsidies as akin to the government providing Ivy League students free lunch at Nobu, an upscale restaurant in Manhattan.

He continued to disparage the policy of allowing tax breaks on endowments.


The Slate article acknowledged that there were some areas in the report worthy of scepticism, or at least further scrutiny.

For example, readers of the report should consider the fact that Klor de Alva, as the former president of a for-profit college, may have his own motivations for releasing a report calling for more government spending at colleges.

Additionally, some of the gap between private and public colleges may have been exaggerated by not taking into consideration of some of tax breaks that public colleges enjoy.

But as college affordability continues to dominate the higher education debate, the gap between tax breaks for already mammoth endowments at private colleges and so-called minuscule spending at public universities will continue to be highly scrutinised.

Business Insider has reached out to Harvard, Yale, and Princeton for comment and will update this post when we hear back.

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