"Sharing Their Treasure." More Evidence That Only Donors Can Prevent Tuition Hikes

louisiana state university. photo: Felix Mizioznikov/shutterstock

Late last year, the nonprofit College Board published a report whose main takeaway was as predictable as it was bleak: University tuition and fees increased by a few percentage points across the board, and financial aid failed to keep pace.

Donors, understandably, aren't particularly keen on addressing the root causes behind this trend. As we'll soon see, it's incredibly complex stuff. Instead, they prefer to keep the money flowing to the usual suspects—scholarships, STEM education, and the kinds of budget-busting capital expenses that help to drive up tuition in the first place. 

But universities have a metastasizing problem on their hands. Parents are questioning the value of a four-year education. Students wonder if a lifetime of student debt is really worth it. Admissions departments worry about their ability to meet enrollment goals. Tuition is expected to rise indefinitely. And if you think things are bad now, just wait until the economy tanks.

Donors to the Rescue?

News out of Arkansas State University (ASU) last month points to yet another example of a state school explicitly citing private dollars as the reason why tuition remained flat for this academic year. 

The school raised a record $40.1 million in donations and pledges, thereby helping the Jonesboro campus avoid a tuition increase this fall despite relatively stable state funding, according to Chancellor Kelly Damphousse.

"There is a growing number of people who understand how they can help us by sharing their treasure with us," Damphousse said in an interview. "They understand that the university is doing important work [with] the young people of Arkansas, and that their gift can help change lives for students."

The school cited four major gifts that contributed to its fundraising windfall. The largest, at $10 million, came from Texas businessman and ASU alumnus Neil Griffin, was earmarked to endow a range of scholarships, professorships and enhancement funds for the operations of the college. Griffin also made provisions for a follow-on estate gift that will provide significant future enhancements.

The school also netted gifts in the $5 million range from Arkansas banker Johnny Allison, Centennial Bank, and First National Bank.

ASU's news came a few months after University of Tennessee trustees, citing the school’s own fundraising success, including a $40 million gift from Atlanta couple Gary W. Rollins and Kathleen Rollins, approved a motion that will keep tuition flat at UT Knoxville and Chattanooga. (Tuition will increase, however, by 3 percent at UT Martin.)

According to system officials, it's the first time any of UT's campuses have seen tuition rates halt since 1984.

University of Maryland President Wallace D. Loh called attention to this new paradigm after the school netted a $219 million gift from the A. James & Alice B. Clark Foundation to expand scholarships, endow new faculty positions, and fund investments in buildings and programs late last year.

To contain tuition increases, he said, public university leaders must emulate their private counterparts and work harder to cultivate philanthropic support. Public schools soliciting private dollars represent "the overall pattern," said Loh. "It’s a pretty accurate description of what’s happening nationwide."

But is it sustainable? The laws of mathematics suggests it isn't. This isn't a secret, of course, but scan press releases celebrating tuition freezes, and you'll rarely see administrators or donors address the cost side of the equation. ASU provides an instructive example.

A "Flattening of State Support"

"To meet the demands of expenses, what often happens is [that] universities will increase tuition," Damphousse said. "Those private gifts help buffer our need to raise tuition. We held tuition flat this year because we have such great support from the private sector."

Damphousse said universities "have become more involved in fundraising across the country because... there has been a flattening of state support."

There are two implied expectations, here.

One is that "the demands of expenses" are immutable, and tuition will inevitably rise in perpetuity. Donors, however, can prevent this from occurring. The second expectation speaks to Damphousse's reference to a "flattening of state support." To quote CNBC's John W. Schoen, it suggests that "deep budget cuts in state funding for public higher education and shrinking subsidies at private schools have pushed a greater share of the cost onto students and their families."

Most analysts agree with this assessment, but even this article of faith is open to debate. Jason Delisle, a resident fellow at the right-leaning American Enterprise Institute (AEI), argues that the numbers don't corroborate this assumption, telling the Washington Post that a majority of tuition increases aren’t tied to cuts in state budgets.

"There’s something else going on with tuition that is out of the hands of state legislators," he said.

"Tuition Has to Go Up"

I'll get to the "something else" in a moment. But first, it's worth remembering that bountiful private dollars don't always lead to the flattening of tuition. This, to put it mildly, isn't good for the brand.

The University of Oregon provides an example of bad optics in action. In 2016, Phil and Penny Knight gave the university a $500 million donation. UO has a nationally renowned football program. Michael Schill earns $798,400 a year, making him one of the highest paid public university presidents, according to the Chronicle of Higher Education's salary rankings.

And last year, the school announced a press conference to celebrate another mega-gift—$50 million from an anonymous donor. When the school held a press conference to celebrate the latter gift, students protested, citing rising tuition costs.

It turns out their fears were well-founded. In December, the Oregon Board of Trustees projected costs to increase by 3.18 percent, due to rising salaries and health insurance costs for faculty and staff members, and spending on new tenure-track faculty positions and other "strategic investments."

"Tuition has to go up to balance the budget and allow us to keep improving the university," Schill said.

The Oregon system's plight speaks to the limitations facing donors. Many of the big cost areas—the "something else going on with tuition" alluded to by AEI's Delisle—are out of their direct control.

What's more, the student loan system ensures that presidents like Schill needn't worry that the tuition spigot will run dry. That money's coming in no matter what. Donors, many of whom made their millions in the free market, understand this is a broken system that provides minimal incentives for cost-cutting.

But revamping the student loan system is a battle they have been reluctant to wage.

Rock Climbing Walls, Lazy Rivers, and Stadiums

As we saw with the University of Oregon, that "something else going on with tuition" includes things like teacher salaries and health insurance costs. But that doesn't tell the whole story.

James V. Koch, a member of the board of Partners for College Affordability and Public Trust summed up the state of affairs accordingly: "The unfortunate truth is that while most college presidents care deeply about their institution’s success, an important part of their job is to shake free more resources, they seldom initiate serious campaigns to contain costs."

Indeed, rather than contain costs, presidents happily sign off on expensive capital projects that drive up costs—often with enthusiastic donor support. Why is that?

The answer is that universities, according to Robert Kelchen, a professor at Seton Hall University's Department of Education, want to attract a "fairly small pool of students who are high-achieving and high-income." As a result, universities roll out lavish and expensive amenities to attract this talent. This is why "you hear about the rock climbing walls and the lazy rivers," Kelchen said.

Kelchen's reference to "lazy rivers" isn't a mere rhetorical device. "Lazy rivers" have been installed at the Universities of Alabama, Iowa, Missouri, and Louisiana State University (LSU). 

In LSU's defense, university leaders argued that the amenities would attract students and ultimately bring in revenue. And the student government in 2011 voted to fund the project by quadrupling student fees. Students wanted a lazy river in the shape of the university’s initials. 

Elizabeth Warren, among others, wasn't convinced. "Some colleges have doubled down in a competition for students that involves fancy dorms, high-end student centers, climbing walls and lazy rivers—paying for those amenities with still higher tuition and fees," she told the American Federation of Teachers.

Also consider the role of college athletics in the overall cost equation. "At many colleges, it's a significant cost," said Kelchen. "The biggest subsidies are at these small Division I programs that are trying to make their way up the ladder and get into the big-time."

Yet sports programs and lazy rivers are "not the reason why student debt is soaring seemingly out of control," said David Feldman, a professor of economics at the College of William & Mary and co-author of Why Does College Cost So Much? 

Rather, in a direct rebuke to AEI's Delisle, Feldman argues that "the big problem that higher education faces today, at the public side, is cuts in state spending.”

"Lazy rivers," of course, is a metaphor for universities' unwillingness to reign in costs, and I'm sure Feldman would agree that these kinds of capital expenses, by definition, drive up tuition. 

Indeed, over the decade from 2001-2011, the share of expenses devoted to "student services" rose from 17 percent of the average school's budget to 20 percent, according to a comprehensive review of college-spending patterns by the Delta Cost Project at American Institutes for Research. 

Similarly, study after study suggests that if universities want to set a figurative pile of money on fire, the best thing to do is go all-in on a "big time" college football program. 

And it's important to state the obvious here: Costs continue to rise at private schools that do not rely on state spending. Private schools also want to attract would-be students by rolling out an amenity-rich college experience. Many also have visions of 50,000 football fans packing the stadium on game day. 

Rising tuition ultimately isn't a huge problem for "high-achieving and high-income" students, because they "are able to pay much of their own way to college," according to Seton Hall's Kelchen. The students subsisting on loans are less fortunate. They can't afford the tuition, nor the lifetime of debt they're bound to incur.

If donors are complaining to administrators about the costs of rock climbing walls, lazy rivers, and outrageous coaching salaries, they're doing so privately. And therein lies the irony.

As a few scattered examples suggest, donors do have the power to rein in costs. Yet more often than not, donors take the opposite path, cutting checks to support university athletics and big capital projects that help to drive up tuition—all while college attendance continues to decline across the board.

A "Long-Term Question"

Vanderbilt University provides a useful case study encapsulating donors' involvement across both sides of the cost equation.

The school is embarking on a massive $600 million construction project. It will demolish aging buildings and replace them with three residential colleges and a 20-story Gothic tower. "The towers are so ugly. There are many jokes that they were built by the Soviet Union," Chancellor Nicholas Zeppos told The Tennessean.

One could argue that Vanderbilt students would happily soldier through class in a drab concrete Khrushchev-era building in exchange for a manageable debt load. That seems like a reasonable trade-off.

Alas, it isn't meant to be. The project is moving along, and donors are very much on board. Earlier this year, for instance, the Vanderbilt Board of Trust Chairman Bruce R. Evans and his wife Bridgitt committed $20 million to support university initiatives focused on the "undergraduate living-learning experience."

Meanwhile, the total cost of attendance is currently $67,392. Sixty-four percent of Vanderbilt undergraduates received financial aid last year. 

Enter, yet again, the donors. The school recently replaced all need-based undergraduate student loans with scholarship and grant assistance. The initiative, called Opportunity Vanderbilt, gives undergraduates "opportunities to consider career choices and educational dreams without the prospect of significant debt." Donors have contributed more than $250 million for the undergraduate scholarship endowment. 

Vanderbilt isn't alone, here. Increasingly, private universities are turning to donors to provide students with a debt-free college experience. 

In September, Brown University launched a $120 million campaign, dubbed the Brown Promise, to drop all loans from financial aid packages awarded to their undergraduates, joining a group of about 20 elite, wealthy institutions that have implemented no-loan policies for all students.

This data point underscores the final and unintended consequence of the donor-funded higher education model. While tuition is disproportionately high at elite private universities, these "elite" and "wealthy" schools sit on huge endowments and a deep donor pool. Many can afford to eliminate loans or provide generous scholarships. The same can't be said for public universities.

We see this growing gap between the "haves" and the "have-nots" playing out across the larger philanthropy landscape. "The growth of inequality is mirrored in philanthropy," said Chuck Collins, co-author of a recent report titled "Gilded Giving: Top-Heavy Philanthropy in an Age of Extreme Inequality." Collins says, "As wealth concentrates in fewer hands, so does philanthropic giving and power."

This explains why the University of Maryland's Loh implored public university leaders to emulate their private counterparts. Public schools' last and best hope may rest with donors.

Case in point: In an effort to stem the tide of quality students leaving the state, in late August the University of Illinois at Urbana-Champaign announced it will provide free tuition and campus fees for in-state students whose family income is less than $61,000 a year.

According to Chancellor Robert J. Jones, the university has the revenue to offer free tuition for at least four years. The university hopes the second wave of financing will come from philanthropy. 

All of which brings me back to recent news out of Arkansas. Give the school credit. Leaders saw the writing on the wall and ramped up its fundraising apparatus accordingly. Record or near-record giving has become common in the past five years, according to the school's press release. "It takes building relationships with people, and it takes a lot of work," ASU's Damphousse said.

Recent data suggests there's going to be a lot more work in the future.

According to a 2017 report by the Center on Budget and Policy Priorities, funding by states for two- and four-year colleges have decreased by almost $9 billion from 2008, after inflation adjustments. Expect this trend to worsen if the economy heads south.

And even if AEI's Delisle is correct in his contention that there isn't a strong correlation between funding cuts and tuition hikes, at the very least, a reduction in public funding will give trustees the political cover they need to raise tuition.

Meanwhile, at both private and public schools, donors continue to add to universities' expense sheets by funding costly amenities while simultaneously cutting checks to allow some students to afford the gold-plated university experience donors are helping to fund.

Sandy Baum is a senior fellow at the Urban Institute who co-wrote the College Board report referenced in the opening paragraph. In what is surely the understatement of the month, she sized up the precarious state of affairs accordingly. "We should be thinking about it not as a one-year problem, but as a long-term question of how we're going to finance higher education," she said.