United States: Fees abolition pressure

On his deathbed in 1638, John Harvard bequeathed half his estate, about £800 and his library of some 400 books to a new college in present-day Cambridge, Massachusetts. Harvard’s founders decided to name their new university after its first big benefactor. About 370 years ago, the first Harvard scholarship to help “some poor scholler” was set up thanks to £100 donated by Ann Radcliffe. The university continues to be the beneficiary of generous donors. Last year, John Paulson, a hedge-fund investor, donated $400 million (Rs.2,658 crore) to Harvard’s engineering school, its largest gift ever. Harvard has an endowment of $36 billion (a sum equivalent to almost 2 percent of India’s GDP). Last year, it raised more than $1 billion. Some of its alumni think this ought to be sufficient to scrap tuition fees.

Among them are Ralph Nader, a veteran political activist, and Ron Unz, author of a number of searing articles on American meritocracy. Both are hoping to win election to the university’s board of overseers, from which perch they will push to make Harvard free for all students, and also pressure its admissions office to disclose data on how it chooses which students to admit. They hope other well-endowed Ivies would then be shamed into doing the same.

Some lawmakers are wondering whether threats to change the tax-exempt status of endowments might be used to persuade colleges to bring down the price of tuition, which has increased by 220 percent in real terms since 1980. In January, Tom Reed, a Republican congressman from New York, proposed a bill requiring endowments with assets of more than $1 billion (Rs.6,700 crore) to allocate 25 percent of their income for financial aid or lose tax-exempt status. The 56 largest private university endowments had until April 1 to explain how they use their tax-free investment earnings.

The colleges have their defenders. “Most of these institutions are already providing a fair amount of financial aid for students well beyond the poverty line,” says Kim Rueben of the Tax Policy Centre. Kevin Weinman, Amherst’s chief financial officer, says his university’s endowment provides $90 million to the college’s budget, $30 million more than tuition, room board and various fees combined. This school year, it will spend $50,000 (Rs.33.2 lakh) per student to fund financial aid, pay faculty and fund student activities. After Congress last examined the topic in 2007, more colleges began to award grants instead of loans. Financial aid has doubled over the past decade. Some schools, like Brown in Providence, Rhode Island also make voluntary payments in lieu of property taxes.

If the wealthiest colleges already spend so much on financial aid, where is the problem? Unz argues that relentless endowment-fuelled spending on new buildings, sports facilities and the hiring of administrators has created an arms-race in higher education, pushing up prices at those universities which aren’t fortunate enough to have lots of generous benefactors. Harvard could scrap tuition payments without damaging its finances or touching the restricted portion of its endowment, he reckons. Furthermore, the abolition of both complicated financial-aid forms and terrifying sticker-prices for tuition (i.e, before financial aid is calculated) could, he argues, do much to encourage applicants from beyond the plutocracy.