Last Wednesday, the New York Times ran a piece entitled Stop Universities from Hoarding Money by law professor Victor Fleischer. What has his goat is the imbalance (as he sees it) between the amounts of money that elite universities (Yale, e.g.) spend on fees for the wizards and gnomes who manage their funds and the amounts they devote to educational purposes.
In 2014, Fleischer notes, Yale paid out some $480 million to money managers but only around $170 million for tuition assistance, fellowships, and prizes. “Instead of holding down tuition or expanding faculty research, endowments are hoarding money,” he argues. Especially troubling is what he maintains is the symbiotic relationship between endowments and the world of hedge funds. Although Fleischer doesn’t go into detail, his point meshes with what I have on occasion heard about the way university trustees sometimes use their positions to land lush contracts for their own firms to manage the endowment.
His solution: Congress should, in its reauthorization of the Higher Ed Act, require that universities with endowments in excess of $100 million spend at least 8 percent of the endowment each year.
My immediate reaction is that federal mandates (even if within the authority of the Constitution and this is at best questionable) rarely work the way the politicians think. Requiring the schools like Yale spend more on “education” is going to lead to intractable problems with the scope of “education.” I foresee litigation brought by the feds against schools like Yale for failing to spend enough on things that Education Department lawyers think they should.
The deeper problem is that I don’t think it is the government’s place to second-guess the people who actually have authority over the way endowments are used. Yale may very well be spending too much on management fees and too little on tuition reduction, but it should be up to other people at Yale to argue for such changes, not for politicians and bureaucrats in Washington to do so.