Schools like Harvard have become tax-exempt hedge funds with huge returns. Ending tuition would be a form of payback
Although Harvard is widely known as one of America’s oldest and most prestigious colleges, that public image is outdated. Over the last couple of decades, the university has transformed itself into one of the world’s largest hedge-funds, with the huge profits of its aggressively managed $36 billion portfolio shielded from taxes because of the educational institution it continues to run as a charity off to one side.
The numbers tell the story. These days Harvard’s 6,600 undergraduates are charged annual tuition of $44,000 per year, with substantial reductions for students from less wealthy families. So student tuition probably contributes much less than $200 million to Harvard’s annual revenue. Meanwhile, the hedge-fund side of Harvard’s operations last year generated a $5 billion return, an amount at least 25 times larger. If all of Harvard’s college students disappeared tomorrow, or attended classes without paying a dime, the financial impact on Harvard, Inc. would be completely negligible.
But although those tuition dollars mean almost nothing to Harvard, they are surely a daunting barrier and burden to almost any American family. An admissions process is flawed when a four-year total price tag approaching $250,000 probably deters many students from even applying.
Harvard claims to provide generous assistance, heavily discounting its nominal list price for many students from middle class or impoverished backgrounds. But the intrusive financial disclosures required by Harvard’s financial aid bureaucracy may be a source of confusion or shame to many working-class households. I also wonder how many lower-income families unfamiliar with our elite college system see such huge costs and automatically assume that Harvard is only open to the very rich.
Meanwhile, even some upper-middle-class parents — who are charged closer to full freight — must wonder if they can afford paying close to a quarter million dollars for a Harvard diploma.
Harvard’s enormous hedge-fund operation has avoided billions of dollars in government taxes. In exchange for this continuing tax benefit, Harvard should abolish all tuition for its undergraduates.
The announcement of a free Harvard education would capture the world’s imagination and draw a vastly broader and more diverse applicant pool, including many high-ability students who had previously limited their aim to their local state college.
Furthermore, everything I’ve said about Harvard applies equally well to most of America’s other top universities including Yale, Princeton and Stanford, which have also become huge untaxed hedge-funds that charge exorbitant tuition. They could just as easily provide free college educations to their students at little financial cost and great social benefit.
In recent decades a greater and greater fraction of our financial, media and political elites have been drawn from among the graduates of a small handful of our top colleges, whose enrollments are enormously skewed toward the wealthy and the well-connected. Having these colleges eliminate their tuition would be an important step toward reversing this unhealthy American polarization.