Friday, September 20, 2013

Universities are cash cows

Some quick facts:

In 1981, room and board at Harvard Universirty for an undergrad cost $9170.
In 2012, room and board at Harvard Univeresity for an undergrad cost $54,496. (source:

Using inflation calculator at, the total amount of inflation from 1981 to 2012 was 152.6%.  That means (using their calculator), something that cost $9170 in 1981 should have cost $23,161 in 2012.  It's true that not all costs rise at the same rate, but it's not like the base costs of a university are all that different from what the costs are in general for a university.  It's not a highly specialized market like gold or microchips

One more comparison:

In 1981, the endowment of Harvard University was $1.622 billion.
In 2012, the endowment of Harvard University, after a bad year, shrank to $30.7 million.

Again, using the calculator, a fixed investment growing at the rate of inflation in 1981, starting at $1.622 billion should be at about $4.1 billion.  Now of course we expect investments to outpace inflation.  And that explains part of how the endowment grew faster than inflation.  But also, we need to account for the continued new donations to the endowment.

But all of this gets us back to the basic point here.  The Harvard endowment is growing at a pace far outstripping the rate of inflation.  But in spite of that, the cost of tuition (and room and board) is also growing at a pace far outstripping the rate of inflation.

Something is seriously messed up here.  Universities like Harvard are simply becoming huge depositories for cash.  Its endowment has taken on a life of its own, completely untethered to covering the costs of running a university.

No comments: