New Works in the Field

Stemming the Financial Rivalry that has Eroded Esteem for Higher Education

Editors’ Note: Bruce Kimball and Sarah Iler discuss the deleterious consequences of the financial rivalry among higher education institutions, as detailed in their new book Wealth, Cost, and Price in American Higher Education (Johns Hopkins University Press, 2023). A version of this post appeared in Inside Higher Education.

Over the last four decades, public esteem and political support for non-profit higher education in the U.S. have eroded significantly. While a resurgence of anti-elitist populism contributed, the erosion has resulted fundamentally from the historical competition among the colleges and universities to acquire revenue and wealth and to increase spending on non-instructional programs and amenities, as we explain in our new history, Wealth, Cost, and Price in American Higher Education (Johns Hopkins University Press, 2023).

This rivalry to increase revenue and spending is more than 120 years old and was widely applauded up through the 1970s for improving higher education and benefitting American society and the economy, as Berkeley’s Martin Trow and other scholars have testified. Thereafter, the growth rate of the U.S. economy slowed, and the wages of middle- and working-class Americans stagnated. These developments undermined the historical justification for the longstanding competition for more revenue and spending, particularly as the list price of tuition rose and student debt grew.

Already in the 1980s, this intense financial rivalry among colleges and universities prompted criticism that non-profit higher education is selfish, and “greedy.” Such criticism weakened popular support for government subsidies, prompted consideration of punitive tax measures, and discouraged some Americans from pursuing higher education at all.

The competition for revenue and wealth began in the late nineteenth century, and the wealthiest colleges and universities competed ever more intensely during the twentieth century. These schools may seem remote from community colleges, struggling HBCUs, and other kinds of colleges and universities. But these elite institutions historically have served as exemplars of higher education and pioneered now-conventional financial practices such as annual alumni funds, endless fundraising campaigns, and aggressive endowment investing practices that proliferated throughout higher education. Virtually all the 3,300 non-profit colleges and universities now establish benchmarks for raising money, and it is widely agreed that the wealthiest schools drive tuition increases throughout higher education, especially in the private non-profit sector.

Apart from eroding public esteem and political support, the competitive financial model stratifies higher education into rigid castes of wealth with a high concentration in the small, uppermost tiers. As of 2020, just one-fifth of the nonprofit, degree-granting, two- and four-year colleges and universities in the United States owned nearly 99 percent of endowment in higher education; the wealthiest 3 percent owned 80 percent of endowment, and the richest 1 percent owned more than half.[i] This stratification and concentration of wealth suggests that higher education is inequitable and perhaps exploitative, in view of the rising list price and burdensome student debt.

Furthermore, the competition to acquire revenue might imply that schools in the wealthiest tiers earned their position solely because they are more effective competitors. But, as we’ve explained, this justification ignores the historical wealth advantages enjoyed by the wealthiest institutions.

Rich schools have more wealthy donors and spend less per-dollar raised. They have greater access to expert portfolio managers and can afford to hire them, as scholars observed already in the 1920s. Also, schools with large endowments can afford the risk of aggressive investment strategies that yield the highest returns. Conversely, the wealthiest schools maintain conservative rules of spending their endowment income, plowing the residual back into their capital. Finally, if they stumble, the wealthiest schools can issue low-cost bonds to cover current obligations until their risky investments recovered, like the $2.5 billion in bonds that Harvard issued during the Great Recession of 2008-09. Schools with little endowment, particularly HBCUs, find it harder to issue such bonds and typically pay more in underwriting fees to do so.

These wealth advantages rigidify the castes in higher education, preventing most colleges and universities from rising above or falling below. In addition, the intense competition to increase revenue, endowment, and spending distracts from other worthwhile aims of higher education. This focus on acquiring money by colleges and universities—with a “How to Donate” link on every landing page—encourages the public to evaluate a postsecondary degree primarily in terms of Return on Investment rather than personal interest or fulfillment or social good. The focus also undermines academic disciplines, such as the humanities, that are thought to lead to less lucrative careers.[ii]

Finally, the financial competition contributes to student debt, even though the wealthiest institutions do not burden their own students with debt that they cannot repay. But the competition among these schools drives the list price of tuition, at least in the private sector, and stokes the appetite for more ancillary programs and amenities throughout higher education, including the public sector. The growing appetite for spending increases costs for less wealthy schools, driving up their price and forcing their middle- and working-class students to borrow more.

Government action alone will not solve the problem. Proposed and enacted remedies are largely punitive, such as rolling back tax benefits for higher education and, above all, the excise tax on the endowment income of a few dozen of the wealthiest private colleges and universities, included in Tax Cut and Jobs Act (TCJA) of 2017. Such measures infringe on the autonomy and initiative of non-profit schools, which is a great strength of American higher education. Moreover, such measures are not cost-effective and do not address the fundamental problem of competing to increase revenue, wealth, and spending.

Instead, trustees and leaders of the wealthiest elite colleges and universities can solve the problem by adopting a new financial model for higher education, as happened 130 years ago. Instead of incessantly trumpeting endowment gains, launching fundraising drives, and hiking tuition, this new model would involve (1) cooperating rather than competing, (2) disavowing the goal of maximizing wealth, revenue, and spending, and (3) aiming to strengthen all of higher education, rather than just themselves. It would also entail sharing their wealth advantages and their endowment income.

But why would leaders of the wealthy elite schools ever agree to change and risk their advantageous position? Self-interest will motivate them, for the sake of their own institutions and the entire non-profit sector of higher education.

Under TCJA, about 30 of the wealthiest private colleges and universities are paying tens of millions of dollars of excise tax annually on their endowment income. For example, Harvard and Stanford have each paid some $45 million annually. These universities could spend this money much more efficiently and effectively than the federal government. If they do not act, the 1.4 percent tax will likely never be rescinded, but increased, and other punitive measures will follow.

Instead, carefully designed sharing of their wealth advantages and minimal (to them) amounts of their annual endowment income can rebuild public esteem and political support for higher education, in line with the new financial paradigm above.

A no-cost example would be for wealthy schools to require that their highly paid portfolio managers provide gratis investment expertise to little-endowed schools who cannot afford or even access those managers, as The Common Fund, sponsored by the Ford Foundation in 1971 aimed to do. Another example is for the wealthiest schools to guarantee the bond issues of selected non-wealthy schools to ease their access and lower their underwriting costs in bond markets.

A low-cost example of sharing wealth occurred in 2020 when the University of Pennsylvania pledged to contribute $10 million annually for ten years to renovate aging public school buildings in Philadelphia. Penn instead could have spent the total $100 million on its own programs but chose not to. Why would the university do this?

Penn could afford the pledge; the market value of its endowment increased by 38 percent or $5.6 billion in the following year.[iii] Meanwhile, the Philadelphia mayor and School Board publicly and effusively praised the university. No public appreciation for Penn’s payment of the TCJA tax has appeared in print. Finally, what economist Howard Bowen called the “equi-marginal return” from spending $10 million on renovating the school buildings is likely greater than from a wealthy university spending on its own programs. 

Similarly, other wealthy elite schools could draw on their residual endowment income, which is often plowed back into their endowments due to conservative spending rules, to subvent carefully designed programs at selected, needful colleges. In this way, wealthy elites would be investing to rebuild public esteem and political support for themselves and all of higher education.

And, if only a few of the wealthiest elite schools adopted this new model, the rest of the 3,300 non-profits would gradually replicate it, just as they did in establishing annual alumni funds, national fundraising campaigns, and aggressive endowment investing over the past century. Isomorphism reigns in higher education, and emulating the wealthy elite schools remains the norm. Today law schools and medical schools throughout the country have begun to follow Yale and Harvard in challenging the rankings issued by popular magazines, which these professional schools have long derided. Stemming the financial rivalry in higher education requires only that the leading, wealthiest universities show the way.

-Bruce A. Kimball and Sarah M. Iler

Bruce Kimball is Emeritus Academy Professor at Ohio State University. He is a former Guggenheim Fellow and Senior Fellow of the American Council of Learned Societies. Bruce has written several prize-winning books, addressing the history of liberal education, the inception of modern professional education, and the history of Harvard Law School, with Dan Coquillette. Sarah M. Iler is the Assistant Director of Institutional Research at UNC School of the Arts. She earned her Ph.D. from Ohio State University and is former adjunct professor of Education at Ohio State University and US History at Columbus State Community College.

[i] Calculations made by the authors, from NCES data and from National Association of College and University Business Officers and TIAA data.–Endowment-Market-Values–FINAL-FEBRUARY-19-2021.ashx?la=en&hash=3DCFF2DF291BF85544046F8E8177C8FDC1B92EAA.

[ii] See, for instance, Benjamin Schmidt, “The Humanities are in Crisis,” The Atlantic, August 23, 2018,

[iii] Calculations made by the authors from National Association of College and University Business Officers and TIAA data.

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