Researchers See a Widening Gap Between Rich and Poor Colleges By JOHN L. PULLEY
If the savings rate of the wealthiest colleges and universities continues to outpace that of other institutions, the financial disparity between higher education's rich and poor will widen further, researchers at Williams College warn.
That is one conclusion of "Saving, Wealth, Performance, and Revenues in U.S. Colleges and Universities," a paper that is part of the Williams Project, a continuing study of higher-education economics begun in 1989. The authors of the paper are Gordon C. Winston, Jared C. Carbone, and Laurie C. Hurshman.
Their analysis focused on institutional savings, an area of study that has been neglected until now because of a paucity of data, the authors say. Among other factors, recently adopted accounting standards have made it easier to determine accurately the savings rates of private institutions, they add.
The authors define savings simply as income that is left after all expenses are met. Almost 80 percent of savings realized by private institutions become financial assets, like endowment money. For public institutions, 83 percent of savings show up as physical assets, like buildings.
Understanding savings trends is vital, the authors say, because an institution's wealth determines how much it can afford to spend to subsidize the education of its students. Wealthy institutions offer larger discounts -- the difference between the total cost of a year of education and the actual price paid by students. Those discounts tend to result in greater selectivity and higher quality of an institution's students and faculty members, and ultimately, an institution's place in the educational hierarchy, the authors write.
In the 1995-96 academic year, the most recent year for which reliable data were available, the average college student paid about $9,000 less than the actual cost of educating him or her. The average subsidies at public and private institutions were almost identical, but wide variations existed among individual colleges and universities. Among the wealthiest 10 percent of private institutions, the average subsidy was about $25,000, compared with $2,053 for the bottom 10 percent.
"It has become more urgent to understand saving behavior because it describes how such wealth is built, how it is being distributed, and how that distribution is changing," the authors write. "This urgency is increased by truly stunning increases in endowment wealth at the wealthiest colleges and universities at the end of the 90's."
In the 2000 fiscal year, for example, American colleges and universities saved about $25-billion, the authors estimate. Harvard's endowment, they note, increased by $5-billion, to $19.2-billion.
"The importance of institutional saving is clear," the study's authors say. "Schools that save a lot, relative to others, will move up in the hierarchy; those that don't will move down."
Because private institutions are not subsidized by direct state appropriations, they are much more dependent on savings and the accumulation of wealth than are public colleges. In the 1996 fiscal year, private institutions saved $4,708 per full-time student, seven times the average of $683 saved by public institutions.
For that year, 18 percent of all institutions had "negative savings," spending more than they brought in. A larger proportion of public institutions were in the red (21 percent) than were private colleges (14 percent).
The report is available online at http://www.williams.edu/wpehe.