In the last few months, high profile nonprofit institutions have come under intense scrutiny for ethical dilemmas pertaining to the stewardship of resources meant to support mission.
This is Part Three in our three-part series of thought pieces, in which the Commonfund Institute will contemplate ever evolving ethical considerations among nonprofit institutions pulled right from current events. See Part One here and Part Two Here .
A few weeks ago, Robert Smith, a private equity billionaire, was the commencement speaker at Morehouse College, a small, all male, historically black college and university (HBCU) in Atlanta, GA. During his speech he announced that he would be paying off the student debt of every graduating member of the class of 2019. It is estimated that his announcement will aid nearly 400 young men at the estimated value of $40 million.1
In 2019, more than 44 million Americans collectively owe $1.5 trillion in student loans. Surpassing credit cards and auto loans, student debt is now the second-highest consumer debt category, behind only home mortgages.2 These debt burdens either put attaining a college degree out of reach or stall the lives of many people post-graduation. Even if one does manage to graduate, exorbitant student debt often makes it difficult to plan, invest, and save for the future.
With this understanding, there is no doubt that Robert Smith’s gift was a generous one, and individuals and institutions committing to helping students crippled with student loan debt, although laudable, is not new. Since 2001, a handful of elite institutions led by Princeton University have committed to tap their endowments to provide funding for students to graduate without loans.3 Last year, Michael Bloomberg pledged $1.8 billion to Johns Hopkins to reduce the reliance of Hopkins students on borrowed money.
But most American colleges, including Morehouse, lack the resources to make such a commitment. The student loan debt crisis is especially troubling for those matriculating and graduating from HBCU’s, with seventy-five percent of students at private HBCUs taking out federal loans, compared to 51 percent of students at non-HBCU private institutions.4 Several factors play into this, including that HBCUs tend to have smaller endowments from which to offer grants and scholarships.
In addition, although higher tuition is partially responsible for some of the increase in student debt, per-student state appropriations to colleges and universities has not kept up with the rising cost. In 1975, states appropriated approximately 60 percent of the cost of their public universities, but in 2019, state support dropped to about 35 percent. Over the last quarter century, average tuition rose by 85 percent, adjusting for inflation, while average state spending measured on a per-student basis declined by roughly 5 percent.5
Colleges and universities are straining to identify revenue streams apart from raising tuition to sustain their business model, but these strategies, including philanthropy, cannot substitute for public policy that adequately funds the higher education system. The ethical consideration here is that flawed policy continues to put individuals burdened with student debt, as well as the United States higher education system, on shaky ground. If a college education is the gateway to the American Dream, then we are seeing it close for many. At this rate, boards of trustees will find it increasingly more difficult to steward mission-oriented institutions of higher learning and will have to stay vigilante in making the math work to achieve mission.
Time Magazine, 5/19/19, Who is Robert Smith? Learn More About the Billionaire Whose Generosity Shocked a Graduating Class
The New York Times, 11/18/18, Michael Bloomberg: Why I’m Giving $1.8 Billion for College Financial Aid