Higher Education:
Philanthropy is an Adjunct, Sensible Public Policy Deserves Tenure

July 8, 2019  | by George Suttles

Governance and Policy

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.

1New York Times, 5/20/19, Morehouse Graduates Celebrate Pledge to Pay off Student Loans

2Consumer Reports: Student Debt, Lives on Hold 6/26/16

3The New York Times, 1/28/01, Princeton to Replace Loans with Student Scholarships

4Wall Street Journal, 4/17/19, The Student-Debt Crisis Hits Hardest at Historically Black Colleges

5Inside Higher Ed, State Funding Cuts Matter, Rick Seltzer, 7/24/17

End notes:
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

Authors

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George Suttles supports Commonfund’s educational, market research, and professional development activities as Director of Research of Commonfund Institute. He also serves as a member of the Commonfund Diversity and Inclusion Office. Prior to joining Commonfund, George was a Program Officer at the John A. Hartford Foundation, an independent, national private foundation focused on improving care for older adults. Before joining the foundation, he was a Vice President, Senior Philanthropic Relationship Manager at U.S. Trust/Bank of America. In this role he worked with private and institutional clients on issues related to best practices in strategic grantmaking. Throughout his career, George has supported the philanthropic activities of leading nonprofits with a focus on healthcare and related missions. He is also a member of numerous nonprofit boards, including Odyssey House, Drive Change, and the Support Center for Nonprofit Management. Currently, he is on the Adjunct Faculty at the New York University (NYU) School of Professional Studies. George received a B.A. from Wesleyan University, an M.A. in Philanthropic Studies from Indiana University Lilly Family School of Philanthropy (IUPUI) and an M.P.A.  from Baruch CUNY School of Public Affairs.
George Suttles
Director of Research
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Disclaimer

Information, opinions, or commentary concerning the financial markets, economic conditions, or other topical subject matter are prepared, written, or created prior to printing and do not reflect current, up-to-date, market or economic conditions. Commonfund disclaims any responsibility to update such information, opinions, or commentary. To the extent views presented forecast market activity, they may be based on many factors in addition to those explicitly stated in this material. Forecasts of experts inevitably differ. Views attributed to third parties are presented to demonstrate the existence of points of view, not as a basis for recommendations or as investment advice. Managers who may or may not subscribe to the views expressed in this material make investment decisions for funds maintained by Commonfund or its affiliates. The views presented in this material may not be relied upon as an indication of trading intent on behalf of any Commonfund fund, or of any Commonfund manager. Market and investment views of third parties presented in this material do not necessarily reflect the views of Commonfund and Commonfund disclaims any responsibility to present its views on the subjects covered in statements by third parties. Statements concerning Commonfund’s views of possible future outcomes in any investment asset class or market, or of possible future economic developments, are not intended, and should not be construed, as forecasts or predictions of the future investment performance of any Commonfund fund. Such statements are also not intended as recommendations by any Commonfund entity or employee to the recipient of the presentation. It is Commonfund’s policy that investment recommendations to its clients must be based on the investment objectives and risk tolerances of each individual client. All market outlook and similar statements are based upon information reasonably available as of the date of this presentation (unless an earlier date is stated with regard to particular information), and reasonably believed to be accurate by Commonfund. Commonfund disclaims any responsibility to provide the recipient of this presentation with updated or corrected information. Past performance is not indicative of future results. For more information please refer to Important Disclosures.