:: By President Don M. Randel

:: Illustration by Mark Summers

In Every Issue ::

President Don M. Randel on why the University cannot rely entirely on its own resources.

How can the University of Chicago, with an endowment of $3.62 billion, need more money? Why should it need funds from the federal government for research and financial aid? Why not use its own resources and rely less or not at all on government funding?
The University’s endowment is the 11th largest in the nation in absolute terms, behind Harvard ($22.14 billion), Yale ($12.73 billion), Stanford ($9.97 billion), Princeton ($9.93 billion), MIT ($5.87 billion), Emory ($4.54 billion), Columbia ($4.49 billion), Penn ($4.02 billion), Washington University ($4.00 billion), and Northwestern ($3.67 billion). But that is not the whole story. We should also take account of how much endowment per student we have and what fraction of our total enterprise is supported by endowment income.

Our endowment per student is roughly $290,000. Princeton’s endowment per student, which substantially exceeds that of any other institution on the list, is about $1,476,000. Income on the difference means that Princeton has $50,000 more per student per year to spend on its programs than does the University of Chicago. Yet we compete directly with Princeton and other wealthier institutions for the same faculty, the same graduate students, and, increasingly, the same undergraduates.

A second way of thinking about the endowment’s contribution to the University’s economy is to consider what fraction of the total enterprise endowment income supports. The University’s consolidated financial statement shows an enterprise of more than $2 billion per annum. Setting aside the University Hospitals, the remainder of the University has revenues of about $1.4 billion. If the annual payout from the endowment is roughly 5 percent, then the amount available is around $181 million—between 12 percent and 13 percent of the total budget. If we consider that much of the endowment is restricted to certain purposes by donors, a still smaller percentage remains available for many of the most important expenditures, such as paying salaries and providing financial aid.

Chicago’s federal funding, which is primarily awarded on a competitive basis for specific research and cannot be used for any other purpose, amounts to about $275 million per year. This is, of course, substantially more than the income from endowment. Hence, there would be no way for the University to conduct the research that it now does in the national interest with only its own resources, despite the size of its endowment.

Federal support for financial aid comes in the form of grants and loans to qualifying students, though only 13 percent of financial aid at private institutions like ours comes from federal programs. If we were to forego such programs and make good the loss from our own resources, we would need to turn to unrestricted funds, which is to say tuition. That is, we would need to increase the degree to which we take tuition from those who pay the full amount and give some of it back to those who cannot. Private higher education should not, in my view, be in the business of redistributing income at all and certainly not to any greater extent than we already are.

It is once again being said in some quarters of Congress and elsewhere that steep increases in tuition have resulted from the availability of federally supported loan programs and that proposed reductions in these programs would slow the tuition trend. I and many others seriously doubt both parts of this claim. The rate of tuition increases has been highest at public institutions as a result of major cuts in state budgets. At private institutions, tuition has risen recently at rates of 4 to 5 percent, driven by all the things that drive costs in people-intensive businesses—not least the cost of health care, which is again increasing at rates into the double digits. This will not soon change.

A reduction in federal support for financial aid, then, will simply make it harder for the less well-to-do to send their children to college. While the reduction will not greatly affect the very wealthiest institutions, schools such as ours, without large endowments for financial aid, will see fewer needy students apply and their places taken by students from families with greater means. Neither we nor the nation ought to want this.