We can have a better higher-education system, or we can have schools that cater to the elite and privileged. We can’t have both.
by Jane Chung
September 6, 2022
5:30 AM
Steven Senne/AP Photo
Harvard’s Memorial Church is seen on March 13, 2016.
This article appears in the October 2022 issue of The American Prospect magazine. Subscribe here.
Joe Biden’s plan to cancel up to $20,000 of student debt is a step toward solving the college affordability and student debt crisis. But it does not fully address the depraved higher-education system’s hunger for profit that will continue to prey on young people in years to come. Organizers have long paired the demand for debt cancellation with an associated demand for tuition-free college. This is not only reasonable—it is possible to achieve. A tuition-free college system that is attractive to most young people, however, requires not only funding, but also the curtailing of the popularity and prestige of wealthy, elite private colleges like the Ivy League.
The Ivy League represents the most egregious actors among modern universities, which operate more like sophisticated financial institutions, extracting public funds ($52 billion just in 2017) under the guise of educating young people and serving the public interest. Sociologist Charlie Eaton has explained that wealthy private colleges are essentially “ivory tower tax havens” that benefit from multiple tax breaks on assets and endowments, which are investment vehicles that grow past profits. Elite private schools fare far better than public universities in this regard: Princeton receives $105,000 in tax subsidies per student, while Rutgers gets $12,000.
Wealthy universities enjoy these tax breaks because they are classified as 501(c)3 tax-exempt organizations, which are meant to be “operated exclusively for … educational purposes.” Yet there is undeniable evidence and a growing consensus that wealthy universities operate mostly to make money as real estate titans, hedge funds, and private equity investors. Receipts of their expenditures are proof: These universities pay fund managers more than they invest in students, or pay educators. And they are shameless and explicit in their pursuit of profit; Harvard boasts that it is the oldest corporation in the Western hemisphere. Derek Bok, the former president of Harvard University, wrote in his book about the commercialization of higher education, “Universities share one characteristic with compulsive gamblers and exiled royalty: there is never enough money to satisfy their desires.”
We must revoke wealthy private universities’ 501(c)3 status, because they do not meet its criteria for tax exemption.
These schools contributed to the 2008 financial crisis through their reckless investment strategies, and continue to bury their funds overseas to evade taxes, investing them in oil, gas, and coal, thereby accelerating the decimation of our planet.
Wealthy universities also replicate and exacerbate wealth and racial inequity. They enroll more students from families in the richest 1 percent than from the poorest 50 percent combined. At the most elite schools, 4 percent of students were from the lowest quartile of socioeconomic status, while 69 percent were from the highest. In an interview, Tom Mortenson, senior scholar at the Pell Institute for the Study of Opportunity in Higher Education, confirmed, “These schools were created by the rich, are funded by the rich, and are for the rich. Most of their discussions about equality and equity ring hollow when you look at the [low] share of their undergraduates that are Pell grant recipients.”
As Darrick Hamilton and William A. Darity Jr. have written and demonstrated, “Race is a stronger predictor of wealth than class itself.” Indeed, according to the Department of Education, the percentage of students who received Pell grants, federal grants awarded to undergraduates who “display exceptional financial need,” was highest for Black students (72 percent) and lowest for white students (34 percent).
A well-known contributing factor to these inequities is legacy admissions policies at elite colleges. At schools like Harvard and Yale, legacy students make up roughly 14 percent of the student body. Meanwhile, research from Tom Mortenson and Nicole Brunt of the Pell Institute finds that only 12 percent of Harvard’s undergraduate student body benefits from Pell grants. Similarly, recruited athletes help the white and wealthy overrepresent at elite schools. Ten percent of the incoming class to Harvard College in 2021 were recruited athletes; 83 percent of those athletes are white, compared to 53 percent of the freshman class overall.
As employers, elite colleges increasingly pass off the critical work of educating to “non-tenure track” faculty, adjuncts, and graduate students, increasing the precarity of work in academia, and creating an underclass of workers in lockstep with the rest of the corporate world. It’s no wonder graduate students across the country are organizing and striking for living wages, benefits, and job stability—and winning.
FOR THESE REASONS AND MORE, we can and should besiege the Ivy League and their wealthy, elite, and private institutional peers. We can do that by diminishing the two types of capital that make elite colleges elite: financial and social, the latter being reinforced through the selectiveness of their admissions processes, their perceived value in the job market, and their wealthy and powerful alumni networks. We can start by holding in check the unfettered growth of their financial capital. Here’s how.
We must revoke wealthy private universities’ 501(c)3 status, because they do not meet its criteria for tax exemption. Again, they exist not explicitly to educate, but rather to extract and profit. Alternatively, the government can make their tax exemption status contingent on growing the share of undergraduates with Pell grants they admit, a proposal that Tom Mortenson and Nicole Brunt of the Pell Institute presented at a conference earlier this summer.
We must also revoke direct federal, state, and local funding, or make it contingent on overhauling the admissions process. Eaton found that the richest 5 percent of schools have admitted about the same number of undergraduates for the last 40 years, and he told me that requiring schools to increase their enrollment is a key to making their student bodies more diverse. We could also abolish legacy admissions policies, and consider making federal funding contingent on lottery-based admissions programs that orient toward promoting wealth and racial equity. Think tanks spanning the political spectrum, from New America to the American Enterprise Institute, have proposed as much.
One potential way to both decrease the financial power of elite colleges and free up funding for broad access to higher education is through the tax code.
There is precedent for taxing wealthy schools. In 2017, Donald Trump signed into law a 1.4 percent tax on net investment income among the richest schools. But a 1 percent tax is laughably inadequate, especially given the unfathomable levels of wealth these colleges hoard. The 24 richest private universities collectively own $390 billion in their endowments. College endowments in the country booked average returns of 31 percent in 2021; among the top 24 richest colleges, the average rate was 40 percent.
Here is a simple thought exercise that demonstrates the stunning wealth of these schools’ endowments, even with a more ambitious tax. Assuming a 2021 growth rate, if starting next year we levied a 13 percent annual tax on the total endowments of just the top 24 universities, after a decade we would surpass $1 trillion in yearly tax revenue. (A 13 percent tax is a lower rate than the income tax my mother paid when I applied to college.) This tax would hardly make a dent in the colleges’ wealth, which would collectively be well over $7 trillion at the end of those ten years. The largest individual endowment would be worth over $1.75 trillion, and each school’s endowment would still grow over that period, on average by 764 percent.
If we are successful in our multipronged besiegement tactics, endowments will grow more slowly in the next decade than they did in 2021, perhaps even diminishing in total value. But the tax revenue would still be prodigious even if these elite schools only earned half as much as we begin to suffocate their sources of financial and social capital.
Everyone should have the opportunity to escape from poverty through education, debt-free—just like I did.
Imagine all we could do with all that money. The University of California, Berkeley, a high-quality public college, has a budget of $3 billion, which it uses to educate about 45,000 students each year. With $1 trillion a year, we could educate 15 million young people a year—without taking a cent in tuition. That’s just about the total population of young people currently pursuing higher education.
We could use the funds to supplement existing public universities, community colleges, historically Black colleges and universities, minority-serving institutions, tribal colleges and universities, and technical schools. Or we could boost the woefully inadequate Pell grant system, which today covers just 29 percent of the average costs of public college—the lowest level it has covered in more than 40 years. These investments would meaningfully improve racial equity. Mark Paul, Alan Aja, Darrick Hamilton, and William A. Darity Jr. estimated in 2016 that tuition-free college could add a million more Black and Latinx graduates.
Eaton told me he sees two benefits to this type of tax, “both as a tool to redirect resources to institutions that actually serve students from diverse racial and economic backgrounds, but also as a tool to provide incentives for elite institutions to themselves become inclusive and empowering.” He suggested taxes could be reduced or waived for elite schools that increase enrollment, and in particular for students from diverse backgrounds.
Of course, there are other ways to fund debt-free college. Economist Doug Henwood points out that we could make higher education completely free if we simply prioritized it in our national budget. In countries like Norway, Finland, Luxembourg, and Austria, public sources fund over 90 percent of higher education. (In the U.S., that figure is 64 percent.) Public universities in Norway, as a result, are free for all—even foreign-born students. Alternatively, legislators like Bernie Sanders and Pramila Jayapal have introduced legislation that would make Wall Street pay for free college; Elizabeth Warren, during her bid for the presidency, introduced a plan that would make the ultra-wealthy pay.
Whatever the funding mechanism, we must consider whether and how it reduces the stranglehold that elite private colleges have over the American psyche. Eaton told me, “Institutions like Harvard will continue to poison the popular imagination of college as long as they continue to have massive endowments that are used to the benefit of the very few.”
To this point, he emphasized the importance of wealth taxes and policies that close private equity tax loopholes to “go to the source of endowment wealth” and curtail it. In other words, besiege the elite universities, skimming off their profits to fund free public higher-education options while they choose to become more inclusive and beneficial to the public, and less elite; or die.
IN HER BOOK ABOUT FOR-PROFIT COLLEGES, sociologist Tressie McMillan Cottom wrote, “We accept that a small, selective group of young adults will go to Harvard every year … But knowing that some young person not born to privilege will, on occasion, make it to Harvard is part of why we put our faith in the vast, stratified system of higher education institutions that span community colleges to the Ivy League.”
I am that person, not born from privilege, who managed to slip through the cracks and make it into Harvard. Because my family was poor, the university waived my tuition for all four years. And I have benefited immensely since. As a Harvard graduate, I have handily escaped from poverty and now make more than three times my family’s total income when I first went to college.
Everyone should have the opportunity to escape from poverty through education, debt-free—just like I did. (Actually, I think no one should have to be in poverty in the first place, but I digress.) Young people should have the opportunity to learn and grow and make a living wage after college in a system that doesn’t fetishize a handful of wealthy and white schools, trick 17-year-olds into taking loans that inflict lifelong financial distress, and leave poor, working, and Black and brown families out to dry. I simply don’t think we need the Ivy League alone to do it.
In this world, we would not have to put our faith in the vast, stratified system of corporatized and financialized American higher education. We do not have to accept the continued existence of this system. We can change it for the better, and besieging the Ivy League is a good start.
Jane Chung runs campaigns at The Worker Agency to build worker power, fight for environmental justice, and dismantle the Big Tech–powered surveillance state.
September 6, 2022
5:30 AM
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