Monday, December 31, 2007


I'm having some second thoughts about this earlier post of mine (and my comment) because today The Boston Globe agrees with me. The article reports that the reason for Harvard's new plan to to increase aid for those with up to $180,000 in income is to stave off the application of some private foundation rules to university endowments, specifically a requirment that endowments spend 5% of their assets each year. Harvard spent 4.3% last year, and the 0.7% difference comes to $245 million. Their proposed increase in student aid will cost just $22 millon. Says the Globe editorialist:
Why does an institution of higher learning have $35 billion in its back pocket anyway? Why has it become customary for universities to spend only a small fraction of their interest income - and not even the endowment funds themselves - for daily operations? Why do American taxpayers continue to subsidize schools that increasingly operate like for-profit companies - and less like tax-exempt educational foundations that are charged with educating the next generation?
My question is slightly different—why do I have to pay tax on investment income, while Harvard and Yale don't?


JLM said...

If the 4%+ that Harvard and other rich universities spend amounts to "only a small fraction of their interest income," as The Globe implies, I'd sure like to get a piece of their fixed-income action.

Jim Gust said...

The Globe writer doesn't seem to have a very firm grasp on the difference between income and principal, actually, let alone the idea of total return.

Still, if by "income" the writer intends to refer to the endowment's total return, 4% might well be considered a "small fraction" (1/6) of Harvard's 23% return last year.

Anonymous said...

because you're just some schmuck with a blog (no offense) and harvard educates future corporate and world leaders?