I don't really care if universities hire hedge managers to manage their endowment, but it's absurd that schools with multibillion dollar endowments still charge tuition. Yale has ~12,000 students and a $26 billion endowment. Tuition is ~$45,000 per student. $45,000 * 12,000 = $540 million. They can't spend 2%(540/26,000) of their endowment per year on free tuition? What is this money for?
Of course this ignores financial aid so Yale's operating costs are much less than $500 mil/year. If you're going to donate to a university your money will go much further at a small college that actually needs your money and will actually spend it rather than hoarding it. TMQ had some great articles about this topic back in the day. http://espn.go.com/nfl/story/_/page/TMQWeekFour140930/robert... Halfway down.
Even worse, in my opinion, is that these institutions can continue to be considered Not for Profit organizations.
Harvard is very interesting in this way - they have so much money in their endowment that they seek all kinds of investment. Real estate is one of their favorites. When they buy property, it can no longer be taxed. This is why the towns surround Cambridge hate when Harvard buys up property. Watertown, in particular, has really been furious at this trend. In Worcester, the colleges use up city resources and yet pay nothing in taxes in terms of city services.
It gets even worse. Harvard Housing charges students "market rates" [0], i.e. they don't even subsidize what they are not paying in taxes off their own students' rent.
Am I reading this correctly? A non-profit can buy real estate property and not pay taxes on the property? Is this investment property, or property being used for university usage?
Harvard doesn't have to pay tax but Harvard and MIT have made tens of millions of dollars in "voluntary" contributions to the municipalities they reside in over the last decade. The situation is weird but Harvard and MIT give enough money to make property tax in Cambridge dirt cheap. I'm only paying ~0.375% for example.
Real Estate is a good investment for university endowments for a few reasons:
1 - They can hold onto it for a very long time. (Real Estate is best seen as a very long term investment)
2 - It can generate rental revenue in tough times, when their financial needs are higher.
3 - It's an asset tied to one of their future liabilities. Growing universities need to buy land, so investing in land effectively hedges some of that risk.
Now your point of their being non-profit - that's much bigger. I think most universities (and sport leagues, and many others) could be considered for-profit based on much of their behavior.
> [Yale] can't spend 2%(540/26,000) of their endowment per year on free tuition? What is this money for?
The purpose of research universities is to engage in scientific research, not to educate people. Education is one of their activities but not their primary goal. For more about this, read "The Purpose of Harvard is Not to Educate People" [1]:
> But there is one misimpression that people seem to have[]: the purpose of Harvard is not to educate students. If anything, its primary purpose is to produce research and scholarly work. Nobody should be surprised that the gigantic endowment isn’t put to use in providing top-flight educational experiences for a much larger pool of students; it could be, for sure, but that’s not the goal. The endowment is there to help build new facilities, launch new research initiatives, and attract the best faculty.
The purpose of an endowment is to generate an income stream forever. It's typical for the organization with an endowment to spend only what they earn in interest at most, with some preferring to spend less so that the endowment grows over time.
It's possible that they're investing so well that they can afford to spend 2% every year, but that's just one cost among many costs that the university has - such as paying for its staff, its facilities (real estate, buildings, and so on) - and staff and buildings that help produce research.
> The purpose of research universities is to engage in scientific research, not to educate people. Education is one of their activities but not their primary goal. For more about this, read "The Purpose of Harvard is Not to Educate People"
Actually, no. Despite what some physicist may have written in an op-ed in Discover magazine, The Charter of the President and Fellows of Harvard College says something quite different:
"Whereas, through the good hand of God, many well devoted persons have been, and daily are moved, and stirred up, to give and bestow, sundry gifts, legacies, lands, and revenues for the advancement of all good literature, arts, and sciences in Harvard College, in Cambridge in the County of Middlesex, and to the maintenance of the President and Fellows, and for all accommodations of buildings, and all other necessary provisions, that may conduce to the education of the English and Indian youth of this country, in knowledge and godliness: It is therefore ordered, and enacted by this Court, and the authority thereof, that for the furthering of so good a work and for the purposes aforesaid, from henceforth that the said College, in Cambridge in Middlesex, in New England, shall be a Corporation, consisting of seven persons, to wit, a President, five Fellows, and a Treasurer or Bursar. . . "
Also worth noting from the text, was that over 350 years ago, it was the growing endowment which led to the incorporation. . .
Considering USC's rapid rise up the rankings by employing their money wisely, I would say that you can in fact "buy" engineering ranking in US News, if the institution makes it a priority.
It buys prestige within the group that values universities. But that group is shrinking. The more people reach the conclusion that attending these private universities have bad ROI compared to other educational resources the more people will loose trust in them and the less valuable that prestige is.
> The purpose of research universities is to engage in scientific research, not to educate people.
I take issue with a couple things in that sentence. That is the goal of a small number of private research universities. I don't know of any public research universities, even the highest ranking, that don't dedicate significant resources to undergraduate education.
The second thing is that the mission of Harvard et al is primarily scholarship (in any field) and graduate education, not just scientific research.
These are minor points relative to your comment but I don't want the public to believe all research universities exist to do only scientific research.
The founding principle of universities (in Paris and Bologna 5 centuries ago…) was educating students outside of the clerical teaching system in place at the time.
In Bologna it was even more striking, as it was the (foreign) students that created the university and found, paid and lead the teachers. From what I understand in Paris it was more teacher-lead.
From what I read in this thread, Harvard has not a all deviated from this when it was founded (but might have been taken over by other interests now, of course).
Most endowments spend more than 2% per year. There's a 5% minimum spend for non-university endowments, and there has been pressure for universities to apply this too.
> I don't really care if universities hire hedge managers to manage their endowment, but it's absurd that schools with multibillion dollar endowments still charge tuition. Yale has ~12,000 students and a $26 billion endowment. Tuition is ~$45,000 per student. $45,000 * 12,000 = $540 million. They can't spend 2%(540/26,000) of their endowment per year on free tuition? What is this money for?
It's mainly a tax on rich people. Students from lower income households don't pay that tuition.
I walked out of MIT with $100K in student loans, because I had the combination of 'parents who make too much money' and 'parents who had five kids and did not adequately save for their children's education'.
I'm all for soaking the rich, but how is that fair? I was apparently rich by association, and it was pretty upsetting to see kids who were ostensibly poorer than I was get a substantially easier start in life.
The price of Serious Education, like that of Serious Illness is now quoted at $ImpossibleSum and then generously negotiated down to ($EverythingYouveGot + $EverythingYouCanBorrow).
This is the economic issue in the U.S. right now, and the only candidate who seems to even acknowledge it is Bernie.
It's a difficult issue for Hillary, whose husband oversaw implementation of some of the policies that created this environment.
And all of the Republican voters seem to be more afraid of brown people possibly getting money from the government, than about whether or not they can get sick or go to school without going bankrupt.
Is that sarcastic? You had great destruction of capital in WWII, there was severe labor shortage and you had the GI bill. And you had the whole world to be rebuilt.
The Republicans aren't as bad as you think. Trump has said (vague) things about providing health care for everyone. He's said a lot of things that are a big departure from standard Republican ideology, which is why a bunch of Republicans are calling him "not a real Republican" and the party as a whole is having a major shit-fit about him possibly getting the nomination. The guy isn't really a right-winger, he's a centrist nationalist as far as I can tell. The GOP is pissed at him lately because of his foreign policy stances, because he's voiced support for non-interventionism and staying neutral on Israel.
But you're absolutely right about Bernie and Hillary. Hillary, to me, isn't much different from Ted Cruz, and even more like Rubio. They're right-wing war hawks in the pocket of Wall Street, and the only things they differ on are social wedge issues that they use to get people on each side to vote for them.
AFAIC, our best hope is Bernie. Cruz and Hillary will both be a disaster and lead us into another war, and Trump is a wild card and highly unpredictable, though I think he's a lot less likely to get us involved in another war than Hillary or Cruz (he royally pissed off the GOP by saying the Iraq war was stupid).
> The guy isn't really a right-winger, he's a centrist nationalist as far as I can tell.
There's a word for that: populist. Policy by opinion poll.
As most European democracies have found out over the past decades, most voters aren't political idealists. Ideas from all over the political spectrum appeal to them. Many of them end up not voting because every major party comes with a package of political ideals that don't work for them.
From time to time, a politician appears who manages to tap that potential, and throws the traditional, ideals-oriented politics into disarray.
Trump made that claim about health care. Then when it polled badly with the hardcore Republican base (you see Obamacare = bad because Obama = bad, mumble mumble ~reasons~) he flipped faster than you could blink.
Go look at his website now. It's the same old tired Republican canards like selling insurance across state lines (aka gutting your state's insurance commission as all insurance companies relocate to states without meaningful regulation like South Dakota).
Bernie seems like the only sane person on there. Hillary is the worst of them, and I say this as a Muslim. Trump might hate me, but at least it's irrational unlike Hillary who is a first-class warmonger and only exists to sell multi-billion dollar weapons.
The world could do a lot more with lesser wars, no unwanted migration, and no terrorism. The vicious cycle of violence killing innocents and following hate attacks are unbearable. I can't take it any more, I don't think anyone can.
From what I've read, Trump's anti-Muslim comments seem to basically be along the lines of stopping any of them from entering the country until some better screening measures are instituted, and worst-case, not letting any more in. However, he's been pretty clear about being interested in a more non-interventionist foreign policy, and our military involvement in the middle east is exactly what's created this monster. The establishment politicians, on both sides, by contrast, are warmongers like you say. I think they'll just make things even worse.
What is irrational about blocking Muslim immigration? I could understand an argument that it's mean, racist, or a few other negative things, but from the position of a non-Muslim what about it is irrational?
Because there's nothing else that's different about me from a non-Muslim. I'm a qualified Engineer, who pays taxes, abides by the rules, performs community service, a blood donor, etc.
I'm just an average guy looking to live my life, all Muslims are like that except those that have been brainwashed and are used for political reasons.
Why discriminate against me for my faith? Isn't the U.S. a secular country?
For every Muslim immigrant who is a tax-paying engineer, there are a hundred who lack any sort of skill and will spend their entire life dependent on costly social programs. In Germany, for example, the average cost per refugee is 12,000 euros per year.
There's simply no reason to bring in populations that require more money to support than they contribute.
This sort of generic, hand-wavey attack on an entire population crosses into religious flamewar, which is not allowed on HN. Please don't post like this here.
let's for a moment consider the economic issue OF THE FUTURE. we're spending our grandkids earnings on shit today with a promise to pay with interest sometime forward. anybody know a guy who was in congress while all this was happening? stop with the magical bernie economic mathematician nonsense.
I'm not sure that's true. College kids aren't producing anything today. What we're trying to do is to force them to fund our long (and I do mean long) cushy retirements with what they will produce later.
The whole system seems to be set up right now to extract a great deal of what they will produce in the future and pull it back to the older generations. It's a promise to make them pay in the future. Well, promises can be broken, and in this case I'm almost certain will. They can say no.
It's not quite $EverythingYouveGot (for parents), but $EverythingYouveGot - $WhatWeThinkYouReallyNeed. Financial aid offices compute an allowance for parents, and then demand the "extra" money.
It is "Everything You've Got" for students, though. If you have any college savings in your own name (or earn any scholarships), it will simply cancel dollar for dollar with university grant aid. Unless you can save more than the total of your grant over 4 years, better to spend it before the first financial aid paperwork (or not save it at all).
Though this only comes into play at a school that offers substantial grant aid. At a state school your savings can actually help.
It also seems unfair when one's parents lived well within their means and prioritized saving and spending on education, so one's family has to pay all their life savings for university, while a friend's family with the same or slightly higher income but no savings is given significant financial aid.
(Or maybe they're better at filling in FAFSA? My father is a self-taught accountant who later went pro (incl. classes/tests etc), but may have been too honest.)
You know if you didn't want the 100k loan, you could have gone to another university...?
You make being a privileged middle class kid seem like such a chore.
There is always someone better then you, and there id always someone who got what you did for less. But on the flip side, you are also the someone to someone else.
FWIW, the total in-state cost for students at UVA is approaching $28,000/year[1]. U. of Michigan and Georgia Tech are similar.
Take out the room/board fees, and you're still looking at $14,000/year just for tuition.
So, even going to a top state university isn't going to keep you debt-free. Maybe not $100,000 in debt, but still a significant sum.
There is definitely a "donut hole" in terms of aid available to middle-class undergraduates[2]. If you're poor, chances are you can obtain grants or other aid. If you're rich, you can pay cash and not sweat it. If you're somewhere in the middle, that aid dries up fast, but you can't write a check.
I agree with your point that state schools are becoming extremely expensive for many. Georgia Tech (and all Georgia public schools) have the Hope Scholarship[1] for in-state students which pays 90% of your tuition if you meet certain academic requirements. They have the Zell Miller scholarship with higher acadmic requirements for the remaining 10%.
It ends up being very good for lots of people, but the academic requirements, especially for your high school record, do introduce some socioeconomic and racial disparity with the awards.
Sadly, Virginia doesn't have a state-wide merit program. There are some school-run programs, but the achievement level to qualify is generally very high (Jefferson Scholar program at UVA, for example).
The Hope Scholarship looks REALLY nice - it appears available to any student who graduates with a very achievable GPA (3.0/4.0).
The difference is that you come from a background where you see people (eg your parents) earning a good income and believe that a $100k loan is something you can actually afford in the long term. Someone from a poor background whose parents have never earned a high income would very likely see $100k debt as an impossible barrier they'll never get past, and consequently would be a lot less likely to take on the risk.
If schools didn't "soak the rich" then the potential of the student from a poor background would never be realised, and humanity would be the worse for it.
I'm not saying we should saddle people from poor backgrounds with the same crushing debts as the middle class folks. I don't know of another country that expects any students to take on the kind of debt burden that we take on here in the US. If they can make college affordable for everyone, even the middle class, then so can we.
I'm in a similar situation right now: on paper my father's business owes him a lot of money that he "loaned" it from his salary, but in reality that money does not exist and it's not going into his pocket any time soon. Mix in two brothers with their own college costs, stir to taste. I took two gap years to work and save money; it's absurd to me that I'm paying full tuition price in this situation, but the financial aid office doesn't give a fuck because they know as soon as my savings run out I'll take loans.
Your family is too proud for the business to declare bankruptcy and go through Chapter 11 debt restructuring? When you're looking to pay tens of thousands in tuition, it helps to have a smart accountant, and plan a few years ahead. Is it a little unfair that people enter adulthood without a spec of financial literacy, and are immediately taken advantage of? Yes, but if a fool and his money are easily parted, the only real solution is to lessen that foolishness.
great advice. I could never have thought of this. Me, a silly and complete financially illiterate fool, must work hard now to become financially literate. Thank you again. Can't upvote enough :(
Technically you walked in to MIT knowing you would have $100K of debt and weighed the pros and cons and decided in the end that, yes $100K for a MIT education was worth it.
I fully concede that taking $100K in debt was my best option. Saying that I did it freely and even well-informedly is not the same thing as saying it was a fair situation.
I am not my parents. I did not have a say in their financial decisions. The argument you're making is equivalent to arguing that the debts of parents should be passed on to their children, a practice that was outlawed long ago.
While there is theoretical merit to that line of thinking, the practical extension of that thinking is that for all intensive purposes nearly every student planning on attending college is jobless and broke (aka a high school senior) and therefore can not afford college, and thus entitled to financial aid (regardless of if their parents are billionaires or below the poverty line)
I suppose it's a question of utility. If universities truly (I doubt this is really true) cannot afford to pay everybody's tuition then how do you prioritize need? One could argue that as someone from a wealthy family that you have a decent safety net if you fail even with large student loans. You probably have a place to stay at your parents home if you really needed it. Contrast that to someone who might be poor and have the same loans as you do but perhaps they don't have their parents' illiquid assets to fall back on.
This happened to me around my senior year of college. It's a scary thought that once you're done with college you need to get a job or be homeless. It lead to a lot of stress in the fall semester of my senior year while I was job hunting. It also stands to reason that if you're from a wealthy family then you had access to a good education. I can't understate how unprepared I was for college being from a poor school district even through I was in the honor classes! Poor students play a lot of catch-up in college early on. This is really hard to do when you're also trying to work 20 hours a week to afford food.
I'm not saying it's fair that you have so much debt but if it's zero-sum for financial aid I can understand why you were not given any over poor students whose parents are equally not able to pay. You're not thinking about the external factors that statistically probably put you ahead over a lot of poor students. Unfortunately that is life all we can really do is make sure our kids don't have the same problems!
It's possible that you're one of the unlucky people who falls into the combination you described above. Unfortunately, even the best system currently available will often have cracks, and you seem to have found the one that currently exists. The vast majority of the time, kids with rich parents have a substantially blessed childhood & family-support, which justifies them having to pay substantially more in tuition fees.
Sorry, what you call a 'crack in the best system available' is the life I've had to live. I've had to take less societally-beneficial jobs because they paid more, while my loan-free friends were off joining the Peace Corps or teaching. I think the world is made a worse place when people like me are turned into mercenaries.
MIT thinks it's okay to boil down someone's financial future into a single dominant number (parental income). What if your parents had a lot of debt because of a major illness or death? What if that supposedly high income is counter-balanced by living somewhere expensive because that's where the high-paying jobs are? The fact that none of that is taken into account means it's not about bad luck, it's about an unjust system.
MIT could afford to make tuition free, but the popular misconception that they're levying a tax on the rich means they won't. If you want to control how much one generation passes on to the next, there are far better mechanisms to do that than college tuition.
You take no responsibility for your situation. You talk like MIT just happened to you. You turned yourself into a mercenary by attending MIT and accumulating the debt with full knowledge that you would take high-paying jobs to pay it off-jobs that you could get thanks to your MIT credential.
Once your debt is paid off you will have one less excuse to go do whatever it is you claim you really want to do. The only question is whether you will actually take advantage of that or whether you continue to whine about the world of opportunities that were somehow foisted upon you when you willingly chose to attend MIT.
I willingly took the best deal I could get, and I would make the same deal with the information I have today. At the same time, a system that arbitrarily indebts some students and gives others a free ride is unfair and needs to change. Also, I think calling my position whining is a pretty low level of discourse.
I have a few ideas
1) Replace tuition with taking x% of income for y years following graduation. I'm not sure how this would work in regards to low-income degrees / departments. For example, would the low return on investment for an arts department mean it would get less funding? I suppose this would cause universities to optimize their education for earning potential of graduates. Could have interesting effects. Not all beneficial.
2) Could they use their endowments to essentially provide interest free loans? I'm guessing their would be lots of problems with this that I can't see.
3) You pay nothing while in school, but you pay a straightforward fraction of the school's operating costs for the next x years. I like this concept. If you make x long enough, your graduates have an interest in ensuring future students are able to contribute to the cause. Of course, they also have an interest in keeping costs low. That could create poor dynamics. Improvements would have to come from donations, not be a part of the budget.
In 2015, tuition accounted for only 10% of MIT's yearly revenue (~$331M), so you have to cut the rest of the budget by 10% to give everyone free tuition.
One natural area to focus on is yearly administrative costs, which in 2015 were $763M.
If you gradually cut administrative costs by building fewer beautiful buildings for undergraduates to be indebted in or hiring fewer administrators, you can afford for every undergraduate to attend tuition free.
I tend to dislike systems of the form "if you make/own less than $X, you get $Y benefit". It often leads to nasty non-monotonic outcomes and like this.
For actual public benefits, I'd much prefer to give all the benefits to all the people and raise taxes accordingly. This means that, as a CA resident, I think I should be permitted to deduct rent even if my AGI is $38,259, and I think I should get the full Affordable Care Act subsidy regardless of my income. The rules would be simpler and my taxes would be simpler. In exchange, I would gladly pay higher taxes to make up the deficit.
For public university, it's a bit messier because of state residency rules. And for private universities, this wouldn't work at all unless the government directly subsidized private education.
(But maybe the government should ditch all the complicated student aid and student loan benefits and offer a blanket subsidy for education at accredited universities.)
The universities I know of that have free-tuition programs do phase them out gradually, to try to avoid too much weirdness that would come from a hard threshold. For example, Harvard charges no tuition to students from households making under $65,000, but above $65,000 tuition phases in slowly, reaching full tuition only at $150,000+.
However I do agree your proposed solution is better. Have universalist public programs that everyone can take advantage of regardless of income (tuition-free public university, no-charge public healthcare, etc.), and then instead of mucking with means-tested benefits and aid phase-outs as a way of indirectly taxing the rich, just tax them through actual taxes, the old-fashioned way.
> above $65,000 tuition phases in slowly, reaching full tuition only at $150,000+
Which is still silly. Who has more to spend/better opportunity to save? Two parents that make $75k each in Mountain View or 1 parent who makes $64,500 in Nowhere, Indiana?
There was an article recently where Finland was considering something along those lines. [1] is all I was able to find quickly:
> The Finnish government, elected earlier this year, is planning to introduce a tax-free monthly payment of 800 euros ($865) to all adult Finns, regardless of income, wealth or employment status. The payment would replace most other state benefits.
"I think I should get the full Affordable Care Act subsidy regardless of my income"
I appreciate your sentiment, but you realize all of the insurance companies will just raise their rates by the amount of the subsidy, right? More demand in the form of government money earmarked for a specific good, with the same supply of the good, means higher prices.
Anyway, they can't do that, since the ACA has mandated that insurers spend at least 80 or 85% of premiums on health care costs since 2012.
The insurers ride that line as closely as possible, since their profit has to come out of the 15% allowed margin. This means an increase in total premiums without a commensurate increase in the cost of claims cannot happen. If an insurer's payouts don't exceed the mandated Medical Loss Ratio, they have to refund their insured customers for the difference by mailing out rebate checks. I've received two such checks myself.
> Anyway, they can't do that, since the ACA has mandated that insurers spend at least 80 or 85% of premiums on health care costs since 2012.
That part of the law is particularly terrible. It directly incentivizes keeping costs high as the profit of the insurer is a fixed (says max but that means exactly 15%) percentage of the gross. It's in their interests to have the price of everything go up!
The whole law is terrible and it should be repealed and replaced with a nationalized system. As long as you have the insurance companies acting as middlemen, it's in their best interest to deny care as much as possible, to increase their profit. What actual good do they do? None, they just come between the patient and the caregiver.
> it's in their best interest to deny care as much as possible, to increase their profit
That's not the case, as the comment you replied to points out.
Let's say an insurer collects $1B in premiums some year. The ACA mandates that at least 85% of that is spent on healthcare costs. At most, the company gets to keep $150M, or 15% of the premiums. For every claim denied bringing the payouts below $850M, the number they keep 15% of goes down, so their profits go down. Denying claims costs them money, rather than letting them keep more.
If the insurer wants to make more than $150M the next year, there is only one way to do that: pay more than $850M in healthcare costs this time, and increase premiums by the same amount. That means encouraging and approving more claims, not fewer.
Unfortunately, this aspect of the MLR promotes, rather than punishes, increased healthcare costs as a byproduct. Competition is supposed to be the check on that -- if an insurer doesn't control costs so that it can raise premiums and keep 15% of a bigger number, you'll switch to a plan with another insurer that isn't doing that and offers lower premiums. Unfortunately, that's not doing the job very well for a variety of reasons.
> What actual good do they do? None, they just come between the patient and the caregiver.
Insurance protects the insured from catastrophic losses by pooling risk. When the caregiver wants to bill me several hundred thousand dollars in unavoidable expenses, I very much appreciate having a middleman I only pay $200 per month to instead.
For your point 1, that's just splitting hairs. It's in the insurer's interest to increase profits, rather than to provide care. So you just pointed out a way they found of increasing profits, which results in both ballooned healthcare costs and increased premiums all around. This isn't helping me get high-quality healthcare at affordable prices.
For your point 2, you protect people from catastrophic losses by having a single payer: the government. Insurance is supposed to be a way of protecting people from catastrophic losses, which is why we have it for house fires, car accidents/thefts, etc. Healthcare is not about catastrophic losses in most cases, it's about ongoing care to maintain health. You getting your yearly checkup at the doctor is not a "catastrophic loss", nor is you getting an ultrasoound to check out something the doctor found to make sure it isn't something really bad. These are just ongoing care, and it isn't what insurance is designed to handle fundamentally.
Remember profit is a funny thing. If I own a company and I net after taxes 100 million a year and then pay myself 75 million in compensation I can claim that my company only makes 25 million a year.
> The vast majority of the time, kids with rich parents have a substantially blessed childhood & family-support, which justifies them having to pay substantially more in tuition fees.
How does it justify that? We want to punish them with debt because their parents might have provided them with some opportunities?
The current system of funding higher education penalizes children of parents who don't prioritize college. There is no point to this and it just helps perpetuate privilege. We should stop unfairly assuming that parents are willing and able to pay for college.
We have a limited amount of subsidy to allocate where it will do the most good. Most of the time the children of rich parents - even those who had little interest in college - have more advantages overall than even a fully subsidized poor student would have. So it makes sense to focus our subsidy on those poor students.
Rich parents? Hilarious. You way overestimate where the line is drawn. When I went to UCD, my parents' income was ~$70k (in California) and I got some subsidized loans, then mostly unsubsidized loans, then they made my parents take out PLUS loans in their own names (more accurately, they capped the amount of loans I could take personally and the only way to make up the delta is either family cash contribution, or parent PLUS loans). Except for a small amount of interest subsidy, I got $0 financial assistance.
Now, my own personal situation is a deal of my own making -- I decided to sign on the dotted line. But in the aggregate, considering all the other students like me --- I'm actually shocked at the push back in this thread. The same group of people that bemoans the death of the middle class can't see how this is a part of the problem?
I feel lucky. I was in one of the last generations to get halfway-decent interest rates. My younger brother is paying through the nose (what is it now, 6-7%?).
Whenever people talk about making 'the rich' pay for something, remember that their definition of 'the rich' usually ends up being anyone who makes more money than them.
Having no monetary help from a family making 100K a year is still different from having no monetary help from a family making 20K. If we want fair, how is growing up in a family with poor parents fair compared to growing up in a family with rich parents? While you might be able to blame the parent for their own financial situation, you cannot blame the child.
>it was pretty upsetting to see kids who were ostensibly poorer than I was get a substantially easier start in life.
Considering that they already had an ~18 year start of life where they likely weren't having it easier...
My line there was intentionally facetious. That being said, there are people who can legitimately afford to pay $100K in tuition. I was not one of them. I am doubtful that universities are able to distinguish between the two, but currently they pretend they can.
It is definitely worth $100K. Just because it was a rational decision from my perspective is separate from saying that the system which decided to charge me that amount is a good system.
> I'm all for soaking the rich, but how is that fair? I was apparently rich by association, and it was pretty upsetting to see kids who were ostensibly poorer than I was get a substantially easier start in life.
A private school deciding to charge for its valuable stamp of approbal has nothing to do with it being a fair price.
It's a tax on anyone whose parents have any financial assets. If your parents have next to nothing, sure, tuition will be very low. Whatever your parents do have, though, tuition will be set at the optimum value to extract as much of it they possibly can.
That pricing structure has allowed these elite colleges to get away with gross waste and inefficiency. Imagine the scandal if Yale actually cost $50,000 a year for your average family. It'd blow up even more when people realized where all the money from tuition hikes go (hint: it's not toward hiring more professors). The people who get really screwed are those just above the threshold where they receive no or negligible financial aid.
Yale's financial aid is extremely generous. It's free for HHI below $65k per year. It's $12,500 per year up to $150k. It's half-price up to $200k. I'd argue it's better for families making more than $200k/year to be paying in than to give them free tuition.
That's much better than I expected. That being said, outside of a handful of extremely rich universities (and we are really talking a handful or two), most tend to "tax" the middle class more than anyone.
I mean... I'm not sure if I'd consider 150k for a household middle class (probably upper middle) but in most places, again, with a few exceptions, you're basically required to pay the full tuition. In cash. After taxes. $50k a year. It's an astronomical sum for just about anyone. And these are not terrible schools, we're talking some of the top universities in the world here, sitting on tons of money.
I mean, I know the gutting of the middle class is hardly news but, phew. Education costs really take it to another level.
Tuition is tax deductible, you can also save for it tax-free (529 plans).
If a family of 4 cannot save for college on $150K a year their priorities are out of balance. My parents did it and they never made half that. Put my brother and I through college with no financial aid. In-state, but still....
> My parents did it and they never made half that. Put my brother and I through college with no financial aid. In-state, but still....
I don't necessarily disagree but what time frame are we talking about? Because even 10 years ago state was massively cheaper than private, particularly the upper private schools.
If your parents made 70k and put you two through state, I'd assume they either saved an incredible amount or were paying somewhere around 10k/year. Perhaps I'm wrong, just guessing.
But I think you can do the math on 10k expense on 70k income versus 50k expense versus 150k income (as incomes haven't improved in a very long time).
The trouble is, not many families with HHI below $65k know that Harvard, Yale, etc are free for them. Instead they see the enormous sticker price and they hear on the news constantly that college is expensive. The guidance counselors who know enough to tell them are mostly at richer schools. If a news story went out tomorrow saying "Harvard is free," Harvard would get a lot more applicants from the <65k bracket. I agree that it would be better to be free for the poor and expensive for the rich, but right now that free tuition policy is nestled under a billboard saying "$45,000/year."
I don't think a ton of high school counselors push their poorer students to apply to highly selective schools. I think the kids with wealthier parents usually end up better supported.
Yale, Harvard, Penn (to a lower extent) all have a no-loan financial aid policy. Cornell with its $6b endowment doesn't - and neither do many other schools - and that's ludicrous.
Tuition is a red herring - it's a made up number. A better metric would be what is the school's operating budget? In Yale's case it's $3.2 billion...I'm not saying free tuition isn't an option for a couple of schools with mega endowments, but you're analysis misses the mark.
>Tuition is ~$45,000 per student. $45,000 12,000 = $540 million. They can't spend 2%(540/26,000) of their endowment per year on free tuition? What is this money for?*
I didn't know that the aid would be that significant. Abroad, we hear so much about student debt and parents saving for college fees, but I imagine there'd be a large group of families under that $120k figure.
Just to add some fact. According to Yale's financial statement [1], their operating expenses in 2015 was around $3.2 billion. So tuition doesn't come close to covering their operating costs. And it looks like they typically spend around 5% of their endowment (the spending level most foundations target because that is the minimum a foundation must spend to maintain their status).
Just to clarify so that people won't plan their retirement wrong, the 4% safe withdrawal rate from the Trinity study is for having at least $0 of a fund at the end of 30 years. The withdrawal rate for an indefinite fund like Yale's is much lower.
> The Trustees have endorsed a spending rate range of 4%-5.75% to achieve this balance. In order to enhance predictability and stability in endowment payout, the Trustees have established a standard spending rule that increases the spending distribution per unit by 5 percent per year, although the standard spending rule increase may change if necessary to maintain the spending rate within the prescribed policy band.
> Yale combines a long-term spending rate of 5.25 percent of the total endowment value with a smoothing rule that adjusts spending gradually in accordance with changes in the endowment market value. ... In January 2008, Yale announced that in the future, its endowment formula will be modified to place a floor of 4.5 percent on the expected payout rate and a ceiling of 6 percent.
I might not have called it 'safe withdrawal' rate, as it conflates the two spend rates. But it's in the same ballpark. 2 percent of the endowment would be 1/3 to 1/2 the annual spend.
And this all sets aside the concept of earmarks; money donated with an earmark cannot be used to offset the loss of income to the general fund.
I was specifically clarifying the 4% safe withdrawal rate, which is often used in the context of retirement and is often misunderstood as safe to withdraw for perpetuity. For perpetuity, a lower withdrawal rate is required. As for Yale's and Princeton's higher withdraw rate, they probably count on additional incoming endowment going forward.
Interestingly, when Trinity College @ the University of Cambridge decided to make all tuition for its students free, the remaining colleges protested that it was "unfair" that Trinity would be able to attract the best students simply because it had more money than the others (it owns the second largest port in England, among other assets). Their policy was rescinded.
I heard another rumour that they wanted to provide free accommodation for their undergraduates as well. In 1988 they setup the Newton Trust [http://www.newtontrust.cam.ac.uk/studsupport] which awards "bursaries to nearly 3000 undergraduate students every year" which seems like a pretty good use of their money.
Ever heard of price differentiation, is that what you allude to? Also, it's not like %2 was a small gain for stable growth.
On a individual level 10.000$ per month of activity, not counting 2 months vacation per semester, would be enough for a good enough private instructor. Certainly, tuition, as in schooling, is completely covered by tuition, so it's not completely fair to throw it all in one bag.
That is, of course the billions can be taken into account in a mixed cost calculation, but that would delude the elitism, wouldn't it? I agree, subsidized gratis pro bono education should be possible, but it could never be costless.
Now, what about the private tutors: Wouldn't one on one instruction be a remarkable improvement over huge, passive lectures? There is the problem of quality control, but from what I can tell, this does exist too to a lesser degree in academia. It can sway into the opposite direction even, if a research professor is too far out there to be helpful, for lack of better words. A lot of undergrad classes are taught by mere grad students. There are a lot of them.
Wouldn't the dialog still far outdo the lesser quality content that is communicated, because the latter relies a lot on the students understanding anyway and the sooner that reaches a certain basic level of fundamental knowledge, the better? Edit: Meaning, fundamental knowledge that is enough to allow the student to judge the progress and to also study independently, knowledge that is fundamental enough, that less than world class understanding makes virtually no difference.
Mos of these financial institutions actually have high fees that are only charged if your parents are rich. I've been surprised to see how high your income may be at some of them, and still receive near-free education.
Thus the fees aren't really fees, they're fees for rich people who can afford them. And then you may wonder why you'd give a rich person free education by paying it from an endowment that, among other things, pays for the poor people's education, when the rich person can afford it.
As for your note on donations, I fully agree. You really, really, don't need to donate to Harvard. But that's mostly a function of alumni networks/events of the university itself, not necessarily people going 'hey I want to donate to a university... ah well, guess I'll choose Harvard then'. So it's not a decision you'll change easily.
the problem is that when the economy falters or the government fights with itself (look at what's happening in IL) these universities would very much prefer to be self-sufficient. It isn't the only reason of course, but with the anti-intellectualism movement in america growing and the government playing more and more budget games that affect people's livelihoods I don't really blame them.
A bit tangential, but don't donate to Ivy Leagues. I get that you might feel a sense of pride in having graduated from the school, but with a 11 digit endowment, you can rest assured that the school will be there for future students in perpetuity.
Rather, give to state schools or community colleges or really, any other school. Help them serve students of all economic backgrounds, not just the elite. The most important consideration for spending money is generally its marginal benefit (obviously equal amounts are worth more to poorer institutions) but we could also think about this in terms of marginal students - how many more students can attend/graduate with less debt because of our donation?
I agree with you, but many people see that as a plus when donating.
If I give $x to an organization that desperately needs it, it will be spent immediately. If I give $x to an endowment, it will sit there in perpetuity, providing investment income to the organization for decades or centuries.
Ben Franklin understood this and left a small amount of money (1,000 pounds) to the cities of Boston and Philadelphia in his will, instructing that the funds not be used for 200 years.
Back then money was based on precious metals, not monopoly money. Although Early America did have problems with hyperinflation from war debts. Anyway the point is the money is invested, so it's not literally just cash sitting in a vault, but is earning itself interest.
The point is that interest does not always cover inflation. The fact that money was gold or paper back then makes no difference. Invested money can be lost.
There is a (very slight) incentive for an Ivy Leaguer to donate to his/her school: the accursed rankings often factor the % of alumni who donate into their ranking formula. I donate an insignificant amount to my alma mater for this reason.
Then there's the potentially bigger incentive for an Ivy Leaguer to donate: to help their kids get in.
I've been waiting for this article to surface on HN. The other problem here is that hedge funds, as an investment vehicle, really haven't done that well. So it is essentially a transfer of donations to the hedge fund industry while the endowment could have done better avoiding them altogether. Obviously there are some hedge funds that have done well - but on the whole they are expensive and do not add alpha.
Back in the day, Harvard didn't outsource to hedge funds but instead had the portfolio managers in-house. These folks were paid a small fraction of what they would make in the private hedge fund industry, but my understanding is that the Harvard community was up in arms at what they were making - so they quit/got pushed out and then Harvard started outsourcing to hedge funds. The result was worse performance and higher fees.
Of course, it's not all roses - Larry Summers famously made a terrible bet on interest rates that Harvard had to unwind at a large loss.
Is the outsourcing somewhat recent? I've been reading through the actual text in the Piketty book and he discusses the relative advantages of large university endowments vs smaller ones. He has a data table in it for 1980-2010 where the returns seem pretty reasonable (but much higher for larger account balances of Harvard-Yale-Princeton). http://piketty.pse.ens.fr/files/capital21c/en/pdf/T12.2.pdf
People can argue about his book's overall points, but few can argue that he's accumulated a lot of interesting data.
I've been trying to reconcile that data with the Buffet view of complex hedge funds not beating straight index funds for gain... and by some other data Buffet is correct.. but the risk profiles may differ (Though it often feels like "risk" is the financial industry equivalent of engineering fudge factors).
That's a great question - when I was in the industry (back in 2005-2006) Harvard had already outsourced a large portion after their managers left. In many cases, the managers started up their own funds and then Harvard immediately placed money into them.
I think the answer may be that Harvard (and others) continue to see decent returns - the question is at what cost relative to managing it internally.
The problem is that an Ivy League school is paying the expenses of managing investments worth a gazillion dollars instead of focusing on research and education. Money management is not what the universities are good at, and it's not what they are for. But in fact, the "hedge fund problem" is not the only problem American universities have - they are also running sports teams, housing, construction and real estate operations and whatnot. It's as if the purpose for which they were created has become an afterthought.
You have this entirely backwards. Sports team management, housing, construction, and especially investment operations are exactly what today's schools are good at!
The pesky problem that keeps popping up is those darned students and their education...
How do you suppose that med students get the required on the job training (aka residency) otherwise? Teaching hospitals are a very necessary thing in the medical field.
> Yale’s comparatively modest $26 billion endowment, for example, made hedge fund managers $480 million in 2014, while only $170 million was spent on things like tuition assistance and fellowships for students.
For context, Yale's endowment produced an investment gain of $4 billion that year. Seems like the $480 million was money well spent.
Is that investment gain net of the fund manager payment? Because an S&P 500 index fund would have returned 13.5% that year[1], or ~$3.5 billion, about the same as $4 billion minus the half-billion hedge fund managers costs. And presumably they had to pay other investment managers (for non-hedge investments), and the money in HFs is significantly less liquid and accessible and more volatile.
This is ignoring a lot that goes into investment management. It's easy to say S&P would have done just as well on that particular year, but what about every other year? What about years with big losses? Additionally, investment managers do things like create portfolios for you that match your risk tolerance or other special needs/requirements.
Overall, it's true that managed investments don't do as well as index funds, but it's ignoring a lot of the risk management that goes into being actively managed.
Being able to find where you are on the risk/return and growth/income spectrums is not hard enough to merit the hundreds of millions of dollars in fees.
For whatever strategy you want, find the corresponding index fund with that strategy, and it will probably have done better after expenses and will have more liquidity and less volatility.
Generally there is a small annual fee in addition to a cut of the profits. Profits on huge gaining years seem really high, but you're forgetting the essentially zero profit (or losses) on years with negative or no returns. Those years are not necessarily (and in reality, not at all) the fault of the hedge fund. They still provided a very valuable service in down or break-even years.
Also, managing billions of dollars is hard as shit and requires a ton of expertise and talented managers. You can't just take a hedge fund with $50 million and hand them $4 billion and say "do the same thing, but with more money".
I really shouldn't nitpick (so please do forgive me), but strictly speaking the whole company doesn't manage $3T. It is true that's the best number to compare to the rest of the industry, but Vanguard has a rather unique corporate structure. The end result is that each Vanguard fund is a company which owns part of the umbrella group. This inverted corporate structure is set up so that the fund-owners have direct stake in management 1) of the umbrella organization 2) only of each individual fund, not other "leaves" of the tree.
It might seem like a distinction without a difference, but it's the single greatest reason their cost structure is so much more attractive.
> It's easy to say S&P would have done just as well on that particular year, but what about every other year? What about years with big losses?
Then the $4 billion in a good year is completely irrelevant. It's easy to say that investment managers would have done well in years where a chicken wasn't likely to do just as well.
Except that you'd also get the stock market's volatility.
I get your point but you can't really make that argument without considering volatility. Endowments in particular, need fixed income-like payment streams, as they're funding salaries and grants, after all.
It does not make sense to compare the returns of a $26b fund to that of the S&P 500. You are thinking like a small-time investor who can simply buy and ETF or index fund. When you have $26bn to manage, you need to do a lot of work to diversify it and spread it across tons of different assets in different markets (not just US equities). Yale's target for 2016 is to hold only 4.0% in domestic equity.[1]
A good comparison would be to another fund of a similar size. According to this Citi report [2] (most recent numbers I could find by AUM size), the average fund with >$10B in AUM in 2013 returned 13%. Note - there were only 18 hedge funds in the world that fell into that bracket. That average is lower in 2015 - how much? I'm not sure. But probably under the 11.5% net return reported by Yale in 2015.
Stanford spun off its investment operation in 1991 as the "Stanford Management Company".[1] Their management has become more aggressive over the years; they've gone from 10% private equity to 25% private equity. Stanford is involved with VC pools that invest in startups. They own substantial parts of Google and Cisco.
The Stanford Management Company also operates Stanford's substantial real estate holdings. Stanford owns about 12 square miles of Silicon Valley.
The issue is not so much that schools invest in hedge funds (the endowment managers are just trying to maximize returns), but that the endowments pay out such a small percentage of their funds each year to support research, financial aid, and everything else. Harvard pays out only 4-6% of the endowment yearly. On their huge endowment, if they increased the payout by .5%, they would have a whole lot more to spend on worthy activities instead of saving for the year 3000.
This is incredibly shortsighted. The point of an endowment is not to pay it off, the point is that the endowment persists indefinitely, and the interest / returns fund operations.
If people wanted to contribute directly to a university, they can. Instead they're contributing to the endowment. Respect that choice.
It's pathetic that universities have actually set up a sustainable source for funding scholarships etc indefinitely -- where spending caps are actually restricted -- and the vultures immediately descend to suck it dry and spend it off. And then in a few decades when it's gone: ???
The internet has already driven the cost of education to zero, what schools are really selling are degrees. Anyways, Yale only spends $170 million on tuition assistance, but in reality ; Yale covers full tuition and housing costs for students who's family income is less than $200,000.
> The internet has already driven the cost of education to zero [...]
For things like CS, sure - mostly. Excepting for slightly niche areas like embedded programming, you can achieve similar experience for $0.
But for most other [engineering] degrees, this isn't true. You can't tape out a custom integrated circuit (IC) for free, but this is something some EE undergrads get to do at brand-name universities. Even the licensing cost of the software used to design those ICs can reach six figures.
I imagine there are similar things with chemistry, material science students and especially medical students.
But yeah, even in those other engineering fields, the internet has reduced the cost of education.
Pray tell me how one can use the internet to get a zero-cost education to prepare one for, say, a career in experimental physics. It turns out that you need some actual hand-on experience with some non-virtual equipment to do a lot of things in the real world...
Endowment funds are accrued through donations. The vast majority of donors would have no interest in giving money towards operational costs; they are interested in something that can be seen as a legacy.
You're assuming that the return on investing in the students, in whatever form, would be less than the endowment returns. The endowment money doesn't come from nothing, and, frankly, the larger your endowment gets, the more likely you are going to just revert to the standard market return, and the more beneficial it would be to invest in your students.
It's not the cut and dry issue you seem to be implying.
I think saving for perpetuity is a good idea. Lots of endowment money lives for centuries in these institutions, spitting off gains- it would be selfish of a particular generation to draw this fund down excessively.
Considering long-term real rates of return on a diversified portfolio, a 4% annual withdrawal rate (the "4% rule") is advocated for most retirees- and they only have to make their nest egg last 30 years.
What sort of signal would that give to charitable givers to the university when it decides to start taking 8% per year, and seeing the money exponentially decay? I'm in no position to donate a large amount to a university, but if I were I would imagine that I would like to see it live on, not wither on the vine.
4%-6% is almost certainly sustainable. Higher pay outs expose Harvard to wealth dilapidation.
Companies, institutions and even empires come and go. The most successful adhere to conservative governance and plan for the next century, not the next semester.
Harvard was founded in 1636. So far, it has survived 380 years. That's pretty impressive.
You are now encountering the concept of a safe withdrawal rate. If you have money and want to spend it effectively, the best course of action is not to immediately spend it all, but to invest it. Then, once a year, you'll want to take the profits, reinvest a sufficient amount such that your capital doesn't depreciate due to inflation, and then to spend the rest. A more conservative strategy would have you reinvesting even more.
What's the point? Well, suppose you have $100. You could spend it all now. Or you could invest at a 7% profit rate, reinvest 2% for inflation, and then spend the remaining 5%. This lets you spend $5 a year, inflation-adjusted, for the foreseeable future -- so if your timeframe is longer than twenty years (20x5 = 100), it makes sense.
That's not to mention that having a lot of money in investments gives a school substantial practical/political power.
We're talking longer than 10 years here. A better estimate might calculate the average 10 year return for every 10 year return period, and the standard deviation of that same data set. And then do that calculation for 30 years. I believe you end up with a higher average and smaller deviation at 30 than 10.
History shows that world changing research and ideas are spread out over decades, if not centuries. By planning to be around in the year 3000, they're making sure that they can contribute.
The article title "...with Schools Attached" misses an important fact about most universities. The purpose of most universities is to engage in scientific research. They are not schools, not primarily. They are chiefly research institutions that, yes, have schools attached.
> [T]here is one misimpression that people seem to have, that might as well be corrected before any hasty actions are taken: the purpose of Harvard is not to educate students. If anything, its primary purpose is to produce research and scholarly work. Nobody should be surprised that the gigantic endowment isn’t put to use in providing top-flight educational experiences for a much larger pool of students; it could be, for sure, but that’s not the goal. The endowment is there to help build new facilities, launch new research initiatives, and attract the best faculty. [...]
> Don’t believe me? Here is the test: when was the last time Harvard made a senior tenure offer to someone because they were a world-class educator, rather than a world-class researcher? Not only is the answer “never,” the question itself is somewhat laughable.
> This is not a value judgment, nor is it a particular complaint about Harvard. It’s true of any top-ranked private research university, including Caltech. (Note that Caltech has over 1200 faculty members and fewer than 900 undergraduate students.) And it is not a statement about universities in general; many large public universities, and smaller liberal-arts schools, take education very seriously as a primary mission. This is by no means incompatible with being a top-notch research institution — the physics departments at places like Berkeley or UC Santa Barbara would be the envy of almost any private research university. But those places also take their educational mission very seriously, which Harvard, honestly, does not.
Except, they treat their researchers like total crap. Taking 2/3 of all grant money for overhead? Salaries for 45 year olds with 20 years of experience that are the same or worse as 25 year old with zero experience in private sector. Publish or perish? This whole thing you say these schools focus on, research? Pathetic. And trust me I know I've been at all the top schools and am now a professor.
It's strange to me that you're a professor but the things you're saying aren't true. The 2/3 grant money thing I think you are talking about indirect costs? That's not money off the top of received grants, it's computed like a tip, where when you receive $1 of grant funding, the university receives $0.66. And only on non-equipment, non-tuition (for funding students) items. So it usually works out to being about 35%.
And Ivy League universities pay their faculty quite well, especially in computer science. I don't know of any cases where a entry-level software engineer is paid even close to what a full computer science professor makes on even their 9-month salary.
This makes me ask, have you really "been at all the top schools and am now a professor"? I feel like any assistant professor would know these things.
Let's make sure to compare apples to apples, even when discounting the 9-month salary (no CS professor truly gets the summer off, that isn't how the academy functions):
* Entry-level software engineers have 0 months experience.
* Full professors in CS have 5 yrs of a Ph.D., and perhaps 2-4 years of postdoctoral experience, and 5-7 years of professorial work.
Totally agree the comparison isn't equal. But what I'm saying is that the 9-month salary is already way higher than an industry salary. If they worked the 3 summer months funded by a grant, it's like getting a 33% bonus on top of their 9-month salary.
Yes. Cmon man. You're being overly literal. I'm just starting as a professor in biomedical sciences, where you probably know the terribleness reaches its peak. I'm also nearing 40 so the duration of "training" required is also a total bullahit factor especially in my area.
The general point is true: the financial incentives in academia are blatantly terrible. The quality of what's produced isn't much better. So this whole thing about universities being all about their research missions? Sadly for all those hundreds of billions the hedge funds are generating, produces a depressingly small output.
Okay, fair enough. Sorry for being a bit antagonistic. I guess I'm just a lot less pessimistic about academia, having worked in industry before as well. The financial part isn't as good as it could be for what we think we do, but I feel that it's a nice institution in many ways. A lot of lifetime academics don't appreciate the flexibility they get in terms of what they spend their time on, how they do their work, who they work with, etc.
Coming from an outsider, having heard about how much sifting there is in Academia, couldn't that be because there's more people that want to be researchers than there are research positions? Someone who works in a sub-field without private sector research positions and with post-docs pushing up against them doesn't seem to be in the strongest negotiating position.
I don't see the issue with this. These are long term institutions. Many are centuries old. They should invest their money for the long term and survive off the interest.
What's more remarkable is that people voluntarily donate money to them. Why would you do that? These institutions are not in need of cash by any means. And if you are going to be charitable, there are organizations where that money can do far more good, like the top Givewell charities.
Sidenote, and I may get down-voted heavily for saying this, because he's got plenty of "cred" on so many different fronts, but Noam Chomsky always struck me as a hypocrite when it came to his economic and political thinking for taking a pension supported by the $13 billion MIT endowment, which is surely generating money through many of the practices disparaged both in this article and Chomsky's own beliefs.
Hypocrisy is such a boring & irrelevant criticism in most contexts. His critical theory is much more important than his practice. He has to survive in the world that exists, not the one he wishes existed. There's really minimal value in such a symbolic gesture as rejecting a pension, and criticizing his ideas on such irrelevant grounds takes away from actually talking about the issues raised.
This is a very good point, I have kind of accepted your point, but never thought of it explicitly this way. So now I wonder: Richard Stallman could probably have done a lot more for Software Freedom by living a less rigid life. Although, part of me is kinda glad that there is at least ONE person who does try to live like he does.
> His critical theory is much more important than his practice.
People should also do what they preach. And acknowledge their own bias and hypocrisy which Chomsky never does. He does like you, dismisses any criticism as "irrelevant" and that's why nobody can debate with Chomsky, there is no discussion.
Why? If one is issuing mandates from a position of authority, I agree that following what one imposes on others is essential, but in intellectual discussion one should be free to argue a position and its opposite the next minute. Anything less is downright dangerous for the group and society as a whole. We can't depend on the half-dozen cranks that actually live their lives swimming against the tide to argue for everything that is truly different, nor should we trust their arguments just because they turn their crackpot theories into practice.
It's an ad hominem, it's irrelevant. Engage with the theory if you want to a meaningful discussion. I'm not being dismissive because I don't want to deal with criticism, I'm being dismissive because it's not criticism of the content.
It's a useful point that Chomsky benefits from the same system, but,
1) Generally everyone is part of the system they criticize. The other choice is to go off the grid, in which case you would never hear their opinions. What was the last thing you read by one of those non-hypocritical people?
2) For that and many other reasons, including that we all are fallible humans, everyone is a hypocrite including you and including me.
But you and I are not taking speaker fees, book royalties, or garnering fame and awards, i.e. directly profiting by the _appearance_ of being against these things, but not leading in any substantive way that befits someone we might reasonably say is an influencer and a leader. Has he even solicited for a formal letter of protest to the university? What about a refusal to appear? If we apply the "well, my sacrifice won't hurt anyone but me" logic to everyone, a billion tiny pursuers of self-interest will continue to keep the system propped up. Is it any consolation that the CEO of BP is an environmentalist in his personal beliefs but acceptable that he followed his stock option incentives to keep costs down by cutting corners on quality checks that cost 11 lives and massive pollution in the gulf of Mexico? I'm not saying it's not an understandable and unfortunate reality that our personal benefit might run counter to our ideals, but that it's less than honest of someone to profit from that stasis on the assumed grounds of having superior insight and moral standing. If there's too much good to be gained from the current system for anyone to give it up, then it might not be all that bad and much more nuanced, if we're going to be honest with ourselves, whereas the vilification is actually counterproductive, as it keeps us from a fuller understanding and movement toward a solution.
That's my point: I hear him criticizing the military industrial complex, but I haven't heard of him penning a letter to the MIT Board of Trustees, soliciting the support of current and emeritus faculty to join him as the undersigned, to divest from Northrop Grumman, Lockheed Martin, and the like.
If I've missed it, do point me to it and I'll recant.
I don't think he's done that, but what possible use would that be even if it work? Talk about raging against the smallest possible cog in the machine.
He objects to the present practices of the US military industrial complex, if he managed to make MIT not take their money someone else would and nothing would change.
Trying to do this via MIT's budget would be a pointless distraction to achieving his stated goals.
Fair enough. Noam Chomsky says a lot of things, I would have figured he'd have criticized his employer at least a few times. A quick search finds he has criticized universities for various things...
>"Divestment is likely to have negligible financial impact on the affected companies. And such a strategy would diminish the influence or voice we might have with this industry."
"The evidence from South Africa suggests that divestment, while ineffective in a financial sense, can have an impact by shaping public discourse. If universities across the country divested from fossil fuels, this would again be the case."
It's perfectly rational for Chomsky to stay on board because the expected benefit to his goals from divesting from the system is much less than the expected benefit from staying within the system and criticizing it.
Funny, I thought I read the Harvard endowment people invented hedge funds, a long time back, in order to maximize results. (My alma mater, so I may have read that years ago in one of their publications.)
Reminds me of this charming but probably fake story about Oxford New college http://www.atlasobscura.com/places/oak-beams-new-college-oxf... On the other hand, the modern version, embracing risk and avoiding ethical standards probably won't yield the thousand year endowment they're looking for.
Is it just me or does the article fail to mention/estimate/discuss how much money the universities received _from_ hedge funds? It repeats over and over again how much the schools _paid_ in managers' fees, but if the return was several times that amount, then I guess I don't see the problem.
If they did show that data, it would look worse. On average, universities don't outperform (far lower-cost) index funds with similar objectives, per the recent HN story:
The article focuses on universities' investments in hedge funds specifically. The numbers in the article suggest that on the high end, about 10–20% of an endowment will be in a hedge fund.
The question I have is, what are the typical returns just on that 10–20% investment?
The endowment can do poorly (as bad as or worse than an index fund) as a whole, even if the investment into hedge funds is paying out well.
Sure, but (by most metrics) hedge funds are going to be riskier/more volatile and you have to lock up your money for longer. So the same return would count as worse performance if placed in hedge fund (and that's not even accounting for differences in expenses yet).
Hedge funds as a group are only risky and volatile compared to mutual funds. Their degree of riskiness varies tremendously, and there are a great number of them that would offering investment management that is tremendously less risky than an index fund.
The argument is that, with few exceptions, anyone operating at this size is basically going to hit average market returns. A couple of these Universities seem to have particularly gifted investment managers, but, even there it's debatable.
It's the same old story everywhere: Do you stick the money in a 0.2% fee index fund and ride the wave, or do you spend 20% of your returns on fees in the hope you're going to get lucky?
I generally don't support endowments. The ROI seems very poor: Only interest on the investment will be used for the cause you are supporting, and it will be for undetermined purposes in perpetuity. Also, a permanent source of funding could be a very serious problem, creating a disincentive to change.
If you were investing for personal profit rather than to support a cause, would you even consider an investment that offered those terms? Even fixed rate investments return your principal eventually.
The University of Richmond has the Spider Management Company managing it and other smaller endowments. Richmond has done well with its endowment. http://smc.richmond.edu/
As of 2015 its endowment was valued at $2.37 Billion. That with ~4,100 Full Time Equivalent (FTE) students.
So I wonder exactly how much universities doing this lost when LIBOR was manipulated at the behest of the Bank of England because the Fed stupidly decided the rate they would use would be set in England of all places, essentially handing over monetary policy?
Would like to offer an argument that the Ivy League schools that hire hedge funds also are very good at subsidizing tuition. When I went to Princeton, only 40% of students paid the full "45k" tuition, and those were families that were so well off that they don't mind the 45k at all. I would say the average tuition paid at Princeton is closer to 20k. So there does seem to be such a correlation: rich schools -> using HFs -> make a bunch of money -> fund students from poorer backgrounds to attend the school.
I don't know how much this matters. Harvard has the richest endowment but still has less money then nine individuals. I am just waiting for say the Carlyle Group to go public like KKR or Blackstone to make HH funds boring and mainstream.
Of course this ignores financial aid so Yale's operating costs are much less than $500 mil/year. If you're going to donate to a university your money will go much further at a small college that actually needs your money and will actually spend it rather than hoarding it. TMQ had some great articles about this topic back in the day. http://espn.go.com/nfl/story/_/page/TMQWeekFour140930/robert... Halfway down.