Big Donation to the University
Alfred Taubman apparently just donated $56 million to the University. Hopefully some of that is earmarked for scholarships since tuition is getting unbearable. He already has his name on the School of Architecture, a library in the medical school and a research institute within the medical sciences program. According to the news he is now the largest donor to the University in its history.
Good to see people still stepping up for the University, particularly in these economic times.
EDIT: Guess it was to his research institute. http://www.freep.com/article/20110421/NEWS06/110421053/Alfred-Taubman-donates-56-million-University-Michigan?odyssey=tab%7Ctopnews%7Ctext%7CFRONTPAGE
Tight
It's amazing how quickly a donation like that gets eaten up. In 2007 someone donated $150m to the University of Chicago for scholarships given to underprivileged students. They are being used as 1/2 and full rides for families with income under 90k and 60k a year (IIRC) and they will supposedly run out of funds within 5-7 years.
And that's at a school 1/5 the size of M.
I can tell you that at Michigan USUALLY when people donate money for scholarships they create endowments so the money never gets used up. The magic number at Michigan is $22,500 in endowment = $1,000 in scholarship money that can be given each year using the interest on the endowment. Very short sighted of UofC to make it expendable (meaning give out the principle rather than use the gift for an endowment and give off the interest indefinitely.
I believe their point was to get as much as possible in the hands of undergrads right away. They invested it short term, so instead of giving 50,000 students 1,000 over the next 25 years, they gave it away in big incriments, so that fewer students would have huge scholarships.
It's 100m over fifteen years, BTW, with half loan forgiveness to students who come from families who make <75,000 and total loan forgiveness for <60,000. Link.
I wonder how much it takes to fully endow a football athletic scholarship? (In the unlikely scenario where I have enough extra money to do that!)
They say 850,000 for an Ivy full-ride, fully endowed scholarship. I'd imagine M is somewhere close to that.
"Michigan Hockey team sponsored by Wolverine In Exile", I'd have to donate:
$850k x 18 schollies = $15.3M
Seems doable. Sign me up when I hit the Powerball.
Wonder how much it'd be to endow my own professorship, as in, "The Wolverine N. Exile Endowed Chair in Awesomeness Engineering"?
At the School of Natural Resources and Enviroment.
University guarantees 4.5% return on endowed funds.
If full boat schollie is $50k/year, divide by 4.5% = $1.111 million.
From MGoBlue.com.
So less than either of us thought.
Is going to take one of these right here...
Hmmm. I debated for UM as an undergrad. The UM Debate alumni have been looking to raise an endowed scholarship fund (literally this past month) and we were told the return is 4.5%, so we'd need to raise $[annual schollie amount] / 4.5% to endow a scholarship.
Still working on the endowed fund, but we settled on 4-year pledge amounts sufficient to fund an expendable scholarship fund instead, because the math for the endowed fund hurt.
Either I've overestimated the annual cost of an athletic scholarship at $50k/year, as $500k implies $22,500 per year at a 4.5% return, or athletic scholarships are different than academic scholarships.
Total cost (room/board/books/misc/tution/travel)
Lower division in-state: 24,167
Upper division in-state: 25,673
Lower division out-of-state: 48,331
Upper division out-of-state: 50,859
April 21st, 2011 at 11:22 PM ^
I think the football team is set for scholarship money. Others may need the money a little more.
"Very short sighted of UofC to make it expendable (meaning give out the principle rather than use the gift for an endowment and give off the interest indefinitely."
Except for the fact that they are actually, you know, giving out the scholarship money instead of hoarding it.
there point was to increase the gift so it can influence the highest number of students possible. I wouldn't call that hoarding, and agree with the initial statement
Well no, not hoarding it, but my point is they were actually using the money for scholarships, as opposed investing the money, with the gurantee of a 3-4% return per year. They are not trying to maximize their earnings here, they are trying to give the money to those that need it.
It's called saving, not hoarding. The idea is to keep the principle intact and simply give scholarships with the interest on that principle. That way the endowment will never run dry (in theory and assuming costs do not increase... fat chance).
The idea then would be that the scholarships given over the lifetime of the endowment would be much greater than the scholarships only the principle would be able to generate.
April 21st, 2011 at 11:23 PM ^
Like I said, there's a good argument to be made that total utility could be higher by giving out large scholarships to a smaller number compared to giving small scholarships to a larger number.
In this case, if a guy is willing to put up nine figures to help kids through school, I think it's a good thing no matter how he distributes it.
April 22nd, 2011 at 12:05 PM ^
Very short sighted of UofC to make it expendable (meaning give out the principle rather than use the gift for an endowment and give off the interest indefinitely.
It might be that the donor specified that the fund be expendable rather than endowed, too. Universities (at least the one that I work at) are absolutely bound by the wishes of the donor. They might try and convince the donor that X is "better" than Y in the long-term, but if the donor prefers Y, then Y it is.
Gotta love how many local philanthropists we have in SE Michigan. Equally good is that they all seemed to attend the University of Michigan. Hopefully the school has enough in its endowment to last until this state is able to once again embrace entrepreneurship.
i'd say we're pretty solid on that front:
http://en.wikipedia.org/wiki/List_of_colleges_and_universities_in_the_United_States_by_endowment
I know Alfred pretty well, I spent a lot of time with him in 2002. I know, cool story, but I'm even mentioned in his wikipedia entry.
"In the early 2000s, an investigation into alleged price-fixing between Sotheby's and rival auction house Christie's led to a confession by Sotheby's CEO Diana Brooks that prices had been fixed.[18] Brooks confessed to an elaborate illegal scheme with her counterpart at Christie's.[18]But in a plea bargain arrangement, prosecutors offered her a deal keeping her out of prison if she agreed to implicate Taubman. She did. According to Taubman, "She lied many times" under oath and said "If she discussed it with me I would have thrown her out of my office in five minutes."[18]According to Taubman, Brooks was just protecting herself from going to jail.[18] But the jury believed her, not Taubman, and he was convicted.[19][20][21] He was fined $7.5 million (USD) and imprisoned for ten months in 2002 for anti-trust violations.[22][23][24] But Taubman continues to insist on his innocence in his autobiographyThreshold Resistance which appeared in 2007.[4] His cellmate, a convicted drug dealer, kept waking Taubman in the wee hours to urge Taubman to adopt him.[24] Taubman was released in 2003.[25]"
How long were you in prison for?
I had a pretty rough go of it. I'm just going to say that I didn't kick anyone's ass on the first day, and leave it at that.
April 22nd, 2011 at 12:58 AM ^
This is gold, Jerry. Gold!
April 22nd, 2011 at 12:04 PM ^
I thought you were kidding, but I checked the wiki and yep, it's all there, citations and all. Bizarre.
According to a AEI workshop report (http://www.centerforcollegeaffordability.org/uploads/Miller_Munson_corrected.pdf), if Michigan used 3% of their endowment yearly income, it could provide 1/2 price tuition for all its undergrad students while still maintaining growth on the endowment itself. But of course, if that happened, then profs & staff, & the GEO (or whatever the grad union is called nowadays) would want more money and the endowment tuition would get eaten up in costs associated with raises, benefits, etc. The only thing that's going to drive down tuition is students stop continuously coming to UM in increasing numbers forcing a reduction in the cost of a student attending the U (reductions in salaries, services, OMG no comp'd wireless 4G in my en suite bathroom in my private dorm room, etc) in order to get students to come. As long as Michigan maintains a high demand, and money is available via fed loans, the tuition will stay high.
Not quite. According to that link, if Michigan spent 3% of it's total endowment value (not income) every year then they would be able to offer half-tuition scholarships to everyone. There is no reason to expect that this would still allow the endowment to grow. They are still going to need to spend endowment money for facilities upkeep, salaries and so on.
It is also interesting that the document is from early 2008 and includes the following line:
<quote>Endowment spending practices are deeply ingrained. But just as colleges and universities learned to change their longstanding conservative approach to investing, they can update their payout practices, too.</quote>
That increased risk in endowment portfolios is a major reason why the average university lost 19% in 2009. Some schools lost almost 30%.
There is no reason to expect that this would still allow the endowment to grow. They are still going to need to spend endowment money for facilities upkeep, salaries and so on.
That's the party line, but it's not very true. The reality is that very little of endowment money pays salaries or puts up new buildings. Most of that comes from student fees and capital donations. Most of the endowment money is intended to be never spent - at all. The official justification is to help "later generations," but this line has been trotted out forever. Given the cost of tuition right now, one could argue that the "later generation" is upon us right now.
Why, exactly, a public university needs billions of dollars in invested money that it has no intention of spending is a question for our society to ponder. Every year we churn out a few thousand graduates, many of whom are deeply in debt - which can seriously affect their future career plans - while the school's assets, which could have helped prevent that debt from occurring, are untouchable until "later generations" need it. I wonder if Mary Sue & Co. would agree with this plan of action if they, too, had graduated thousands of dollars in debt. Once again, we see the Baby Boom generation making questionable financial decisions that will leave the younger generation holding the bag.
April 23rd, 2011 at 12:15 AM ^
According to the numbers in the earlier article around 40% (minimum) of the money paid out from endowments is for items other than financial aid. Doing the math it seems like it has to actually be much higher since that means the average large endowment spends 2.34% of its value on financial aid. That is already higher than some of the benchmarks Lynne Munson mentions in his viewpoint. Although, doing some further math it seems like his stats are wrong. Michigan would need to spend 6% of the value of its endowment to offer all undergraduate students half-price tuition.
If you're saying that the majority of faculty salaries are not paid out of the endowment then I completely agree with you. If you're saying that almost all endowment money goes to financial aid then I would have to say you're wrong. (As an aside, I never mentioned building new buildings because you're right that it is almost completely done from donations and state money)
You're right that there is a a very large benefit to today's students if Michigan reduced its endowment by using it to offer more financial aid. At the same time, there is a benefit to reinvesting some of the endowment's growth. It means that as the student body grows the amount of money available to offer financial aid has grown as well.
doesn't get him a suite at the big house.....
That a college education is one of the most over priced things in the history of the world.
Prestige, shmestige. Any college that thinks it is worth bilking students out of 100 grand for a four year college education is (besides incredibly good at making students feel it is worth it) FOS.
We will be reaching maximum density as a spending public before long. Everything is getting too expensive unless you either learn to live meagerly or make 100K per year.
A college degree should never cost more than a decent year's salary for the average joe. Ridiculous.
But that's not how costs are set. College is very expensive right now for two reasons:
- Cheap and readily available funding (mostly through federal aid).
- Huge demand and not enough supply (at least at "prestigious" universities).
This is why you're seeing huge tuition costs and also seeing schools "move up" in prestige in a way that they haven't before. This is pretty evident with the increase in quality students at the "second-tier" universities in states, like PA or MI. If you were to take a look at MSU's average entrance stats over the last 25 years, I would bet quite a bit that they have increased a huge amount; I know for a fact this is true at Pitt.
April 21st, 2011 at 11:50 PM ^
April 22nd, 2011 at 12:40 PM ^
"Harvard could charge several times as much, and they'd have plenty of wealthy folks lined up to pay."
I'm sure they could, but it would destroy their product. Harvard's line of though it something like this: we are the best school in the world and want to stay that way. Because of that, they can and do charge a huge amount in tuition, but are feeling price pressure from Princeton, Yale, UVA, UM, Cal and the like. Harvard would destroy itself after a decade of 250,000 tuition (but I agree it would get paid).
You're right about improvements and the like, but it would never take place without the demand. M would never have rennovated the Big House to the tune of 300m if demand wasn't there for football, the academic side is no different.
Finally, I think the for-profits aren't that big of a deal due to their small market share.
Most schools can't fully fund big projects through donor contributions, so students pick up the tab for the nice gyms, rec centers, etc they want to have at school.
Actually, a lot of them could if they wanted to dip into their endowment reserves. Even the annual income that endowments generate is rarely spent. Schools have made a decision to be extremely cautious with those investments and to seek alternative sources of funds to meet immediate needs. Whether that line of reasoning is justifiable is up for debate. Here's an interesting article on the subject: