Should universities be required to spend more of their endowment on students?

“Who do you think received more cash from Yale’s endowment last year: Yale students, or the private equity fund managers hired to invest the university’s money?,” asks Victor Fleischer in the New York Times.

He continues:

It’s not even close.

Last year, Yale paid about $480 million to private equity fund managers as compensation — about $137 million in annual management fees, and another $343 million in performance fees, also known as carried interest — to manage about $8 billion, one-third of Yale’s endowment.

In contrast, of the $1 billion the endowment contributed to the university’s operating budget, only $170 million was earmarked for tuition assistance, fellowships and prizes.

Fleisher calls for a change in the Higher Education Act:

But the amount universities pay to private equity reveals the deeper problem: We’ve lost sight of the idea that students, not fund managers, should be the primary beneficiaries of a university’s endowment. The private-equity folks get cash; students take out loans.

As part of the reauthorization of the Higher Education Act expected later this year, Congress should require universities with endowments in excess of $100 million to spend at least 8 percent of the endowment each year. Universities could avoid this rule by shrinking assets to $99 million, but only by spending the endowment on educational purposes, which is exactly the goal.

Today’s Question: Should universities be required to spend more of their endowment on students?