It’s no secret that the purpose of universities has shifted from providing students with adequate education to becoming money-making machines.
In recent years, we’ve seen a rise in higher education institutions investing in real estate and private equity. These moves are designed to bring in more funds and enrich investors, but they come at the expense of students and the mission of universities.
According to this Business Insider article by Professor and Author Catherine Liu, the University of California system is a prime example of this trend. In January, the system made a $4 billion investment in the Blackstone Real Estate Income Trust fund – one of the world’s largest real-estate funds – despite the fund’s liquidity issues.
This kind of decision is becoming increasingly common, with universities all over the country buying up or investing in real estate and some public universities even partnering with private developers to build office buildings and retail shops on university property.
Universities are becoming financialized, with billionaire donors and money managers dictating their operations. Instead of providing students with an education, universities are now focused on generating profits and pleasing investors.
The Yale Model of Investing
The “Yale Model” of investing university endowments – which involves pouring money into riskier private-equity and real-estate hedge funds – has been a significant boon for the hedge-fund managers receiving university endowment cash. However, the benefits for the schools themselves are more complicated.
Since the late 1980s, universities have been keen to follow the Yale Model to reap higher returns from their endowments. And the strategy worked: From 1990 to 2021, the value of the average endowment grew by 423%, and thanks to a booming stock market during the pandemic, the average endowment size increased by 35% during the 2021 fiscal year. US universities now have more than $130 billion invested in hedge funds.
But the financialization of higher education has also had some negative consequences. The increased focus on generating returns for investors has shifted the focus of universities away from providing an effective education for students to sustaining a profit-generating machine. And many universities that have embraced the Yale Model have done so without regard for the liquidity or risk of the investments.
The situation has only been made worse by the fact that billionaires and money managers now have a say in how universities operate, which has further distorted the purpose and mission of these institutions.
Universities Rely Too Heavily on Endowments, Ignoring Their Social Responsibility
The growth of university endowments in the past three decades has been unprecedented, with the average value of the average endowment increasing by 423% since 1990. But the profits made from these investments are not being used to bridge the gap in public funding or keep tuition costs down.
Instead, they’re mainly used to increase the selectivity and ranking of the schools. And the tax breaks that come with endowments mean that the government is losing billions of dollars in revenue that could be used to fund education.
To make matters worse, some schools are taking advantage of overseas tax shelters to avoid taxation on income streams unrelated to their academic missions.
While Congress passed a 1.4% tax on the largest university endowments as part of the Tax Cuts and Jobs Act, the revenue from this tax — just $200 million a year — is nowhere near enough to make up for the money lost to endowments.
In short, universities have become too reliant on endowments to fund their operations. The profits from these investments are not being used to make education more accessible but to increase the selectivity and ranking of the schools. And with the government missing out on billions of dollars in revenue, it’s clear that the current system is unsustainable.
UC Ignites Controversy with $4 Billion Investment in BREIT Amidst Struggling Student Workers
The University of California’s recent $4 billion investment in BREIT has raised eyebrows among some students and faculty, as it comes at a time when UC graduate assistants, postdoctoral fellows, and researchers are struggling to make ends meet.
Thousands of these workers went on strike earlier this year due to wages barely covering rent and food in one of the most expensive parts of the country.
A union representing these workers found that 40% of its members were severely rent burdened, meaning they were spending more than half their income on rent. The investment in BREIT has been seen by some as a sign that the University of California has shifted its focus from its core mission of providing effective higher education to that of making a profit.
Endowment-Driven Universities: The High Cost of Privatizing Education
The growth of endowments as the main financial engine of most universities has certainly had its drawbacks. Large donations from alumni are essential for fostering community involvement and alumni loyalty, but smaller donors are increasingly being overshadowed by high-net-worth individuals seeking tax write-offs and their names on buildings.
This powerful class of donors can now shape the direction of higher education, often investing in research that can be monetized and chairs in areas of study that reflect well on their identity.
This warped culture has seeped into the way schools are run. Fundraising and development are prioritized to entice the affluent, while bond-funded debt is used for new buildings.
Faculty positions are reduced and replaced with low-wage labor, and unprofitable departments are cut in the name of efficiency. This kind of ruthless cost-cutting has created a system in which universities focus more on the bottom line than their ultimate goal: educating people.
The result is a stark divergence from the university’s original purpose. Solidarity between generations is replaced by a capitalistic approach that commodifies education and fails to recognize its essential value. Unless we break free from this paradigm, the future of higher education will remain in the hands of the wealthy few.
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