12.10.08

Giving Money to Your Alma Mater is Immoral

By subsidizing the irresponsible financial decisions of your old school, you're helping it keep tuition costs out of reach for all but the richest of students.

If it hasn't come already, it will arrive any day now, in a perfectly innocent-looking envelope, or a dinnertime phone call from a current student who wants to tell you about all the exciting capital investments your alma mater has planned. If you're lucky, it might just be an email.

Colleges are desperate for money. Elite schools like Tufts, Dartmouth, and MIT have seen their endowments plummet. The University of Rochester's endowment dropped by 25% percent in the past six months. And last week Harvard reported its endowment had fallen by 22%— $8 billion—since July 1. This would be bad news in any environment, but there are a number of other issues that are making it worse for schools. The same market meltdown has also leveled parents' retirement funds and home equity, increasing many families' need for financial aid. Student loans may soon be more difficult to get, and many public universities have seen their budgets slashed.

If you believed that the government should have bailed out the automakers with no strings attached so they could continue business as usual, then by all means: send money to your old school.

So it is with a heavy heart that colleges come begging their alumni for cash, and their pleas will be compelling. If you don't send them money, they'll tell you, they could be forced to turn away well-qualified low-income students who rely on financial aid, and lay off remarkable professors in favor of cheaper ones. They'll slash their athletic budgets, and cancel that planned high-tech upgrade to the medical school. If you don't give, and give generously, you'll be complicit in starving the institution that gave you a world-class education just when it needs the help the most.

Should you tell them to take a hike, even if you can afford to send them some money? Absolutely. Here's why: Colleges manage money just about as moronically as any institution in the history of the planet. Giving them more cash is, to paraphrase a recent Saturday Night Live skit, like giving your junkie cousin a hundred bucks for rent, then running into him at the dog track and forking over another few hundred. It doesn't make sense, and it's no way to foster intelligent future spending decisions.

Think of it this way: If you believed that the government should have bailed out the automakers with no strings attached so that they could continue business as usual, then by all means: send money to your old school and pray that they decide to use it smartly. But if Detroit has taught us anything, it’s that large, old, entitled institutions don't restructure until they're hamstrung. Economic turmoil is forcing everyone, from corporations to individuals, to reexamine their finances and reconsider their poor choices. This is a good thing, and a lesson to be learned for colleges too, if their alumni will let them learn it.

A new report from the National Center for Public Policy and Higher Education found that college tuition and fees increased 439% from 1982 to 2007, while median family income rose just 147%. You've heard all the talk about the soaring cost of health care? It's only risen about 250% over the period.

By hiking tuition this dramatically, these colleges are essentially blacklisting an entire generation of young adults whose families can't pay that much. And don't kid yourself: financial aid does not come anywhere close to making up the difference. That makes your decision of whether to send your alma mater more money a moral decision. By donating whenever they ask for it, alumni help to enable colleges to bungle their finances, then hike tuition to make up the difference. Forty-nine states received F's from the National Center for Public Policy and Higher Education's ranking of college affordability. You're helping to shift the burden of financial responsibility off of the college and onto poorer students.

In his book Going Broke By Degree: Why College Costs Too Much, economist Richard Vedder shows how colleges spend huge sums of money on things that have nothing to do with educating students. Many of these things—lavish food courts and dorms, top-notch sports teams, celebrity professors and lavish campuses—are designed to create an elite image that will appeal to students who can afford to pay for it. It reinforces the concept that these universities are for rich kids only, and helps justify the exorbitant tuition hikes. What's needed on college campuses is a paradigm shift in the way money is spent, and that shift will not happen until alumni take away the punch bowl.

Most colleges' entitled attitudes toward cash—whether it's money from the government or from alumni—are disturbing. All of us have a limited amount of money to devote to our philanthropic efforts, so it's important that we send it to people who are using it wisely. Where are colleges putting this money? A big chunk of it is funneled directly into the pockets of the bureaucrats who run these financially strapped institutions. On average, compensation for public higher education leaders rose 7.6 percent over the past year to top $420,000, according to an annual survey conducted by the Chronicle of Higher Education found.

"In these hard economic times, apparently belt-tightening is for families and students, not university presidents," Senator Chuck Grassley said last month. "Maybe the salary increases can be justified, but students, parents, and university boards should have full information so they can decide for themselves."

It's true that most colleges allow donors to direct, with varying levels of precision, how their money will be dispensed. But this can be a shell game: alumni donations are likely to be a small portion of the school's overall budget each year, and if too many donors ask that their funds be used to improve financial aid packages, for example, the school can adjust downward the amount it provides for that financial aid, and divert the extra cash to funding for the football team, a new dining hall, or bonuses for bureaucrats.

If you still want to give money to higher education—a worthy cause if ever there was one—avoid tossing it into the bureaucracy of a large private or public college just because you happened to once be a student there. The Bill & Melinda Gates Foundation recognizes the important role that community colleges play in providing affordable education to disadvantaged students. Because of their relatively lean cost structures—no fancy dining halls or tenured faculty writing research papers on God knows what—community colleges offer an opportunity to invest in your local community.

I'm hopeful that this is already happening. I have a friend who works as a fundraiser for UMass Amherst's annual fund. He tells me that donations have been drying up year after year, and that many alumni are telling him they just can't afford to give money because of job losses and 401(k) beatdowns. What sweet justice that their old, overpriced ivory towers are finally finding themselves wanting for a little financial aid. Maybe now they’ll do something to deserve it.

Plus: Check out our College Admissions page, for full coverage of who's getting in, who isn't, and how the system really works.

Zac Bissonnette is an editor with AOL Money & Finance and its new personal finance site WalletPOP.com. He is a sophomore at the University of Massachusetts Amherst.