In 2015, a New York Times op-ed observed that Yale University had spent $480 million that year on fees for hedge-fund managers to grow the university’s already massive endowment—while spending just $170 million on tuition assistance and fellowships for its students.
“We’ve lost sight of the idea that students, not fund managers, should be the primary beneficiaries of a university’s endowment,” wrote the law professor Victor Fleischer, whose 2006 proposal to change the tax treatment of “carried interest” became a liberal cause célèbre. “The private-equity folks get cash; students take out loans.”
Though Fleischer’s screed was not the first to attack elite-college endowments—the progressive commentator and former Clinton administration Labor Secretary Robert Reich has also railed against them—it presaged a wave of criticism that has since become a storm. Shortly after Fleischer’s op-ed was published, the New Yorker writer Malcolm Gladwell grabbed the baton, launching what’s become an ongoing, high-profile crusade against fat-cat university fundraising. In 2016, he dedicated an entire podcast to the absurdity of billionaires donating millions in endowment dollars to schools that don’t need the money, and later waged a very public war against Stanford University for its fundraising appeals to alumni. “If Stanford, with $22 billion in the bank, still has needy undergraduates, how are they spending the billions they ALREADY have?” he tweeted in February.
It’s not just liberals like Gladwell who are outraged. The GOP-led Congress has held at least two separate hearings examining the taxpayer subsidies that support endowments, which are now potentially under scrutiny as part of tax reform (assuming Congress gets there). Even Donald Trump has weighed in. “Many universities spend more on private equity-fund managers than on tuition programs,” the then-presidential candidate last September, channeling Fleischer’s critique.