Higher education wealth gap widens

Richest schools get richer capturing biggest returns, gifts

Harvard University campus in Cambridge, Massachusetts.
Michael Fein | Bloomberg | Getty Images
Harvard University campus in Cambridge, Massachusetts.

The wealth gap is widening among America's colleges and universities. (Tweet this)

The improved economy and rising stock market have helped repair the damage to university endowments, but the biggest investment gains and largest gifts have flowed to the wealthiest schools, according to a recent analysis by Moody's Investors Service.

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Among the top 40, wealth is further concentrated among just a handful of schools, including Harvard (with $42.8 billion), the University of Texas ($36.7 billion), Stanford ($31.6 billion), the University of California ($28.6 billion), Yale ($25.4 billion) and Princeton ($21.3 billion).

"This growing gap will pose increasing competitive challenges for institutions that do not have the resources to invest in facilities, financial aid and other strategic initiatives at the same level as their wealthier counterparts," wrote Pranav Sharma, the report's lead analyst.

Though they suffered bigger losses during the financial collapse of 2008, the richest schools have more than recovered that lost ground. Total assets for the top 40 "financial leaders" grew by 50 percent between the 2009 and 2014 fiscal years, according to Moody's.

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Like many wealthy individuals, the wealthiest school have a wide range of income sources, said Moody's. Those include investment income, gifts, research grants and, for public universities, state support.

Schools with the biggest endowments are able to attract the best investment advisers and tap alternative investments that may be riskier but generate higher return. That makes it unlikely that schools further down the wealth ladder will able to close the gap, according to the report.

Wealthy schools also capture the bulk of charitable gifts flowing to higher education. The top 40 richest schools alone received nearly 60 percent of all gift revenue last year.

Because of their outsize wealth, the richest schools rely far less on tuition and student fees to pay the bills. The median level of revenue generated from student-related charges for all private colleges is 75 percent; at the top 20 private schools, the median was just 15 percent.

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At public universities, the median generated 46 percent of revenues from student charges and 24 percent from state funding. Among the top schools, the median level for student charges was 30 percent, with 16 percent coming from state support.

As a group, public universities in the top 40 performed better than their private counterparts, growing total assets by 44.5 percent compared with 24.7 percent for private schools between the 2008 and 2014 fiscal years. But that winning streak is not likely to continue, Moody's said.

"With more states implementing tuition limits, even as state funding remains constrained, the recent credit strengthening of the financially leading publics will moderate," the report said.