The Role of Tuition and Endowments in the Mission of Universities
As Rice University approaches its centennial anniversary in 2012, we are more determined than ever to invest our resources — human and financial — into research and education that will create the leadership and knowledge required to realize a more prosperous and peaceful world.
No two institutions of higher education in America are precisely alike. What sets Rice apart from many other research universities is our small size: A student population of 5,000 makes us the second smallest university represented by the American Association of Universities. Even so, we have developed and nurtured an ability beyond our size to contribute to important research across the spectrum of human knowledge and to bring that research activity into the undergraduate educational experience.
Our mission statement reflects this attribute: “As a leading research university with a distinctive commitment to undergraduate education, Rice University aspires to pathbreaking research, unsurpassed teaching and contributions to the betterment of our world. It seeks to fulfill this mission by cultivating a diverse community of learning and discovery that produces leaders across the spectrum of human endeavor.”
In February, Rice University was among 136 higher education institutions asked by Sens. Max Baucus, D-Mont., and Charles Grassley, R-Iowa — the chair and ranking member respectively of the Senate Finance Committee — to share information about policies and practices regarding tuition, student aid and endowments. In a cover letter that accompanied Rice’s response, I thanked the senators for the opportunity to share information about the essential role these financial resources play in helping Rice make a significant difference in the lives of our students and in the success of our community and country. The following column is based on that letter.
- David W. Leebron
Our contributions to the arts and sciences also belie our small size. Two Rice professors — Richard Smalley and Robert Curl — made research breakthroughs in 1985 that launched the nanotechnology era. They won a Nobel Prize for their efforts. Breakthroughs in artificial heart research and space science have translated into treatments and technologies that make everyday improvements in people’s lives. Advances in digital signal processing pioneered at Rice make many modern technological conveniences possible.
Our Shepherd School of Music nurtures talent that brings audiences around the world together in harmony; our architecture school trains people to design structures that can redefine a city or house a family with even the most humble budget; and our business school is preparing to train principals in the business and leadership skills needed to improve the operations of our public schools.
Opened in 1912 with what was then considered a large founding endowment of $6.7 million, Rice now has an endowment of $4.6 billion that supports nearly half the expense of our education and research enterprise. Net tuition payments account for some 11 to 12 percent of our operating revenues. Even the full annual tuition sticker price, at under $30,000, covers less than half of the $70,000 it costs to educate a student at Rice. Earnings from our endowment, and our prudent but flexible strategy for managing and spending them, allow us to continuously upgrade our educational programs while withstanding the vagaries of the stock market and government budgets.
Rice’s student aid policies are aimed at creating opportunities for bright and motivated students no matter what their economic situation. Our tuition is thousands of dollars less than that of our peers, and loan requirements in financial aid packages are limited to a maximum of $14,500 over four years at Rice. For students with family incomes below $60,000 — a threshold we recently doubled from $30,000 — no loans are required. More than 21 percent of the students who entered Rice as freshmen last fall came from those families. Sixty-eight percent of the students in that freshman class received university grants. That financial aid, plus our quality education and low tuition, recently earned Rice recognition as the No. 1 best value in higher education by The Princeton Review.
Our mission underlies everything we do and guides every investment we make in the students, faculty, staff, facilities and services that constitute our enterprise. Keeping our education accessible and affordable is undoubtedly among our highest priorities, but it is not our only mission. Small class size, low student-to-faculty ratios, hands-on experience and research opportunities, and significant resources per student are measures of quality valued by parents and students, but these measures also drive costs. Our research laboratories and infrastructure support our ability to invent and solve, but they, too, come at a high cost. Government grants help with a portion of those expenses; however, even funded research imposes a net financial cost to the institution.“If I can leave you with one central point, it is that the U.S. system of higher education is the envy of the world and the model for massive new investments in universities in China, Europe and elsewhere.”
— David W. Leebron
We seek to serve the city and state in which we are located, as well as our nation and the world beyond. All of these endeavors require substantial resources. For taxpayers, donors and the university, though, the payback is huge in terms of the discoveries that keep the United States at the leading edge of the global economy and the preeminent contributor to solving problems that confront our world.
Concerns about ensuring that young people have access to an affordable and quality college education are valid, and we take them seriously. But a fixed, formulaic approach to how endowments are managed and allocated or to how education is priced threatens to force our diverse higher education institutions into a tight mold where enterprise and innovation give way to rigid processes and mediocrity.
Educational institutions are among the most enduring establishments in our society. The oldest such institutions in continuous existence date back almost a thousand years. And while complacency must indeed be avoided, prudence requires that such institutions be managed in a way that will sustain them not for years or decades, but for centuries.
Consider, for example, the challenge of prudently determining endowment payouts. At Rice, a period of market decline over the four fiscal years from 1999 to 2003 left the value of our endowment flat, with purchasing power reduced because of inflation. Because we base our payout on a three-year average of the endowment’s market value, and we spent conservatively in years in which returns were well above normal, we were actually able to increase the endowment’s contribution to our budget during that difficult time in order to sustain our programs; support our students, faculty and staff; and maintain our campus. If we had been limited to a fixed point-in-time percentage, payouts would have declined in three of those years, with serious consequences for our students and our 2,500 faculty and staff members and their families.
Tuition, too, needs to respond to changing economic conditions, educational priorities and student needs. Since Rice’s full tuition covers less than half of the full cost of the undergraduate education we provide, caps or penalties on tuition increases would not necessarily benefit most students. Too often overlooked is that higher education today operates in an intensely competitive environment. Unlike most other industries, there is virtually no consolidation in higher education. Each year we compete vigorously with scores of institutions to attract students, faculty and resources. Our tuition rates reflect our careful analysis of costs and trends, and our financial aid packages respond to the competitive environment and the individualized needs of our students.
“Concerns about ensuring that young people have access to an affordable and quality college education are valid, and we take them seriously.”
— David W. Leebron
If we are driven by any overriding goals, they are for Rice to be an engine of opportunity for our nation and to assure that the talented young people who are admitted to our university have the opportunity to attend and benefit from it, regardless of their families’ financial circumstances. The federal government is not in the best position to determine the mix of tuition pricing, financial aid policy and endowment payout that will best support the educational and research endeavors our nation desperately needs to fuel its future economic growth.
Is there room for improvement today across the vast assortment of higher education institutions? Absolutely. But if I can leave you with one central point, it is that the U.S. system of higher education is the envy of the world and the model for massive new investments in universities in China, Europe and elsewhere. While we see increasing skepticism at home about the amount of resources our universities need to accomplish their various missions, other countries have learned instead the lesson that they need to invest much more significantly in their higher education systems.
Higher education is an asset our country needs to nourish and support. We all have a responsibility to assure that resources — whether provided by government or by private donors who benefit from tax rules that encourage their support — are spent wisely and well. Yet we have an equal responsibility to assure that the historic global preeminence of our universities in both education and research is maintained. That will require a renewed commitment from all of us.