Do Elite Universities Really Need This Much Money?

In 1969, the Ivy League schools collected an average of $89,200 in revenues per student in today’s dollars. By 2019, the real revenues of Ivy League universities had exploded to $264,800 per student—a nearly threefold increase over 50 years. You read that correctly— for every one of their students, Ivy League schools collect more than a quarter million dollars in revenue each year. These are the findings of a new working paper by economists Zachary Bleemer and Jesse Rothstein, who have constructed an impressive longitudinal dataset of universities’ revenues and spending over the past several decades. Bleemer and Rothstein find that universities’ per-student revenues overall have increased: the average four-year institution collected $57,800 per student in 2019, up from $24,300 per student (in today’s dollars) in 1969. State flagship universities’ revenues have more than doubled in real terms, from $38,900 to $83,900 per student. But the growth in revenues among America’s most elite institutions has been the most spectacular. Ivy League schools now collect over four and a half times as much revenue per student as the typical four-year school. The authors argue this is a problematic and inequitable arrangement: higher-income students tend to enroll at more elite institutions, where revenues (and resources) are greater. About two-thirds of students at elite private schools hail from families in the top fifth of the income distribution. Lower-income students, by contrast, tend to cluster at institutions with fewer resources. Such disparities are certainly concerning, but it’s also likely the case that universities which rake in a quarter million dollars per student hit diminishing returns with all that cash. According to the paper’s estimates, Ivy League schools shell out $81,700 per student on administrative expenses alone—a figure comparable to the US median household income. Yale University famously has almost as many administrators as undergraduates. The bloat extends beyond the Ivy League: other private institutions in the top 50 (as determined by selectivity) spend an average of $41,800 per student on administration. Some of elite colleges’ excess resources may go towards productive ends, but it’s likely that these schools could spend much less and still provide a largely comparable educational experience. America’s well-regarded state flagships and public R1 universities spend less than a third of what top private schools do—and still enjoy very comfortable budgets. Revenue and spending patterns at elite private colleges might not appear to be a public policy concern. But as my colleague Tao Tan has documented, many of the revenue streams available to universities—even private ones—are subsidized one way or another by the government. Federal student loans facilitate higher tuition prices. Federal research funding contributes over $60 billion annually to universities’ budgets. Tax breaks with price tags in the tens of billions subsidize gifts and endowments. All these federal policies generally push revenues upwards for universities—and probably exacerbate resource gaps between elite and nonelite schools. It’s time to question whether elite private schools’ quarter-million dollars in revenue per student serves a legitimate public policy goal, and whether the various government subsidies that support these revenue streams truly justify their costs. Policy proposals such as capping indirect costs for federal grants and raising endowment taxes, which would somewhat limit these subsidies, should be on the table. Supporting access to higher education for qualified students may be a legitimate function of government. Ensuring elite colleges can spend like there’s no tomorrow is not.