Many Small Private Colleges Thrive With Modest Endowments

Database: How endowment investments fared at 247 nonprofit groups

Articles: All of the advice and commentary from this special supplement on endowments

Supplement in print: Order print copies of the Endowments supplements from June 2006 and August 2005

With all academe’s interest in endowment growth, we may sometimes lose sight of the fact that a college’s purpose is not to acquire wealth but to educate students. Isn’t that what public colleges do best? Actually, no. It’s what small private colleges do best, by operating with a focus and efficiency that make the most of even fairly small endowments. And that’s something we should keep in mind if we want public spending on higher education to help create the most educational opportunity, particularly for minority and low-income students.

Employers are searching for better-educated workers to compete in an increasingly global economy, and effective civic engagement, as always, depends on well-educated citizens. Most colleges and universities — public and private, large and small — are trying to increase access to higher education and to satisfy the demand from the 64 percent of high-school graduates who enter institutions of higher education today. The size of a college’s endowment may sometimes reflect its educational quality, but institutional vitality and an unwavering focus on student success are the key factors in getting impressive results.

Private, nonprofit colleges do as well or better than public ones in providing access and success for low-income students. Thanks to large amounts of nongovernmental financial aid, private institutions enroll low-income students in equal proportions to public institutions. The lowest-income students, those from families earning less than $25,000 per year, constitute the same proportion of undergraduate enrollment, 14 percent, at private institutions as they do at public ones. Contrary to common perceptions, the family income of students at smaller private colleges and universities is on average lower than the family income of students at larger public research universities. In fact, smaller private colleges enroll a higher proportion of Pell Grant recipients than do larger public research universities — 31 percent versus 24 percent. And once low-income students are enrolled, private institutions graduate more of them: 54 percent in six years versus 44 percent at public institutions.

Another false stereotype is that independent colleges and universities are most accessible to white Americans. In fact, they enroll students from diverse backgrounds in proportions similar to public four-year universities but achieve consistently better graduation rates. Of Hispanic students who graduate from college, 76 percent of private-college graduates earn their degrees in four years or less, while only 39 percent of public-college graduates do.

Although private colleges and universities enroll fewer than one-quarter of all American undergraduates, they account for nearly one-third of undergraduate degrees. Recent data from the U.S. Department of Education show that of all degree-seeking freshmen who entered a four-year college in 1998, 50 percent of those who chose private, nonprofit institutions graduated in four years, while only 27 percent who went to public institutions held a bachelor’s degree after four years. The six-year private-college graduation rate was 64 percent, in contrast to a 53-percent rate at public institutions. That means students at private colleges are more likely to graduate and more likely to graduate on time. They become productive members of the work force sooner and gain a year or two of earnings rather than paying tuition for additional years.

Even small, private colleges that face the combined pressures of small endowments and modest tuition revenue do better than public colleges by virtually every measure of institutional effectiveness and student success. While the top quartile of the smaller private institutions had a median endowment of $68,421 per full-time-equivalent student in 2003-4, the remaining three-quarters had a much more modest median of $15,588 per student. Income from a large endowment can enhance educational quality, but it is not the only means. Indeed, private institutions spend nearly twice as much on teaching and learning — the heart of undergraduate education — as do their public counterparts, an average of $11,112 per student versus $5,990. And they do so with significantly less support from tax dollars. The most recent five years of data show that the 750 smaller, nondoctoral private institutions increased instructional spending by 12 percent (from a median of $5,898 per student in 1999-2000 to $6,597 in 2003-4), even while their endowments shrank by 4 percent (from a median of $19,283 per student in 1999-2000 to $18,448 per student in 2003-4). What could be better evidence of these institutions’ strong commitment to their core teaching mission, resulting in graduates more likely to succeed professionally and to become engaged citizens?

But are small, tuition-dependent private colleges and universities being overly generous? Are they in danger of spending themselves into oblivion? Without subsidies provided by state governments and usually without large endowments, do these colleges continue to operate only by shortchanging other aspects of their educational programs?

Quite the opposite. Out of necessity, they actively seek ways to control costs while enhancing services. The 20 institutions in the Wisconsin Association of Independent Colleges and Universities, for example, have created a model program for sharing back-office functions. Independent institutions have also created new educational programs that fill specific market niches and generate tuition revenue. Regis University, in Denver, for example, has developed an innovative program for adults that serves 12,000 students, while Saint Leo University, in Florida, educates active-duty soldiers as a partner in the U.S. military’s online eArmyU. In addition, revenue-generating partnerships with companies often produce multiyear balance-sheet benefits. One case among many is Georgetown College, in Kentucky, which has a long-term partnership with a nearby Toyota plant that provides four four-year, full-tuition scholarships annually to graduates of the local high school. Careful stewardship and entrepreneurial leadership provide substantial additional income for teaching, even when endowments are small and investment returns are modest.

At private colleges, students often learn in small classes where they have more interaction with full-time professors. Most of the characteristics associated with greater student engagement that have been identified by researchers George Kuh and Richard Light, among others, are found more often in smaller private colleges than in other types of institutions. Some state higher-education leaders have tried to capitalize on that insight by establishing public replicas of small liberal-arts colleges (the Massachusetts College of Liberal Arts, for example, is one of about two dozen), or by creating units within large universities such as “honors colleges.” That kind of response is halfway to the right one.

Why reinvent the wheel and hope for positive outcomes somewhere down the road when good results can be achieved more effectively and sooner? If the public-policy objectives these days are to spend responsibly and be more accountable to taxpayers, investments should be made in private colleges that have demonstrated success, rather than in state universities where the outcomes are less certain. One idea worth pursuing is to urge the many states that now offer portable tuition grants for students at public universities to offer the same generous terms for students who choose a private college.

We need to abandon stereotypes and recognize several realities. Smaller independent colleges have a superior track record of enrolling and graduating low-income and minority students. Small colleges, even those without big endowments, have in fact increased spending on core teaching and learning. And the most important way to measure the effectiveness of a college is by what it does for students, not by what it keeps in the bank.

Richard Ekman is president of the Council of Independent Colleges.

http://philanthropy.com
Section: Endowments
Volume 18, Issue 16, Page B22