For U.S. Universities, the Rich Get Richer Faster | The Wall Street Journal
By Melissa Korn
April 16, 2015
The higher-education wealth gap is growing—not just between those who do or don’t have college degrees but among colleges themselves.
The coffers of the nation’s 40 wealthiest universities, including Harvard University, Stanford University and the University of Michigan, are filling at a faster rate than those of other schools, thanks to particularly strong investment performances and generous donors, according to a report to be published Thursday by Moody’s Investors Service.
“It’s really a tale of two college towns, if you will, or cities,” said Karen Kedem, vice president and senior credit officer at Moody’s. “Looking ahead, the expectation is that this [gap] will only widen.”
The 10 richest institutions held nearly one-third of total cash and investments at four-year schools in fiscal 2014, while the top 40 accounted for two-thirds. Wealth was concentrated among elite schools at similar rates before the financial crisis, but the gap shrunk as top schools lost big on more-volatile investments in 2008 and 2009.
They have more than recovered since then. Schools on Moody’s top-40 list saw assets grow by 50% between fiscal 2009 and fiscal 2014, significantly outperforming other schools with strong credit ratings but smaller asset bases.
Moody’s rates the debt of more than 500 public and private schools, which enroll about 80% of all four-year students.
The 40 wealthiest public and private schools had a median $6.3 billion in cash and investments in fiscal 2014, compared with $273 million for the rest of group Moody’s rates.
Those large endowments draw the top investment advisers and provide access to less-liquid, but potentially higher-yielding, investments. As a result, said Pranav Sharma, a Moody’s analyst and the report’s lead author, it is unlikely that schools not already in the top bracket can catch up, “unless financial leaders make some big mistakes.”
Wealthy schools also have a leg up when it comes to collecting charitable gifts, with the 40 “financial leader” schools capturing 59% of all gift revenue in fiscal 2014. Those with weaker balance sheets, with debt rated Baa and below, brought in just 3% of the gifts.
Harvard last year secured a $350 million gift from the family of Hong Kong investor Gerald Chan, its largest ever, and topped the list of higher education donations in fiscal 2014 with $1.16 billion in total gifts.
Those schools with the brightest prospects generally rely little on tuition revenue. Rather, their income streams are diverse, including philanthropic gifts, investments, research funds and, for public schools, state support.
Broadly, private colleges collect about three-quarters of their revenue from student-related charges, and public schools get 46% from students. The 20 richest public and private nonprofit schools got 15% and 30% of their funds from student charges, respectively.
“It’s not like they’re doing well just because of one factor,” Mr. Sharma said. “Everything’s going well for them.”