The Role of Not-for-Profit Universities

President Richard C. Levin
May 8, 2008
Gala Dinner – Goulandris Museum of Natural History

I am greatly honored by this evening’s dinner and for the hospitality that Jane and I have enjoyed throughout our visit. I am grateful to Alex Papachellas for organizing this evening and for inviting all of you to attend. I also wish to extend my appreciation to Minister Stylianidis for attending this evening.

I have been asked to discuss the role that private, not-for-profit universities can play in higher education. This question is timely, and controversial, considering the debate now underway in Greece about amending the Constitution to liberalize the rules concerning private universities. I hope my remarks this evening will be useful as Minister Stylianidis and others of you continue that conversation.

My comments draw mainly on my experience with American universities, which I know best. American universities offer an interesting case study because there are outstanding, world-class universities in both the public sector and the independent non-profit sector. Both types of institutions have similar aims, offer courses of study that are alike in many respects, and regard themselves as complementary parts of a strong national system. At Yale, the institutions that we consider our peers include not only the best non-profit universities, such as Harvard, Princeton, and Stanford, but also the leading public universities, such as the University of Michigan and the University of California, Berkeley.

Based on the American experience, I would like to develop three ideas for your consideration. First, a mixed system of public and private universities affords important benefits to students, faculty, and society at large. Second, the presence of strong, independent private institutions, insulated from political pressure, helps preserve a tradition of institutional autonomy and academic freedom, not only within the independent sector but throughout the public sector as well. And third, it may not be possible to support internationally competitive universities from public resources alone; the best of America’s public institutions, as well as the private ones, rely heavily on tuition revenue and philanthropy.

The Benefits of Diversity

Let me say at the outset that a distinctive feature of higher education in the United States is its diversity. Approximately 2,200 colleges and universities offer a four-year course of study leading to a bachelor’s degree. Although m ore than two-thirds of these schools are private, non-profit institutions , the majority of students attend public universities. In the fall of 2007, there were 15 million students enrolled in degree-granting undergraduate programs in the United States. Nearly 80 percent were studying at public universities.

The prominence of public universities in higher education in the United States is a relatively recent development. The oldest colleges and universities in the country, such as Yale, are all private, not-for-profit institutions. Most of these schools, founded between the mid-seventeenth and early nineteenth centuries, had a religious affiliation and were oriented at least in part toward the education of clergy. As fields of scholarship proliferated and the expectations for higher education changed, some of these small non-profit institutions grew into major research universities with a much more secular character. Many others remained small, liberal arts colleges without a great investment in research.

As early as the 1840s, there were proposals for the national government to set aside land for the construction of colleges that would be devoted to the study of agriculture and engineering. In 1862, President Lincoln signed into law the Morrill Act, which donated 30,000 acres of land to each state for the construction of colleges that would, in the language of the statute, “teach such branches of learning as are related to agriculture and the mechanic arts” as well as “other scientific and classical studies and including military tactic[s].” These so-called “land grant” universities, such as the University of California, Berkeley, became the flagship public universities in their states, and many are now world-class, research-intensive universities.

During the latter half of the 20th century, as large numbers of World War II veterans entered college with federal government support and their children reached college age, the number and size of public universities grew dramatically. In 1960 there were 367 public university campuses; by 2007 there were 643.

Private, non-profit universities tend to be much smaller than public universities. Yale, for example, has about 5,300 undergraduates and an additional 6,100 students in 11 graduate and professional schools. The University of California, Berkeley, in contrast, has close to 23,500 undergraduates and over 10,000 graduate and professional students. The size of the Berkeley faculty and its campus is correspondingly larger. In many public universities, the number of faculty in one engineering department, such as mechanical or electrical engineering, is greater than the number of faculty in the entire School of Engineering at Yale.

The leading public and private universities share the same aims for the education of undergraduates, namely, to develop certain qualities of mind: the ability to think independently, to regard the world with curiosity and ask interesting questions, to subject the world to sustained and rigorous analysis, to use where needed the perspectives of more than one discipline, and to arrive at fresh, creative answers.

What benefit does this system offer to students? First, they have a remarkable degree of choice. Anyone who wishes to attend college in the United States can find an institution that matches his or her academic interests, level of ability and preparation, and financial circumstances. Students typically apply to more than one school and then choose among the schools that have offered them admission.

There is also a lively competition among public and private institutions for the best students and the best faculty. That competition promotes a high level of quality in education and scholarship. When students and faculty can “vote with their feet,” it puts pressure on universities to be responsive by investing in academic programs and facilities. C ompetition also creates strong incentives for institutions to be rigorously self-critical in periodic assessments of their curriculum. Both Yale and Harvard, for example, undertook thorough internal evaluations of their undergraduate programs during this decade, and published the results. In both institutions, the process led to significant reform. In short, competition encourages excellence.

The mobility of faculty, who are recruited regularly from other institutions, creates a powerful reward system that encourages them to be creative and productive in their teaching and their scholarship. This competition is one reason – though not the only one – why American universities are among the best in the world. It also helps to explain why there were over 580,000 students from outside the United States studying at American universities last year.

The benefits of a mixed, public-private system accrue to society as well. The nation is better off when the graduates of colleges and universities have well-honed skills of critical reasoning, are creative and entrepreneurial, and have a lasting curiosity to learn. The nation is also better off when faculty are productive in the research and scholarship that fuels technological innovation and addresses issues of national concern.

A Tradition of Autonomy

Let me now convey a second lesson from the American experience with higher education. Because the United States began with a private sector and only later developed a public sector, the traditions of academic freedom and institutional self-determination were well established before the government entered the arena of higher education. These traditions helped to protect public universities from undue political influence on matters such as curriculum and faculty appointments, and ensured that our universities, both public and private, remain bastions of independent, creative thinking.

Today, both public and private universities share a long-standing tradition of autonomy in the control of academic matters and self-governance. We regard our colleges and universities as independent centers of scholarship and commentary. We believe it is vitally important that faculty be free to speak their minds, and that they have the job security to express themselves openly inside and outside the campus without concern for retribution. We vigorously defend free speech on campuses for our students as well.

Faculty play a major role in governance of American universities. Decisions about appointment and promotion of faculty depend heavily on reviews by their peers; typically, a candidate for a faculty position must win a majority of votes among colleagues in an academic department for the appointment to proceed. Faculty have a role in developing the budget of the university; they sit on admissions committees; and in many institutions there is a faculty Senate that has the power to approve or reject policy decisions.

All institutions, public and private, have governing boards of private citizens. In the case of private universities, these boards are entirely independent. Even the boards that govern public universities are largely free from direct government control.

Private universities have long kept state and national governments at arm’s length in any discussion of the content of the curriculum or the composition of the faculty. This has had spillover benefits for the public universities, who might otherwise be subject to excessive intervention from state governments. It is worth noting that the United States Department of Education, which oversees federal scholarship grants and loans, is prohibited by law from issuing policies that seek to influence the content of university curriculum.

This tradition of institutional autonomy has helped to deflect certain criticisms and preserve the independence of faculty in expressing their views. In recent years, some in the United States have argued that university faculty are overwhelmingly liberal in their political perspective. These critics have argued that the national government, in awarding research grants, should consider the political views of faculty, including their record of supporting (or opposing) United States foreign policy. The united opposition from both public and private universities has easily defeated these proposals.

Financing Higher Education

Let me turn now to one final lesson from the American experience, which is this: to achieve excellence, universities, both public and private, must rely on private funding.

The financial underpinnings of the modern American university are complex. The federal government provides some support for students in the form of grants-in-aid based on financial need, but these grants, which can be used at both private and public institutions, cover only a small fraction of the tuition and fees. The federal government generously sponsors a large fraction of the research conducted on university campuses, and it also provides significant incentives for charitable donations through the tax laws. Historically, these charitable donations, either directly or indirectly when invested and accumulated in endowments that throw off an annual payout, provide operating support to most private universities. Charitable g ifts also support the construction and renovation of facilities. By contrast, in public institutions, the principal responsibility for developing and financing academic programs and facilities has historically rested with the 50 state governments.

Virtually all U.S. colleges and universities, public or private, rely upon tuition and fees to a substantial degree. Historically, public universities were able to set tuition and fees at low levels because they enjoyed substantial subsidies from state governments. Students also had access to federal and state scholarship grants that were awarded on the basis of financial need, as well as government-backed loans at below-market interest rates. Students attending private, non-profit universities were eligible for the same grants and loans but faced higher levels of tuition and fees. During the 1960s, Yale and other non-profit universities began to develop their own need-based scholarship programs, financed primarily with institutional, not government, funds. Today, Yale and other leading private institutions make admissions decisions without regard to an applicant’s ability to pay, and then provide grants sufficient to meet the full financial need of all admitted students. Yale is one of only a handful of U.S. schools that makes this full need-based financial aid available to international as well as domestic matriculants.

By the late 1960s, U.S. public and private universities seemed to be on a divergent path, with state governments keeping tuition in public universities low, sufficiently low that Federal grants covered most of the cost of education for low-income students and sufficiently low that full tuition was not a major burden on middle-income families. Private universities, by contrast, had much higher tuition charges, with much larger financial aid packages available on the basis of need. Consequently, for low-income families, the effective net price of attending public or private institutions was roughly the same, while for high-income families, private institutions were much more expensive.

Over time, state governments have slipped in their commitment to maintain first-rate universities with low tuition. Each cyclical downturn in the economy has put stress on the budgets of states that were already straining to accommodate increased spending on health care and social services. As a result, the share of public university budgets supported by state appropriations has declined dramatically over the past twenty years – from 49% to 27% at the University of California, Berkeley and from 39% to 14% at the University of Texas. Correspondingly, tuition for in-state students at public universities has increased substantially – by 8% per year over the last three decades at the University of Michigan and the University of California, Berkeley. Public universities have also sought to attract larger numbers of students from other states, charging out-of state students tuition rates much closer to those of private universities. Twenty years ago, tuition accounted for 9% of the operating revenue at Berkeley; today, it accounts for 24%. And students are paying a much higher net price; tuition at most major public institutions is now well in excess of the support provided by federal grants.

Meanwhile, the most prominent and most financially viable private, non-profit universities have been moving in the opposite direction. Over the past decade, Yale has expanded its financial aid programs several times. We now waive any payments from parents earning less than $60,000 annually, heavily discount the required payments from parents earning up to $120,000, and offer some aid to almost all families with incomes below $200,000. As a result, low-income students and even many middle-income students now pay less to attend Yale than the University of California.

The budgetary pressures on public universities have had other adverse consequences; notably, public institutions have been disadvantaged in competition for faculty. They are hard pressed to pay competitive salaries and offer competitive research support packages. The difficulties in competing with private institutions for students and faculty have led state universities to turn increasingly to fundraising from private sources to maintain their excellence.

Considering the many demands on public resources in all the industrialized countries with aging populations and rising costs of health care, it seems inevitable that public support for universities will continue to diminish, and these institutions will need to rely on increased tuition charges and increased philanthropy to remain competitive. D ata from the Organization of Economic Cooperation and Development support this inference: expenditures on tertiary education as a percentage of GDP are higher in countries that have substantial tuition revenues and philanthropy.

I recognize that in many European countries, the notion that families with the ability to pay, and students themselves, should contribute considerable sums for tertiary education is highly controversial. But, in a certain sense, this view flies in the face of contemporary economic reality. Over the past thirty years, the private rate of return to higher education has risen considerably in industrialized nations. In the United States, each year of higher education increases lifetime earnings by more than 10%. Studies using Greek data produce a slightly lower estimate, about 8% per year , but this is still a return that would seem to justify some private investment in one’s own education.

There are, of course, social returns to higher education that exceed the private returns captured by individuals in the labor market. Many aspects of these returns are not easily quantified, such as producing a more informed citizenry with a deeper understanding of public issues. But economists have produced evidence that increasing the number of college graduates raises industrial productivity in a region, raises the wages of those without a college education, lowers public expenditures on health care, and reduces crime. All this evidence makes the case that governments should provide some level of subsidy for higher education, but the large private returns equally suggest that those who get the direct benefit of education should bear some of the cost.

Conclusion

I hope these three lessons from the study of American higher education will help to inform the debate you are having about the role of private universities in Greece. I believe that the United States’ system of higher education is stronger for its diversity. A mixed system makes it possible to accommodate large numbers of students, while at the same time delivering, at the best institutions, teaching and scholarship at the highest level. The presence of private institutions helps to ensure a greater degree of academic freedom and institutional autonomy within the public sector. And finally, the experiences of public universities in the United States also suggest that they will become increasingly similar to private universities in their reliance on a high-tuition, high-aid model, an outcome that can be justified on the grounds that the private return to higher education is substantial.

I thank you for the privilege of discussing this important issue with you this evening, and I wish you well as you ponder the future of higher education in Greece.