The Increasingly Private Public School
by NICHOLAS VON HOFFMAN, The Nation, October 25, 2005

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They call it a public institution and it sounds like one from its name, but 92 percent of the money to run the University of Virginia comes from private sources. At the University of Michigan the figure is 82 percent; at the University of Illinois a mere 75 percent. The privatization of the nation's greatest, once-public institutions of higher learning is well under way.

"America is rapidly privatizing its public colleges and universities, whose mission used to be to serve the public good," Katharine Lyall, president emeritus of the University of Wisconsin, told the New York Times. "Public control is slipping away." Graham Spanier, president of Pennsylvania State University, blames never-ending tuition increases on "public higher education's slow slide toward privatization." (Eighty-seven percent of his budget now comes from private sources.)

Educators, getting less money per student every year from their state legislatures, say they have no choice but to privatize. Christopher Edley Jr., dean of the Boalt Hall School of Law at Berkeley, wants to go private because "in the sharply competitive world of top law schools, leadership requires continuing investments that the State of California has been unwilling to make.... Everyone is just praying for the legislature to come to its senses, but 'faith-based fundraising' isn't working."

Edley's school might as well be private already. Tuition at Boalt for an in-state student is a staggering $24,341 a year and a super-staggering $36,586 for out-of-staters.

America was once a country offering a free college education to its youth. As recently as the mid-1960s, tuition for in-state students was virtually free at places like the University of Illinois. But free college education, which began under the Lincoln Administration in 1862, has been killed off. In its place, privatization has made public schools copy the private schools' high-cost-you-borrow business plan.

Brand-name public universities can successfully go private. The lesser-known public colleges and universities cannot because they don't have the prestige. They are being left to shrivel from lack of appropriations resulting from taxpayer resentment and the lobbying machinations of rich and powerful private schools.

Private schools oppose direct appropriations and tuition-free education because it would leave them out of the money. They would truly have to be private, so they have lobbied for the present system of tuition scholarships, grants and loans for tuition that cut them in on the money stream. The strategy has worked for them but not for college students from middle- and lower-income backgrounds.

Four years at a public college now costs about $50,000, and the bite is two and a half times higher at a private institution. Costs are so large that some financial advisers are telling their clients that they have to choose between paying for their children's college or having enough to retire on. Families don't make enough to save for both, and advisers reason that if the children borrow to get through school they have enough years in front of them to pay back their loans and also have the time to save for their retirement. Their parents don't.

For countless middle-class couples the costs of bringing up a child are an incentive to have either one or none. Since these ultra-responsible types make the ultra-responsible parents, Republicans, Democrats, ethicists and soothsayers, lay and clerical, prize their failure to reproduce themselves is an irreplaceable loss to the nation.

Poorer young people fated to attend second-rate high schools are bucking up against recent changes in scholarship policies that work against their getting the minimum financial help they need. College once again is becoming something that the children of unskilled parents will attend only through special gifts and heroic application.

For those middle-class youths who do get themselves born, college costs and debt can rob them of some of the best years of their lives. It is estimated that a quarter of college students are financing their educations in part through credit cards.

Last year students and their families borrowed almost $14 billion. Graduating with a $15,000 to $20,000 debt limits a young person's possibilities. No time for experimenting and/or marching on Washington or helping to make a better world. For debt-burdened college graduates, it's get a job as fast as you can, keep your mouth shut and hustle as hard as you can.

For masters of the universe, this system not only yields interest on their borrowing but is an effective method of social control. If today's youth aren't as they were in Martin Luther King's time, you know why.

October 23, 2005
Everybody's Business
Three Cheers (and a Big Question) for Yale
By BEN STEIN, NY TIMES

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I LOVE Yale. When I was at law school there, from 1967 to 1970, I had some of the best times of my life. My classmates were a brilliant lot, including the supergenius troublemaker Duncan Kennedy, now a professor at Harvard Law School; John W. Keker, very likely the best criminal trial lawyer in the nation; William Drayton, an astonishingly creative philanthropist and entrepreneur; Robert Calhoun, ace law professor; Richard J. Balzer, insightful management consultant; and many more, all great pals then and now. Hillary Rodham was a first year when I was a third year, and she has a bright future.

We had a fine group of faculty members, including Robert H. Bork, shining light of constitutional law; Harry H. Wellington, guru of labor law; and Larry G. Simon, supernova of evidence. The administration was kindly and generous and forbearing. We could smoke in class, talk back to the teachers, boycott classes to help the cafeteria workers, generally act like little princes and princesses and then walk away with Yale degrees.

"The best of both worlds, a Harvard education and a Yale degree," said President John F. Kennedy when he received his honorary degree there in 1962, and how right he was about that degree. In a fit of pity, my classmates elected me valedictorian, and it was one of the greatest moments of my life. I wear the old school tie with extreme pride.

The law school treated me like gold, and I have tried to treat the law school like gold since I left 35 years ago. I contribute fairly generously. I have been a class agent for more than 20 years, soliciting money from my classmates, and I have even spoken at Yale for no fee, which is a real rarity in my life.

But lately, something has been nagging at me when I ask my classmates for money and when the law school asks me for money. It has to do with something basic about numbers and investing and charity: According to what I read, Yale has an endowment of something approaching $13 billion. Under the stewardship of its top-flight investment manager, David F. Swensen, it has compounded recently at the rate of very roughly 20 percent a year.

The Yale endowment can grow at this astounding rate partly because of the stock-picking prowess of Mr. Swensen's team. That prowess is obviously formidable - although, based on what I read by and about him, it is not unusual or exotic. But the endowment can compound at that rate mostly because its immense size allows it to invest in great things called private-equity deals. In this type of investment, the managers of a company buy it away from its stockholders, or outsiders buy it from its owners and then restructure it.

There are staggering profits to be made in these deals - sometimes losses, too. But in a well-thought-out deal, private-equity investors buy a company with a thin little slice of equity - maybe 10 percent - and a lot of debt. If the company can be spruced up and resold a few years later (or many years later) for four times the purchase price, that original investment has suddenly (or gradually) grown by a multiple of 30 because all of the gain goes to the investors who put up only 10 percent of the purchase price.

This is the best business in America - by far - and it is run by very brilliant men and women. People like me, even with seven figures to invest, cannot come near these deals. Big players like university endowments and very rich family funds get in on them all the time. Again, these deals account for a large part of Yale's spectacular endowment growth.

Two issues bother me about Yale's endowment - and those of Harvard and Princeton and many other schools. First, the men and women who run these endowments are fantastically well paid by most standards, running into the high six figures, sometimes even seven or eight figures annually. Their pay is on a par with partners at major investment banks, although it is not in the same league as top hedge fund managers. But they earn that pay largely because they get into these fabulous private-equity deals that most of the rest of us in the Yale family cannot enjoy.

That is, they take the big fat endowment contributed by us little minnow alumni as a group, thereby getting Yale into great deals, and are then paid spectacularly as individuals for managing the money we gave for love of alma mater. I would not for a moment begrudge them the money if they were wizard stock pickers. But to think that they are players in the private-equity game because we alums donated money that we thought would go to scholarships - that's a bit painful.

(Another major source of Yale's great gains is their tax-free status. Its endowment managers can trade rapidly in hedge funds without paying the short-term capital gains rates that we peons pay. This gives them a big advantage over most investors. If it were taken away, I wonder what the endowment's return on investments would be in stock or commodities trading.)

Second, and more troubling, the immense scale of the endowment and its gains dwarfs my pitiful little gifts. If Mr. Swensen and his pals are making a few billion a year for Yale in capital gains, say $3 billion, that's equal to about one million gifts of $3,000 from individual alumni. But there are only a few tens of thousands of us alums, so what we give has to be totally insignificant unless we are terribly rich. Why give the money, then? (For that matter, why charge tuition? Compared with the gains that the endowment is making, tuition is a drop in the bucket of Yale's income.)

AS for my contributions, maybe we could look at it this way: I support an organization called the Tragedy Assistance Program for Survivors, which provides social, emotional and material support to widows and widowers and children of military personnel who have died in the wars in Iraq and Afghanistan. If I contribute $10,000 to this group, the gift makes a huge difference to it. I support an organization called Soldiers' Angels that sends support packages to military personnel and their families. If I give $5,000, it means a lot. I also support the Friends of Animals Foundation, a kennel for abandoned dogs and cats on the west side of Los Angeles. If I give $15,000, it saves many animals' lives.

Gifts of these sizes are virtually meaningless to Yale, so why bother giving to it? My resources are very far from limitless, so why not give where it makes a difference?

Is it possible that giving to Yale right now is a bit like giving gifts to Goldman Sachs or Brown Brothers Harriman? I am sure that there are fine people in those places, and investment bankers are almost always intelligent, hard-working men and women. I enjoy their company. But they really don't need my money, and other people do.

I love Yale, and I am deeply grateful to Yale. It is a star in my sky every day and night. But at this point, is it an investment bank or a school? I am really not sure, and this troubles me. I would love to be shown that I am wrong, but I am not certain that I am.

Ben Stein is a lawyer, writer, actor and economist. E-mail: ebiz@nytimes.com.

Yale University