Business Week, December 10, 2007, Monday

Copyright 2007 The McGraw-Hill Companies, Inc. http://www.mcgrawhill.com

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Business Week

December 10, 2007, Monday

SECTION: In Depth; Pg. 38 Vol. 4062

HEADLINE: THE DANGEROUS WEALTH OF THE IVY LEAGUE;

Higher education is increasingly a tale of two worlds, with elite schools getting richer and buying up all the talent

BYLINE: By Anthony Bianco, with Sonal Rupani in New York

BODY:

It's only fitting that Whitman College, Princeton's new student residence, is named for eBay CEO Meg Whitman, because it's a billionaire's mansion in the form of a dorm. After Whitman (Class of '77) pledged $30 million, administrators tore up their budget and gave architect Demetri Porphyrios virtual carte blanche. Each student room has triple-glazed mahogany casement windows made of leaded glass. The dining hall boasts a 35-foot ceiling gabled in oak and a "state of the art servery." By the time the 10-building complex in the Collegiate Gothic style opened in August, it had cost Princeton $136 million, or $272,000 for each of the 500 undergraduates who will live there.

Whitman College's extravagance epitomizes the fabulous prosperity of America's top tier of private universities. Princeton and its "Ivy Plus" peers (the seven other members of the Ivy League, plus Stanford University and Massachusetts Institute of Technology) have long flourished as elite institutions, both socially and academically. Increasingly, though, their predominance is defined by the great magnitude of their wealth relative to their modest size and to the rest of the higher-ed universe. The gilding of the Ivies offers a striking manifestation of the contemporary American tendency of the rich to get much richer.

Fancifying campus living isn't the half of it. The Ivy Plus schools also are investing huge sums to enlarge their central role in research. Harvard, Columbia, and the University of Pennsylvania are developing whole new science-centric campuses, and Yale just acquired one ready-made, buying a 30-building complex from pharmaceutical giant Bayer. The schools are adding more top-notch faculty members and shrinking class sizes. And they are increasing financial aid outlays for lower-income students who otherwise couldn't afford to attend.

The question of whether all this spending is a good thing defies easy answers. Gold-plating new dorms raises issues of taste and donor ego. More than before, impressionable students and ambitious parents have come to view college as a form of conspicuous consumption. But there's no evidence that the tilt toward super-luxury on some campuses has hurt the quality of Ivy Plus education. Smaller classes draw universal applause. Graduation rates remain impressive, and products of the Ivy Plus schools continue to ascend to leadership positions in business, science, the arts, and politics.

However, the increasingly plush Ivy Plus model casts into sharp relief the travails of America's public institutions of higher learning, which educate 75% of the country's college students. While the Ivies, which account for less than 1% of the total, lift their spending into the stratosphere, many public colleges and universities are struggling to cope with rising enrollments in an era when most states are devoting a dwindling share of their budgets to higher ed. "Policymakers seem to have concluded that flat funding is all that public higher education can expect from the state," says Ronald G. Ehrenberg, an economist who directs Cornell University's Higher Education Research Institute.

STEALING STARS

The Ivies cannot fairly be blamed for public education's financial predicament, but they certainly are exploiting it. Even the most prestigious of public universities are increasingly hard-pressed to repulse richly financed Ivy Plus raiding sorties seeking to steal distinguished faculty members and their research grants. Public schools are being drained for the benefit of the ultra-elite, says Robert J. Birgeneau, chancellor of the University of California at Berkeley. "The further you project into the future, the more frightening it becomes."

It's unlikely that more money has ever been lavished on the education of so few. Even as Ivy Plus budgets have spiraled upward, the schools' enrollments have barely budged. From the 1997-98 academic year through 2006-07, graduate enrollment at the 10 institutions inched up by 10%, to 55,708, while the number of undergraduates actually fell by 1.4%, to 68,492.

Meanwhile, the wealth gap between the Ivies and everyone else has never been wider. The $5.7 billion in investment gains generated by Harvard's endowment for the year that ended June 30 exceeded the total endowment assets of all but six U.S. universities, five of which were Ivy Plus: Yale, Stanford, Princeton, MIT, and Columbia. Ivy dominance extends to fund-raising. A mere 10 schools accounted for half the growth in donations to all U.S. colleges and universities last year. All of the top five on the list were Ivies, led by Stanford, which set a record for higher education in 2006, collecting $911 million in gifts.

During 2006-07, the Ivy "Big Three"--Harvard, Yale, and Princeton--collectively spent $6.5 billion on operations, up over 100% from a decade ago. This was more than double the 41% average budget increase for all U.S. colleges and universities over this period and quadruple the 26% rise in the consumer price index. The Big Three sank a further $1.2 billion into new construction and other capital spending last year. "Yale is wealthier now, so we can add resources in almost every dimension," says its president, Richard C. Levin.

The benefits of the Ivies' surge in prosperity range all across campus, and in some cases seem less than central to a liberal arts education. Stanford spent $4 million to restore the Red Barn, a Victorian-era structure that's part of the university's equestrian center and now provides a place for undergraduates to house their own horses at a cost of $500 a month. Seven employees groom and feed the steeds and clean their stalls.

It's hard to imagine now, but for most of the Ivy League's long history many students lived austerely, as befitted schools with roots sunk deep in New England Puritanism. This began to change noticeably in the 1990s as schools used growing endowment incomes to modernize classrooms and dorms and to build lavish new student quarters. One of the last remnants of Ivy asceticism vanished last year when Yale gave in to student demands and began supplying dormitory bathrooms with hand soap, at a cost of $100,000 a year. "People used to look at every penny," says John Meeske, Yale's longtime dean of administrative affairs. "The mind-set is different now."

Beyond the over-the-top comforts of Whitman College, Princeton bestows ever more comprehensive counseling, health care, and other services on its students. Starting this year, all PhD students who give birth will receive their full stipend during a three-month suspension of academic work. Princeton also has begun covering the living expenses of foreign undergraduates who remain on campus during breaks.

The Ivies have steadily raised the list price they charge their traditional clientele: the wealthy and the well-born. Tuition, room and board, and fees now run an average of $45,000 a year, which, the schools are quick to point out, covers only one-half to two-thirds of operating costs. But even at those prices, demand, in the form of undergraduate applications, continues to soar. On average, the Ivies rejected about 90% of applicants for the Class of 2011.

Extraordinary wealth has allowed the Ivy Plus schools to mitigate their extreme exclusivity by offering bigger discounts to more students of modest means--a move that few would object to. Princeton has doubled its budget for grants, loans, and other aid since 2001-02, to $82 million, as the percentage of undergrads receiving financial support has jumped from 44% to 53%. The average award is $32,200, against total charges of $44,950.

SALARY GAP

The Ivies' biggest expense category by far is labor. At Harvard, compensation and benefits accounted for 49% of its $3.2 billion in operating expenses in 2006-07. Although salary gains have consistently outpaced inflation, it is the addition of new teaching positions that is chiefly responsible for driving up the cost of instruction. Harvard, the largest of the Ivies, employs 2,164 faculty members, 55% more than in 1997-98. All of the Ivies increasingly are emphasizing small-group learning, independent study, and hands-on experience. "It's a much more personal connection between teacher and student, and a lot less delivering education in large lecture halls with armies of teaching assistants," says Carol L. Folt, a Dartmouth biology professor who doubles as its dean of faculty.

The Ivies' heavy spending to enlarge and upgrade their faculties has contributed to an ever-widening salary gap between private and public universities. The $106,496 average salary earned by full professors at PhD-granting public universities in 2006-07 amounted to just 78% of what their counterparts earned at private universities, according to the American Association of University Professors. This figure was 91% in 1980-81.

The Ivies' superior spending power puts even the finest public universities at a disadvantage in the competition for faculty. One of the many academic areas in which Yale has brought its financial muscle to bear is physics, which until recently was chaired by Ramamurti Shankar. "Yale told us: Let's go after who you want. We will make it happen,'" says Shankar, who is particularly proud of having bested several other top private schools to lure the quantum mechanics expert Steven M. Girvin away from Indiana University, a Big Ten public stalwart. "There was a huge war," Shankar says. "Everybody wanted him." Shankar declines to disclose the price he paid for Girvin in 2002, but says that the going annual rate today for theoreticians of his caliber is $400,000 to $600,000, which includes salary and research support. This is for an assistant professor, the level at which Yale does most of its hiring. The price tag for top experimentalists, who have far more extensive laboratory needs, is $1.5 million to $2 million, according to Shankar, who remains on the Yale faculty.

To house their enlarged faculties, the Ivies have turned their campuses into continuous construction zones. Each now boasts a new science facility that is its most expensive structure ever. At Stanford, the distinction belongs to the $140 million "Bio-X" building. Designed by the famed British architect Norman Foster, the glass-walled center provides offices and labs for 30 faculty members whose research combines cutting-edge subspecialties in biology and medicine. Over the next few years, says Stanford President John L. Hennessy, the school plans to invest an additional $600 million to put up five more buildings at an astronomical cost of $800 per square foot on average. Under President Amy Gutmann, Penn is launching its expansion onto 24 acres adjoining its Philadelphia campus by building three high-tech medical research facilities at a total cost of $682 million. Harvard is beginning work on a $1 billion complex that includes a new stem cell institute, the first stage of a planned 200-acre adjunct campus in Allston, Mass.

THE RESEARCH EDGE

Ivy administrators argue that gathering the best researchers in resource-rich havens has a synergistic and broadly beneficial effect. Scientists are more likely to do their best work, expanding knowledge and improving lives, when attached to academia's deepest pockets, or so holds the rationale for Ivy aggrandizement. The research productivity of elite private universities is roughly twice that of their public counterparts, according to a recent study of America's 102 top research universities by economists James D. Adams and J. Roger Clemmons. The study measured volume of academic papers and citations during 1981-99. "You are going to have an edge in research if you have great students, but not too many students; freedom from bureaucratic and political meddling; and generous alums who are more interested in academics than the football program," says Adams, acting head of economics at Rensselaer Polytechnic Institute, a private college in Troy, N.Y.

But even if the Ivies succeed in making one plus one equal three, will the benefits to society outweigh the damage to the public universities they are stripping of star professors, who tend to take their outside research money with them when they go? There is not likely to be enough talent or funding to go around as the Ivies pursue their ambitious goals. "One thing we all must worry about--I certainly do--is the federal support for scientific research. And are we all going to be chasing increasingly scarce dollars?" says Drew Gilpin Faust, Harvard's new president.

Not that Faust seems worried about Harvard or other top-tier research schools. "They're going to be--we hope, we trust, we assume--the survivors in this race," she says. As for the many lesser universities likely to lose market share, she adds, they would be wise "to really emphasize social science or humanities and have science endeavors that are not as ambitious" as those of Harvard and its peers.

Administrators at many public research universities are not willing to accept Faust's invitation to surrender. "We have no choice but to recognize the realities of the marketplace we work in," says Patrick V. Farrell, provost and vice-chancellor for academic affairs at the University of Wisconsin at Madison. "But we intend to remain at least as good, if not better, a research-intensive institution as we have been in the past."

These are brave words, especially given that the state of Wisconsin ranks among the least generous funders of public higher education. Over the past decade, Wisconsin's state tax appropriations have risen by a total of 21.7%, or about half the increase in the Higher Education Price Index, compiled by the nonprofit Commonfund Institute. This puts it 41st among all states, according to the Center for the Study of Education Policy at Illinois State University. Other conspicuous laggards include Colorado, Iowa, Michigan, and Ohio.

Today, twice as many Wisconsin-Madison professors are leaving to work elsewhere as was the case five years ago. Huge piles of cash aren't always the issue; sometimes it's the bureaucratic or political constraints more common on public campuses. Among the faculty that Farrell particularly regretted losing was Robert W. Carpick, a fast-rising associate professor specializing in nanotribology (the study of friction at the atomic level) who defected to the University of Pennsylvania a year ago. Carpick, who took much of his $550,000 in outside research grants with him to Penn, accepted a salary only 10% higher than the $90,000 he was making. The main reason he left Wisconsin is that it is prohibited by state law from paying domestic partner benefits, Carpick says. "I also was concerned about the effects of dwindling state support on the public university model."

The spending explosion within the Ivy Plus ranks strengthens those already-potent institutions and makes campus life cushier for many of their students. Will it lead to scientific breakthroughs that otherwise wouldn't have been possible? Or will it mainly serve to accelerate the deterioration of many other schools that have a vital role to play in training the next generation to compete more successfully in math and the sciences? The benefits of more generous undergraduate financial aid are obvious. The answers to these questions, much less so.

For better or worse, the infusion of riches at the Ivy Plus schools has dramatically extended their lead over everyone else, especially the public colleges and universities that collectively serve the vast majority of American students. This dominance--and the inequities that it fosters--are likely only to grow.

GRAPHIC: illustration, Illustration: Chart: The Ivy Plus: America's Richest Universities

illustration, Illustration: Chart: Big Spenders

photograph, Photograph: Designed by Norman Foster, Stanford's "Bio-X" facilities cost $140 million Photography by Brad Trent

photograph, Photograph: Yale's Levin says: "We can add resources in almost every dimension" Photography by Brad Trent

photograph, Photograph: The University of Pennsylvania's Gutmann at a 24-acre campus expansion Photography by Brad Trent

photograph, Photograph: EBay's Meg Whitman gave Princeton $30 million toward Whitman College, a new dorm complex Photography by Brad Trent

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