Over $7,000 a year, kind of. Just not enough money to pay the annual tuition, and living expenses aren’t included in that.
It costs over $70000 a year to go to Harvard
The student debt crisis is getting quite complicated. One school in this group of elite universities, where students don’t earn enough to bear the cost of an education, is Harvard University.
The problem is that its community expenditures for students reach a high of $70,100 a year (all-expenses-paid). These include everything from rent, utilities, student activities, health insurance, food, and teaching loads at its continuing education and professional schools.
The school’s financial aid cost for 2018 was $25,000. This means that the full cost of attending Harvard is about $70,100 — and that students pay about $5,600 of that, or a little more than $5,000 a year.
Since the school serves about 1,800 students, the financial gap between fee income and aid cost reached $7,300 for 2018, which is a lot. By comparison, most institutions provide about $1,000 in financial aid for every student they enroll.
Other colleges are not as well-off. Cornell University estimated annual costs at $9,152 in the 2015-2016 academic year, the latest figure I could find. The net cost of attendance was $4,471, meaning that students paid $0.43 on the dollar.
In comparison, an Ivy League college, which serves about seven times as many students as a Cornell, charges a net cost of $6,000 per student.
How does Harvard afford its extravagant endowment?
The benefits of the “Harvard effect” have led to out-sized compensation for managers at its endowment fund. The schools are doing exceptionally well in the past 15 years, which has become the biggest driver of increased compensation.
Harvard made $1.9 billion in fiscal 2018, up from $1.1 billion in the prior year, the result of annualized returns of 13%. The average hedge fund returned only 3.46% that year.
The endowment did not manage to invest the entirety of the $24 billion inflow. Instead, the funds managed to invest only a quarter of it. This was quite sufficient to boost the endowment fund’s value by a compound annual growth rate of 14.6% between 2016 and 2018.
Harvard’s paid compensation to hedge fund managers also rose faster than the compensation of university’s employees in general. The average salary of a member of its faculty grew by 11% to $161,253 in fiscal year 2018. But the compensation of a member of its hedge fund portfolio teams grew by 34% to $19.5 million.
The situation may change
However, Yale University is planning to limit its expansion in endowment management by introducing limits on the amount of capital they invest in alternative investments such as private equity and debt.
First, Yale will complete a review of its hedge fund investments that are run by an outside manager. It will be possible to get out of these if the fund is deemed to have high concentrations in specific investments.
A study conducted by Moody’s Investors Service explains the investment attractiveness of such risks: “It [the public pension fund] will reduce the risk of the portfolio, reducing volatility by substituting riskier alternatives with traditional public market investments.”
Secondly, the salary of Yale’s public pension fund managers will also be capped at 2018 level. The Yale-Endowment Association, which manages the fund for institutional investors, is planning to reduce its compensation from an average of $7.4 million in 2017 to $6.4 million in fiscal 2019.
The strategy may reduce the amount of money the university manages to invest and may reduce the amount of time that staff is paid.
Money does not solve problems
So, should we all be worried that these dynamics are behind high prices for college degrees? Not necessarily. In fact, Harvard’s investment record clearly shows that it takes a lot of money to run a truly great university.