Taxpayers as Shareholders

The orthodox among us seem convinced that proprietary institutions are the only ones with a profit motive and shareholders. Yet having worked in all three sectors of higher education — private, public, and proprietary — I can say with great confidence that the one thing they all have in common is the need to generate a profit and provide a return on investment to both students and shareholders.

Sure, nonprofits like to use terms like "net revenue" or "budget surplus" rather than "profit" to describe their black ink, but as our friend Willy Shakespeare once wrote, "A rose by any other name would smell as sweet." Money in the bank is money in the bank, no matter what you call it.

There is no doubt that a company like mine depends on shareholders for up-front capital to build campuses and develop new technologies. And like anyone else who provides this sort of capital, our investors want to earn something in return for having their money tied up in this investment, and therefore unavailable for some other purpose.

But are our investors really any different from the shareholders who support nonprofit institutions? Don’t the taxpayers who own shares in nonprofit institutions also expect a return on their investment? You bet they do.

In fact, during the 10 years that I served in a public-policy role on the Hill, at the White House and at both the National Science Foundation and the Department of Education, I was continuously poked, pinched, and prodded by higher-education lobbyists who spent endless hours trying to convince me and my bosses that we should  increase funding for education, science, and the humanities because of the tremendous return the taxpayer receives on those investments.

I believe in this cause and was even one of those nonprofit higher-education lobbyists myself, which is when I learned that higher-education leaders can’t begin to tell us what return has actually been realized on our research or education investment, or even how much money is enough, or at what funding level we reach the point of diminishing returns. We just need more money.

Taxpayers are, indeed, shareholders in both public and private universities, and, according to a recent report, the taxpayer holds about a $60,000 share in every bachelor’s degree produced at a public, 4-year institution. Those same taxpayers hold an even larger share in every bachelor’s degree produced at an elite, private university. There is no doubt that taxpayers are significant shareholders in higher education.

So are donors. Those who contribute to their alma maters’ endowments are even greater shareholders in those institutions. While most people probably give in return for all that they’ve received, as well as to help the next generation thrive, it is also true that as they give, and as their institutions’ reputations grow, so does the value of donors’ credentials and diplomas.

And what about those mega-donors who use the university endowment as a wealth-management tool, or a source of income, or a way to influence the size and geopolitical ideology of certain academic departments, or to get their name on the front of the building, or even to ensure that there is more than a pinky finger on the scale when their heirs go through the college admissions process? These people are major shareholders in higher education, and in their institutions in particular, and the return they get on their investment is not only huge, but transferable to future generations—tax free.

I’m not suggesting that we should end university endowments. I’m just trying to crack open the orthodoxy and expose its inaccuracies. In fact, every institution must be mindful of the bottom line and must consider the interest of its shareholders, as well as the interests of its students when making decisions. Proprietary institutions are no different in that regard.

The close attention that our investors pay to both our inputs and our outcomes serves as a model for what taxpayers should be monitoring and expecting from the institutions in which they invest. Our investors make us better, not worse, and the smart investors understand that by putting the interests of students first, their personal interests will also be served.

Perhaps these high expectations put forth by our shareholders are what force us to do so well in educating the population we serve (which is not to say that our work is done or that we shouldn’t always be working hard to do better).  I’m not talking about comparing Ivy League outcomes to ours, but am instead referencing the apples-to-apples comparisons of outcomes among similar groups of students that show proprietary institutions to be clearly superior in terms of retention and graduation rates.

And I might add that the report I referenced earlier shows that the taxpayer who didn’t even invest in our institutions earns around $6,000 for every bachelor’s degree granted (even when federal student aid is taken into account), as compared with the $60,000 bill that they paid for each graduate at a public institution.

Taxpayers are shareholders in nonprofit higher education. It’s about time they started paying attention and exercising their options carefully when choosing the institutions in which they wish to invest their hard-earned dollars.


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