College expensiveThose of us buried under rising tuition and huge piles of student debt may wonder: What in the world made college so expensive? And how is it that donor- and taxpayer-funded endowments aren't bearing more of the burden?

Part of the answer lies in investments made by college and university trustees, which resulted in huge losses after the 2008 financial crisis, with average one-year losses totaling 20.5% among schools with endowments higher than $1 billion, according to

What led trustees to make these investments?

Some stakeholders think part of the answer lies in self-dealing among trustees, who direct schools' investments into their own funds or those in which they have some other interest.

Conflicts of interest

Reuters reports that colleges and universities including Dartmouth, Brown, Northwestern, and Stanford, just to name a few, have disclosed investments in funds linked to their trustees.

Because trustees are responsible for investing a school's money, institutions have worked to recruit people with significant expertise in asset management. As a result, many boards are populated with trustees who work at investing firms -- trustees who are in a position to benefit from directing the institution's money into the funds they manage.

And worries about self-dealing don't end with investments in trustees' firms. In a 2010 survey of tax returns filed by 618 private colleges, The Chronicle of Higher Education found that about 25% of the schools examined disclosed financial connections to real estate businesses, construction companies, and other service providers associated with their trustees.

We're not self-dealing... trust us!

To examine the effect that such conflicts of interest can have on a school's investments,'s Kevin Kiley took a look at the relationship between Dartmouth's trustees and the school's investments in funds linked with those trustees:

Trustee Fund Association Amount Invested 2008-2010
Stephen F. Mandel Jr. Founder, Lone Pine Capital $36,039,000
Leon D. Black Founding Partner, Apollo Management $18,850,926
R. Bradford Evans Senior Advisor, Morgan Stanley $15,733,092
Russell Lloyd Carson General Partner, Welsh, Carson, Anderson & Stowe $5,135,469
William W. Helman IV Partner, Greylock Partners $3,378,310

Justin Anderson, Dartmouth's assistant vice president for media relations, offers two defenses for these investments.

First, he claims that these investments are in the best interest of the school, telling InsideHigherEd, "To forgo investments with a firm simply because a board member has some interest in the firm would be contrary to the best interest of the college."

Second, he claims that the trustees complied with federal and state (New Hampshire) restrictions meant to prevent conflicts of interest, as well as Dartmouth's own regulations. Among other things, notes Kiley, the New Hampshire regulations require that:
  • Those with a financial interest in the transaction cannot be present during the vote.
  • At least two-thirds of the voting board members must approve each investment.
  • A notice of the investment must be published in a "newspaper of general circulation in the community in which the charitable trust's principal New Hampshire office is located."
But it's not clear that these safeguards are sufficient to prevent quid-pro-quo dealings among trustees, who may be willing to approve investment decisions that benefit other trustees in hopes of getting similar favors down the road.

Lack of transparency

InsideHigherEd notes that while Dartmouth is open about its investments in these firms, stakeholders are complaining that the board has stonewalled them in the face of questions about the fees associated with its investments. In addition, stakeholders say that the school fails to offer online archives of investment notices, and so it is difficult to get a full and accurate picture of the amounts invested in trustees' firms or of how well these investments have performed. This lack of disclosure does not help justify Dartmouth's claims that these investments are in the best interests of the school.

When trustees make irresponsible investments and purchasing decisions, students and their families are not the only ones who pay. The burden of these costs is also passed on to taxpayers who help finance the public schools and to donors who help finance the private ones.

And without increased disclosure requirements, these stakeholders are in a poor position to evaluate or challenge these decisions.

Motley Fool contributor M. Joy Hayes, Ph.D., is the Principal at ethics consulting firm Courageous Ethics. She doesn't own shares of any of the companies mentioned. Follow @JoyofEthics on Twitter.

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I'd love to see colleges ranked according to student loan debt at graduation, the number of graduates employed in thier field of choice within 10 years of graduating and the average annual earnings of graduates during repayment of the loans. I'll bet the Ivy League's will be at the bottom of the list. Some day, hopefully, we will become a truly forward thinking nation and advance to the point that state colleges will be free to all who qualify based on academic performance, only. This will leaving private colleges free-to charge their astronomical tuitions for future lawyers, doctors and car salesmen of the world.

July 09 2012 at 8:55 AM Report abuse rate up rate down Reply
John Volk

Well, it stands to reason that the liberals would come out of the woodwork as this article was written for that express purpose.

No mention is made about the overall size of Dartmouth's endowment fund. It is about $3 BILLION. Don't you think that if the Trustees were self-dealing, the investments would have been more than the approximate $80 MM (less than 2.7%)? The article doesn't even make clear if those funds are total or incremental funds. Fees on those funds, even at 5%, would only be $4 MM - a pittance of what those firms earn elsewhere. Furthermore, many of those trustees have given millions to their alma mater & usually are personally invested in the funds they manage. A 20% loss in 2008 was actually modest in comparison to the Dow.

Second, the complaints about "for-profit-colleges" is a red herring. The difference is a tax definition by which people choose to operate. That does not mean they are charity, whether for- profit or not. Many in the not-for-profit world make substantial sums of money. The idea of for-profit education is as old as Aristotle and Socrates, or do you think they lived at the local soup kitchen? The inefficiencies (read: costs) of running a traditional "not-for-profit" school allow people to enter the market because they believe they can do it more efficiently and hence, reap a profit for doing so. The fact that the government is willing to finance the tuition of those "for-profit" institutions and that students are willing to enroll in them demonstrate a value proposition. Often those schools are little more than trade schools and in any event, their students may not have qualified for a regular college or felt that it didn't meet their need.

Third, consider the source! Inside Higher Education is a publication which markets itself to the liberal academic community. It is hardly an unbiased source of information. Joy Hayes is apparently too busy or too lazy than to basically paraphrase the article she used as her primary source material. She certainly didn't present the whole picture. For that, I give Dr. Hayes an "F".

For the rest of you who take umbrage, I suggest you do your own research and not take what you read at face value. Wouldn't that be in keeping with the Motley Fool's principles, anyway? I might also suggest that there are far too many economic illiterates in our society who react on an emotional basis. Some courses in economics and, I might add, writing are in order for you.

In the interest of full disclosure, I am an independent educational consultant who works with families to identify careers paths, courses of study and appropriate colleges and universities for students. I also work with the parents on planning how to finance college. I do not now, nor have I ever been associate with a college endowment or board of trustees nor am I affiliated in any way with any investment management firm of any sort. I do not sell nor recommend specific financial products.

July 06 2012 at 4:41 PM Report abuse +1 rate up rate down Reply

Whose idea was it to make colleges "for profit"? The GOP!! And we are surprised about corruption? That is the GOP standard practice! "What? You expect us to CARE about America?"
Seriously, as a student myself, the whole colleg thing is a shake down. An effort to keep Americans from getting an education because you can't control educated people with the same ferocity as undereducated people.
It is sad that our values have been so undermined and so destroyed by greed in this country.
We need a return to American ethics and integrity! One where we act on the words we believe: With Liberty and Justice for All!

July 06 2012 at 3:41 PM Report abuse -1 rate up rate down Reply
1 reply to wefixtaxproblems's comment
John Volk

I suggest you take some economics and political science classes. I especially recommend Adam Smith's Wealth of Nations. Also re-read the Constitution and Declaration of Independence ( I carry a pocket copy and read it every Independence Day). We are a country of laws and equal opportunity. The "Liberty" you refer to is the freedom act as one will under the laws of the land, and that includes the "pursuit of happiness", which the Founding Fathers deemed to be increased wealth and prosperity. "Justice" refers to justice under the law, not that we have equal shares of wealth, income, education, etc.

July 06 2012 at 4:55 PM Report abuse +1 rate up rate down Reply

The present loss of ethics and values are directly attributed to American Universities. If they were doing well, ie educating people to be good citizens and to operate with in a reasonable sytem ... we clearly would be at a different place.

The delevopement arm of the uiversity which in many cases has become the hookers gathers funds and engrandises the sourse of those funds. Clearly, the larges t funds come from high mobile capital and create environments that negate stabile businesses and profession. The head of one of the major accounting firms one told e he couldn't give the amount of money the finanace people do : "I just don't receive that kind of income."

The result over the next 10 years was the complete control of Business schools by finanace and a negation of ethical accounting practises leading to the debacle investing citizens received to the advantage of "finance and venture."

In short the purchace of so many professors and schools has produced a society in which important jobs pay less then the education cost and the society in general has no ong term depth. Worst corruption is taught by many professors as sophistication.

Some critical thought might be helpful longterm.

July 06 2012 at 3:20 PM Report abuse rate up rate down Reply
1 reply to splintercottage's comment
John Volk

Proof read what you wrote. It is muddled and full of errors (ie., "engrandises" instead "aggrandizes", "stabile" instead of "stable", "one" instead of "once", "Worst" instead of "Worse", etc.)

July 06 2012 at 4:48 PM Report abuse rate up rate down Reply

Well, I don't have enough expertese to decide that investments in legitimate capitol funds and businesses are corrupt, other than on the 'look and smell' tests, where else are donors and contacts to be found, and where would the funds garnered go but into businesses they understand. It isn't as if the entire banking and financial system wasn't mousetrapped by some vicious predatory bankers. Everyone got hit. And the instinct is always that the money should have gone elsewhere. I don't know where, myself, but if I were a banker, and I raised a few dozen million for old PU, why wouldn't I assume my business is as good as or better than others. The lady PHD appears to have trouble laying charges, and is stirring the domestic pot to hold things the men did were suspicious, and if we look hard enough, why their otherwise perfect banking decisions were flawed in the instances she alludes to. The overarching concern as in the mortgage industry, is how to get some or all of the money loaned out or invested, hang the rest of them.

July 06 2012 at 2:19 PM Report abuse rate up rate down Reply
1 reply to frjohnssj's comment
John Volk

For a good explanation of the mortgage crisis or "asset bubble" in plain, everyday English, I recommend "Financial Fiasco" by Johan Norberg. You will be shocked at the real causes of the problem.

July 06 2012 at 5:02 PM Report abuse rate up rate down Reply

Too bad there can't be a world-wide audit/investigation of banks, governments/officials,wall street, and all public institutions.

July 06 2012 at 2:13 PM Report abuse rate up rate down Reply
1 reply to tazgadon's comment
John Volk

Apparently you aren't familiar with all of the oversight there is now. First of all, the term "audit" as practiced by certified public accountants, is to mean that the financial statements are presently fairly and accurately. It is not meant to determine the presence of fraud, breach of fiduciary responsibility, or opine on policy and practice. The efficacy of what they do accomplish is another matter (see: Enron). Almost all institutions of any size have some sort of oversight attached to them, if only to protect those in charge from lawsuits. Companies that underwrite Directors and Officers insurance policies have a vested interest in that. All publicly traded companies are required to not only get annual audits, but also file reports with the SEC and the like. Private concerns such as a family owned company or a private college such as Dartmouth may not be required to do that, but as a matter of practice, most do - if only to protect themselves and the Trustees from lawsuits. Banks, such as J.P. Morgan are HEAVILY regulated by a myriad of regulators from all sorts of governmental agencies. As Jamie Dimon testified before Congress, on any given day his company has more than 1,000 regulators on site, poking into the affairs of the bank. Further, to meet the needs of those regulators, the bank assigns hundreds of people to be available to answer questions and produce documents and other information. It is impossible to guarantee a world free of corruption and wrong doing as you seem to wish. Your wish calls to mind the political officers that accompanied every platoon commander of the Soviet Army in World War II.

July 06 2012 at 5:16 PM Report abuse rate up rate down Reply

I kinda of see it as TAKE IT WHY YOU CAN, kind of like Keatings crew paying construction workers huge amount of cash for Estrella . it is not possible that the 'degree's' they pump out can carry any real weight.

July 06 2012 at 1:54 PM Report abuse -1 rate up rate down Reply
Ronald Malozi

Colleges are a rip off and a scam.

July 06 2012 at 1:44 PM Report abuse rate up rate down Reply
1 reply to Ronald Malozi's comment
John Volk

If you say so. My son just earned his civil engineering degree (in 4 years, I might add) and was hired before his senior year with a starting salary of $70,000. He is no genius and he went to a Big Ten school, not MIT or Stanford.

July 06 2012 at 6:03 PM Report abuse rate up rate down Reply
hi chet

HA HA HA Like someone just figured this out? Modern colleges have become nothing more than diploma mills. Pay them the money and ya get your degree. Whoopee damn ding. I don't even know why they bother sending you to class. Many of the colleges are in the business of professional football and big buck research.

And what good is the diploma once you have it? You mean if you went to college you are better able to flip a burger? When I got my degree it meant something. Only a minority of Americans had attended college so a degree was worth something. Now EVERYBODY goes to college and they mean almost nothing. Even the stupidest kid HAS to attend college and even the stupidest kid will graduate. Smart employers are starting to toss the whole college thing out. And, of course, every college graduate thinks they should be the CEO within the year. (That is if you can get a job). And what is the chance that you will get a job in your field. Just how many Egyptologists do we need, or engineers, or lawyers?

So yeah, an engineer designs a bridge, who is going to build it? Other engineers? (An engineer actually working? What a concept.)
Colleges have made themselves into a very profitable racket.
To get a good job you need a good education. What a bunch of CRAP.
(Yes, I do have a degree and worked with others who also had degrees. Many of whom were dumb as posts.)

July 06 2012 at 1:42 PM Report abuse -1 rate up rate down Reply
1 reply to hi chet's comment
John Volk

Everyone should have the opportunity to go to college. That does not mean that they should. However, people have been brainwashed by politicians that they should and that it is the key to success. Not everyone will graduate. In fact, after 6 years, less than 60% have graduated. It is a major waste of capital. There are over 4,000 colleges of higher education in this country. Less than 125 play Division I football and of those, only have could have what might resemble a minor league football team. Most of those are self-sustaining, meaning that the athletic departments fund their own expenses and also pay the scholarships for the students in the so-called non-revenue sports like swimming or golf. Research has always been a major function of universities, going back to the earliest universities and colleges in Europe. Granted, some of it is of questionable value, but most of it, particularly in the STEM subjects (Science, Technology, Engineering and Mathematics) is highly valuable, whether it is basic research or applied research (commercialization). The funds for research usually come from outside the university from foundations and corporations or government. As to the stupidity of your co-workers, what can I say? It gave you a chance to advance, no?

July 06 2012 at 6:01 PM Report abuse rate up rate down Reply

All the BS courses and degress should be eliminated. Parents can't even see a report card because it violates the rights of students even though parents foot the bill in many cases. Any school that receives money should be audited an fixed. The trustees should all be in jail'

July 06 2012 at 12:44 PM Report abuse -1 rate up rate down Reply
1 reply to SPQR's comment
John Volk

You can thank HIPPA and other privacy laws for the lack of access to a student's report card or health status. We recommend that all our clients get both a general power of attorney and a health care power of attorney before the student leaves for school. Most schools give the student the power to grant parental access to their grades and so forth. They will not send home a report card anymore. It is all done online and besides, they consider little Johnny to be an adult, as in a court of law. I don't suppose you would appreciate having the grocery store sending your receipts to your primary care physician dietetic analysis, would you?

July 06 2012 at 5:32 PM Report abuse rate up rate down Reply