The answer to the original question is unnecessarily pusillanimous. Why not come out and say it: "Our business model is based on the lifetime value of our customers. A large part of the $95k per year is pulled from their parents and through loans which they'll repay; the rest is acquired through constant marketing to them, their parents and grandparents, and to their widows/widowers after they die. We make the pitch sound like a charity, so that people feel good about donating."

It's obviously a solid business model, as the number of organizations with $1B+ in the bank are very few. It allows colleges to pay senior administrators, fund managers and full professors extremely attractive salaries while keeping lower level positions low-paid because, of course, it's just a non-profit. It's a great business model, summed up by someone (paraphrase alert) as "An endowment continuing its existence by educating well-selected students to make enough money to pay more than it costs to deliver said education."

Posted by Tom C on Jun 25th, 2009 at 12:54 pm.

Do I sense a reply coming on YouTube?

After the last checks of those tuition checks are cashed, of course.

Posted by Andrew Samwick on Jun 27th, 2009 at 10:37 am.

Top-ranked colleges are the epitome of Marketing

Every marketing strategy course I ever took emphasized building up brand to the point where price didn't matter. Today's generation of college students is so oriented around the "rankings" that there is no doubt about either the decision to attend if admitted, and the value as generations of students who only wanted to attend highly ranked schools make hiring decisions. (There was a recent NY Times article about law firms only hiring from the top 10 ranked law schools...you're shut out of the top jobs if you don't attend). Brilliant. I wouldn't be shocked if US News & World Report were owned by a consortium of college endowment funds.

I have no particular animosity to Dartmouth, though. Just like K-12 schools, the product that colleges are delivering today is remarkably better than it was 30 years ago. My son, a '10, is doing amazingly well, and my daughter just transferred from Vassar in large part because of how much the son likes it. My analysis of the business plan isn't limited to any particular school...all of the top 25 or so colleges have the same plan, and with nearly infinite demand, there's no reason to change. The professors and employees are in the profession to teach and do research, but that doesn't affect the real nature of the business plan.

It's just a little sickening to hear people who know better try to take the moral high ground when there's no basis for it. Over the students' lifetimes, on average, Top Colleges will receive much more per student than it costs to educate them. Period. (The fact that they got a little sloppy on using endowment income when investment returns were so good means that the costs might have gotten a little high; if I were in a professor's union or a day worker, though, I wouldn't buy it for a minute.) Just like the "selfish gene", the "selfish endowment" will continue to thrive. Top colleges are cash machines, extracting it from parents when they can, students who later feel gratitude when the parents couldn't, and various research and charitable donations controlled by alumni of those self-same top colleges. Crazy? Yeah, like a fox.

Posted by Tom C on Jun 28th, 2009 at 2:00 pm.