the rich and a pipe dream for the poor.

We're not talking about donating a building so that a school's more likely

to take your son or daughter.

We're talking about deception and fraud.

That scandal was all about fraud.

But go back to what the attorney said at the beginning of his sentence.

We're not talking about donating a building so that a school is more likely

to take your son or daughter.

There's a perfectly legal way to give big to universities.

One place to pool all those funds from alumni, or really anybody who wants

to donate, is in something called an endowment.

There's a lot of money, power and debt in the American higher education

system. I've worked on stories looking out why health care is so

expensive, who gets rich off school lunches and why college in America

just costs so much.

But for this video, I wanted to follow the money through some of the

wealthiest colleges in this country.

There's billions of dollars piling up untaxed, and some people still can't

afford to go to college.

Which got me wondering, where is all of this money going?

When we see charitable donations, the response is that this is just how a

rich person is choosing to spend their money.

It's not just the rich person's money.

There's a significant contribution to their donation paid by the American taxpayer.

These private universities have a lot of power.

Many people want to attend them.

They want their children to attend them.

It is not surprising that statistics show that the donations from alumni

are going up spectacularly as their children reach status as a senior in

high school, and then a drop off after that if they haven't been admitted.

And there's no shortage of six, sometimes nine-figure donations at these

wealthy schools.

Take Harvard, for example.

The Ivy League school has a big endowment.

Not just big, it's huge.

Thirty nine billion dollars.

For context, Facebook has forty one point one billion dollars in what's

essentially cash.

Amazon has $41.2 billion

and Coca-Cola has $16 billion.

And it's not only schools like Harvard, even some public schools have huge

endowments. Altogether, U.S.

colleges have more than $616 billion in endowment assets, but they only

spend about five percent of that every year.

And since most universities are nonprofits or government entities, those

endowments come with a multi-billion dollar tax break.

Neither the public nor the people who regulate endowments or tax them have

a very good idea of what the purpose of them is.

My concern is people seeing these institutions as islands of wealth that

aren't accessible to ordinary people.

A lot of universities will talk about how they don't want to divest

the endowment because that's a political move.

But investment is political.

Perhaps it would be better for society if they were to give this money to

do some poor black college in the South that really needs the money badly.

Whereas Harvard is rather flush.

Wake up and use your endowment in a more responsible way.

And since you aren't doing that, we're going to tax you.

I don't think they should care.

It's Harvard's money.

Which U.S.

college endowment fund is bigger than the GDP of nations like Jordan,

Latvia, Tanzania and others?

Well, of course it's it's Harvard.

These massive university endowments are pretty distinctly American.

There is a little element I'm afraid of mine is bigger than yours is.

I can afford to keep $30 billion in the bank and not spend it because I'm so flush.

But colleges haven't always had so much money put away.

That's because philanthropy just wasn't as popular as it is today.

It wasn't until the 1800s that universities got serious about fundraising.

If you look at Harvard and Yale as good examples, both of them were cut off

from from state funding over religious disputes.

They had to raise money some other way and they went to their rich

alums and got them to give them some grants.

For the most part, wealthy Americans in the 19th century kept their money

in the family.

Then came Andrew Carnegie, one of the richest men to ever live.

In 1889, He wrote an article that challenged Americans to change the way

they looked at wealth.

Saying "the man who dies rich dies disgraced."

Then foundation culture took off, and rich Americans like Rockefeller and

Ford began donating millions, endowing colleges and other nonprofits in

the process.

High up in a tower in midtown Manhattan, are the offices of an unique

organization devoted primarily not to making money, but to giving it

away wisely.

That's the best argument for endowments.

They are a buffer for the operating budget of the university because the

economy goes bad, the alumni stop giving, the government grants dry up.

The problem is that they aren't used that way.

During the Great Depression,

Yale was actually constructing new buildings.

But that was thanks to a few specific donations, Yale's endowment took a

hit and the university cut back.

What we've seen with endowments is when there are economic downturns, the

schools with those endowments tend to reduce spending from the endowment

in order to conserve the endowment resources.

So if there's a downturn in the economy, I wouldn't count on Harvard

University stepping up to enroll more low income students.

By 1977, the U.S.

had nearly $15 billion worth of endowment assets.

Endowments grew very slowly in the 1960s and the 1970s.

Then there was a shift where the most prestigious colleges, the Harvard's,

Yale's, Princeton's and some others started investing more in things like

venture capital stocks and equity markets.

From there, administrations became a lot more intertwined with the finance

world,

their endowments became a lot bigger and the universities became a whole

lot more powerful.

Ok, so some of the endowment does go back to the universities, but exactly

how it's divided up is left up to the administrations and sometimes it's

controversial.

In 2016, the University of Texas system spent millions on a bunch of empty

land with no real plan of what to do with it.

People thought that money could be better spent on education and UT later

backtracked and said it would sell it.

Let's go back to Harvard's endowment.

In 2018, most of the money was put into things like hedge funds, real

estate, stocks and bonds.

That tiny sliver right there, roughly 5 percent, that's $1.8

billion. And that's what went to the university's operating budget.

That means things like professors salaries and financial aid.

And schools are paying a lot more per student these days.

In 1977, the top 1 percent of schools spent less than $10,000 from their

endowment for every student.

In 2012, that number had jumped to more than $80,000.

But that doesn't necessarily translate into more people being able to

attend Harvard.

And some people think they could be doing more to lower the cost of

tuition.

It's inconceivable to me that with all that money you have now, why

are raising tuition?

They have used the funds that they have to support more financial aid for

low income students to make college more affordable for those low income

students that they do enroll.

But again, they enroll so few low income students that those increases in

financial aid are not that meaningful.

When I asked Harvard about this, they said that student aid covered 1 in 5

undergraduates tuition in 2018 because their families made less than

$65,000.

When a person is admitted to Princeton University, no matter how poor their

family was, no matter how hard scrabbled their upbringing was, they've

been admitted to probably the top 2 percent.

They are no longer poor people.

They are rich and advantaged people in prospect.

To give them an education for free that they might otherwise be able to

pay for, to some extent is not redistributing from the rich to the poor,

it's redistributing from the rich to the merely extremely wealthy.

Harvard's website does say that it doesn't use endowments to reduce tuition

because, one, they have to maintain the endowment.

And much of it is restricted or set away for specific projects.

Here's the crux of it.

Schools have billions of dollars and they don't just want that money

sitting in a checking account.

Lots of it is earmarked for specific projects like a scholarship fund or

research in a particular lab on campus.

The rest of the money is invested to grow the endowment even larger, and

that's where things get complicated.

Annual endowment reports from elite colleges like Harvard and Yale grab

headlines every year, and the finance world pays attention.

Large endowments are managed by a committee of investors, often as part of

a university aligned investment corporation.

Schools with smaller endowments might not have the resources to build

their own investment team, so they often outsource the job to money

managers with more expertise.

With billions of dollars floating around, endowments and the universities

behind them have a lot of purchasing power.

Like when they stopped investing in South Africa during apartheid.

Large numbers of American institutions, not just university endowments, to

withdraw or not make investments in companies who do business in South

Africa helped change the regime in South Africa.

And it's surprising and stunning.

I wouldn't have expected it, but I think it did.

The issue of today?

Investments linked to climate change.

...fossil fuels, to its terrible investments...

Harvard and other wealthy colleges have made news for buying up foreign

farmland and supporting fossil fuel companies.

If you look at Harvard's mission statement it's about educating the citizen

leaders of the world. How

we can be a responsible civic leaders while still supporting an industry

that fuels the climate crisis is unclear to me.

Groups like Divest Harvard work by organizing students and community

members to pressure universities to stop investing in things like private

prisons, Puerto Rico debt or the fossil fuel industry.

Harvard hasn't divested from fossil fuels and said it should not use the

endowment to achieve political ends and that the university works to

influence public policies in other ways, like through scholarship and

research.

A lot of universities will talk about how they don't want to divest the

endowment because that's a political move.

But investment is political.

Harvard is full of smart people like other universities.

The point at which they will change their minds, I think, is where so many

people mobilize that to say no would be more damaging to their institution

than to say yes.

I see the groups as being effective.

However, I think it is a much slower and longer play than I would like or

they would like.

Brian Bink is a PhD student on Yale's Advisory Committee on Investor

Responsibility, which is a group designed to help address concerns about

Yale's investments.

Many schools with big endowments have something like it in one form or

another. For Yale, the standard

that we have is that in order to divest from company, we must see that the

company is committing grievous, unethical behavior that creates grievous

social harm to others.

That is a very high bar.

We have to be able to prove that they are reaching that bar.

An ongoing discussion and I like to bring up is, are the standards that we

are given the right standards to be operating under? Yale's

ACIR doesn't actually get to make the final call on whether or not to

divest.

The entire process takes months, sometimes even years.

The people who do have the final say on how to use the endowment sit on

this board.

Perhaps the most famous endowment investor is David Swenson.

He's the highest paid employee at Yale, which isn't uncommon for endowment

managers. Swenson's investing strategies have become known as the gold

standard for endowments.

In the 1990s,

you started getting a big rise in the wealth of the richest Americans, many

of whom are alumni of the most prestigious schools.

Swenson's signature strategy at Yale is all about investing in more

alternative investments, like real estate, venture capital and natural