In any industry, cracking the code of going to scale requires an innovative approach—like thinking of neighbors as potential taxi drivers (Uber), allowing the free use of stock trades (Robinhood), or subscribing to a library rather than owning an album (Spotify). For some universities that rely heavily on student tuition, escaping traditional philanthropic norms has enabled them to take philanthropy to scale and generated more than one billion dollars.
Following the lead of Uber, Robinhood, and Spotify, these universities adopted an innovative approach that shifted charity from the back end of the college experience to the front end, where “donations” are hardwired into each sale. Leaders at these schools discovered how to utilize current students as “new philanthropists,” funding today’s endowment with tomorrow’s money. However, this clever reimagining of philanthropy comes at a steep price, transforming education into an extractive enterprise.
In traditional philanthropy, wealth attracts wealth, and “scale” refers to the size of the gift bestowed by a mega-donor, typically hundreds of millions, and sometimes reaching billions.
While writing Capitalizing on College, I interviewed more than 150 leaders of universities that rely heavily on student tuition to survive and discovered a painfully obvious truth: traditional philanthropy only works for elite universities. In traditional philanthropy, wealth attracts wealth, and “scale” refers to the size of the gift bestowed by a mega-donor, typically hundreds of millions, and sometimes reaching billions. Elite colleges and universities maintain monopolistic access to mega-donors, commanding headlines with gifts like the $400 million Kluge gift to Columbia, the $1 billion Doerr gift to Stanford, or the $1.8 billion Bloomberg gift to Johns Hopkins.
In addition to deep-pocketed alumni, elite institutions also possess extensive fundraising networks that enable them to build upon their mega-donor dominance. The result is that 75% of the endowment wealth in the U.S. is held by only 10% of higher education institutions. The strategies of traditional philanthropy work well for affluent universities, but not for most. For those below the elite strata of Ivy League and research institutions, the philanthropic landscape looks radically different.
In speaking with leaders of colleges and universities that rely heavily on student tuition, I confirmed that these tuition-driven institutions typically do not have access to a substantive endowment. In 2022, half of all independent institutions had endowments of less than $10 million, while the median endowment for public institutions was only $3 million larger. With only a few philanthropists like Mackenzie Scott who strategically focus on large gifts to institutions in need, the leaders of tuition-driven colleges must turn to innovative approaches that work for their sector rather than traditional philanthropic methods employed by Harvard and Yale. In a classic case of necessity being the mother of invention, when faced with seemingly insurmountable financial constraints, some tuition-driven institutions turned to their sole asset to build their endowments—their students.
It is common for most American universities to ask students to voluntarily give a charitable contribution as they approach the back end of their college experience, particularly on “Giving Day.” But this voluntary approach remains difficult to scale because it requires a large supply of persons to solicit donations—just ask any Salvation Army bellringer—and college seniors approaching graduation are hardly flush with disposable income.
But as it turns out, taking philanthropy to scale flips traditional philanthropic norms on their head, raising hundreds of millions, but without a mega-donor or well-heeled alumni network. In the seemingly never-ending search for additional financial resources, senior leaders of select tuition-driven schools shifted their focus. They realized that a “sale” (i.e., enrollment) could be taken to scale and return “gifts” that could be used immediately—without waiting for alumni to eventually “ripen on the vine.” In shifting their entrepreneurial focus, these leaders fixed their gaze on what had previously been an untapped financial source for higher education philanthropy—student loans.
These presidents and their administrations integrated philanthropy into the admissions process by building in significant margins (i.e., profit) to the college price tag beyond the actual cost of the student experience. Leaders also identified online student enrollment markets where tuition revenue could be taken to scale. Thus, when leaders dramatically grew student enrollment, they also expanded the philanthropic mechanisms embedded into each enrollment. The term coined in Capitalizing on College that explains this innovative strategy is “margin philanthropy.”
One senior leader described the moment his president decided to take the plunge and pursue the scaled philanthropic model. “I kept telling the president that there was an upside, and that upside was in online education—if it were operated other than in a very carefully measured, controlled, safe manner.” Shaking his head at the recollection, he went on: “The president decided to embrace the more radical, more aggressive, less safe method, and it worked. . . . We actually got cash flow.”
The margin philanthropy approach burdens students with future debt. Rather than having tomorrow’s alumni give from their future wealth, these leaders require current students to contribute via student loans.
Consider a hypothetical university that has decided to have students “donate” $1,500 of their tuition annually. They set their margin for each student. As the institution accelerates its enrollment to 20,000 students, it will secure upwards of $30 million for its endowment annually. And on this model, an increase in the rate of margin per student (e.g. from $1,500 to $1,750) will add another five million dollars to the coffers.
But this is not a hypothetical. Working to maximize both sides of this metric—the rate of margin and overall enrollment—a few select institutions have achieved hundreds of millions annually from the “new philanthropists.” Like gifts from mega-donors, when an institution cracks the code to scale philanthropy to this level, the results are transformative, as one faculty member recalled: “Once they did that, it was just breathtaking what happened.” At one school the endowment topped $1 billion in less than five years.
Like any financial principle, there are always two sides to the proverbial coin, and the same holds true with margin philanthropy. On the one hand, the approach provided these institutions with new financial freedom and hope for the future. The university was free to pursue its mission unhindered, as a university executive explained: “One of the reasons why we are really committed to having a business model that works for the institution that is profitable is so that a generation from now we’re not in a position where we have to rely on major donors to keep the institution afloat. Major donors [can] influence and change the integrity of the institution.”
On the other hand, the margin philanthropy approach burdens students with future debt. Rather than having tomorrow’s alumni give from their future wealth, these leaders require current students to contribute via student loans. By embedding “charity” into the front end of the transaction, schools transfer the risk of financial precarity from the institution and its leaders to each enrolled student. Of the loans, a finance administrator confessed, “[We] are getting all the money, but they are borrowing the money.”
This entrepreneurial approach to building university endowments is a natural consequence of the economic reasoning that guides federal education policy in the United States, where institutions are incentivized to establish market solutions to institutional problems. In this instance, the problem of financial precarity vexing most tuition-driven universities was tackled entrepreneurially by using the very individuals colleges claim to serve. As one professor candidly summed up, “The school was just frantically trying to survive. But now it’s got more money than God.”
Issue Soundtrack: The Cost by Austin Plaine
The Chronicle: Hollis Robbins recently published a thought provoking, must-read review of Capitalizing on College, artificial intelligence, and sustainability in the Chronicle of Higher Education. Read it here!
On the Road: I recently had the honor to spend the afternoon with an inspirational group of young women at HCC Technology Foundation—whose mission is “bridge the gender gap in technology”—in Lahore, Pakistan. They convene daily during a 3 to 6-month period to strengthen their professional skills and knowledge to improve their opportunities for professional advancement after having just completed their bachelor’s degree. Please consider looking up the foundation if you are interested in supporting their mission in some way, or contact Dr. Abrar Chaudhary & Ayman Mahmood.
Mentoring and Writing Summit: While in Pakistan, I co-led a mentoring workshop focused on climate change and crisis response organized by the University of Oxford. The event picked up the attention of national media and you can watch a recap of our time together in a video by Pakistan TV Digital here.
Suggested Substacks: If you haven’t had a chance yet, be sure to check out these other great Substacks from friends and colleagues that I know you will enjoy.
1. Jonathan Plucker — Everyone Has a Plan - Jonathan Plucker’s Substack
2. Amy Tiberio — Embracing Disruption in Higher Education
3. Brendan Cantwell — Ungated
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