Why the UK’s universities are dwarfed by Stanford

by Stephen Tall on February 26, 2007

Here’s a rather frightening statistic… the ‘Ross Group’ of 75 universities in the UK raised £450m in donations during 2004-05 (the most recent year for which figures are available).

Sounds pretty impressive, doesn’t it?

However, it is rather put in perspective by Stanford University, which raised US$911m in 2006 – that’s £464m at today’s exchange rates.

In other words, Stanford raised more philanthropic gifts last year than the rest of the British higher education system combined.

And even that stark fact paints our universities in an overly flattering light. Oxford and Cambridge universities collectively benefited from £185m of that estimated £450m. The top 10 US universities raised an eye-watering £2.14bn between them.

Small wonder, then, that though the UK and USA governments spend roughly the same proportion of GDP on higher education, private giving means the overall investment in universities in America (2.7% of GDP) is more than double that in Britain (1.1%).

If this doesn’t worry us, it should do. There are two principal effects:

  1. British universities have less money to spend on their students.
    Edinburgh, which is Britain’s third wealthiest university, can boast £9,100 of endowment per student – which means they can invest roughly £450 a year in each student’s education (assuming a 5% income return on its investments). Princeton, though, has £830,700 of endowment per student – the equivalent of £41,500 a year to invest in each student’s education.
    Guess which university will be able to afford to offer the best education?

  2. Success generates success: the higher the endowment, the greater the risk (and therefore profit) a university can take in managing its assets.
    The average annualised return on endowment investments in the wealthiest 10 UK universities between 1994 and 2005 was 7% – it was 12% for the US’s wealthiest 10. Which means that (because the US universities were starting from a higher base) the absolute gap has widened – by £12.5bn in just the last three years.
    Guess which country will be able to afford to offer the best education?

It is a myth that US universities have always been rich: 25 years ago, Harvard was the only US university with an endowment of US$1bn. Now there are 56 such institutions. Europe has only two, Oxford and Cambridge.

The recent announcement by Tony Blair of matched government funding for donations to universities is, therefore, welcome. But, as can be clearly seen, it’s just a start.

And, of course, none of this is helped by the fact that most of the top British universities currently have to use much of what endowment income they do sweat to offset the losses they make on teaching undergraduates because of the government cap on tuition fees.

There is an obvious deal to be done here.

In return for UK universities being able to start charging (incrementally) a more realistic price for the cost of the education they provide, the government might reasonably expect increasing amounts of endowment income to be designated for student financial assistance to ensure the poorest in society can still afford to apply.

It’s what happens in the US – which is, in part, why many more Americans have the opportunity to experience higher education than we Brits do.

* The boring declaration of interest: I’m an educational fundraiser for St Anne’s College in Oxford.

Stats extracted from the Council for Aid to Education report, Data & Trends on Giving to Education (Feb 2007); and the Sutton Trust’s report, Univerity Fundraising – an update (Dec 2006).