The New Inequality Engine

America's colleges and universities are supposed to enhance economic opportunity. Three new surveys conclude they're doing just that — for the already affluent.

November 27, 2006

The single most powerful engine of inequality in the United States? Over the past quarter-century, that’s been the American business corporation. But now corporations are getting a run for their inequality money — from America’s colleges and universities.

Contemporary higher education, a host of new surveys make clear, is widening the grand divide between America’s most affluent and everyone else. Indeed, the Washington, D.C.-based Education Trust reports in a new study, the nation’s top public universities are rapidly becoming “enclaves for the most privileged of their state’s young people.”

In these flagship universities, spending on financial aid for students from families that make over $100,000 a year jumped 400 percent between 1995 and 2003, the latest year with stats available. Over that same period, spending for students from families making less than $40,000 increased just 20 percent.

The financial aid grants that major state universities are now handing students from $100,00-and-up families — $3,823 on average — are actually running larger than the grants these universities are giving students from low- or middle-income families.

In the process, notes the Education Trust’s new Engines of Inequality: Diminishing Equity in the Nation’s Premier Public Universities, America’s big-time colleges “are becoming disproportionately whiter and richer.” Minority students, for instance, represent over 35 percent of high school graduates in Georgia, but made up only 7 percent of the freshmen who entered the University of Georgia in 2004.

But the policies and practices in American higher education that are driving inequality wider go far beyond student aid. Universities, in their internal compensation, are more and more institutionalizing the same sort of enormous top-to-bottom pay gaps that have come to define America's corporate sector.

How pronounced has inequality in higher ed compensation become become? The million-dollar university president, the Chronicle of Higher Education reported last week, may soon be commonplace.

The million-dollar college football coach, USA Today adds in a new survey, already is.

The number of college, university, and medical school presidents making over $500,000 hit 112 in 2004-2005, says the Chronicle’s latest annual compensation study. Seven presidents of private colleges took home over $1 million, adds the new study, and the number of public college presidents making more than $500,000 nearly doubled over the previous year.

Meanwhile, salaries for full-time professors last year increased just 3.1 percent, not enough to match the year’s 3.4 percent inflation rate. The typical professor at the University of Louisville now earns less than half what the University of Louisville football coach will receive, as a bonus, for getting his team to a big-time college football bowl game.

That coach, Bobby Petrino, holds a contract that guarantees him $1.6 million a year, plus a $10,000 annual allowance for gasoline and assorted other perks. The nation’s 119 big-time college football coaches are now averaging $950,000 a year, says USA Today, “not counting benefits, incentives, subsidized housing or any of the perks they routinely receive.”

In 1999, only five college football coaches took home $1 million. That total now stands at 42.

Apologists for all this collegiate compensation excess sound quite a bit like their corporate counterparts. “Market forces,” these apologists argue, are driving the pay increases for top university administrators and coaches.

“The absolute number of people available who can do these jobs well is shrinking,” says Raymond Cotton, a lawyer who handles contracts for college presidents. “When demand increases and supply is shrinking, price goes up.”

“The marketplace drives what we pay,” contends University of Iowa athletic director Gary Barta, “and right now the marketplace is aggressive.”

That aggression, in higher ed as in the corporate sector, is poisoning the well, creating incentives for beliefs and behaviors that rot institutional values and performance from the inside out.

Derek Bok, the current interim president of Harvard, first began publicly warning against this rot in his 1993 book, The Cost of Talent: How Executives and Professionals Are Paid and How It Affects America, and he hasn't stopped.

“If presidents are perceived by their faculties as distant figures with chauffeured limousines and out-of-scale salaries, they will hardly be credible when they exhort professors to spend less time outside their offices giving lectures or consulting for high fees,” Bok noted in a 2002 commentary . “The influence of money is already too strong on many campuses.”

Some lawmakers in Congress are echoing the Bok critique. “Excessive compensation” in collegiate sports, House Ways and Means Committee chair Bill Thomas noted earlier this fall, “makes less revenue available for other sports, causes many athletic departments to operate at a net loss, and may call into question the priorities of educational institutions.”

Thomas wants to know why colleges and universities that engage in this overcompensation should continue to enjoy federal tax exemptions. The easy answer: They shouldn’t.

But insiders on the collegiate scene don’t expect things to change.

“I don’t think you can unring the bell,” says former Iowa athletic director Bob Bowlsby. “I don’t think we're going to one day decide these coaches aren't worth the money and start paying them $800,000 a year again. How does that happen? I think the answer is it doesn’t.”

Congress, of course, could unring the bell. What form could that unringing take? One possible approach comes from Rep. Martin Sabo of Minnesota.

Rep. Sabo, who's currently serving his last term before retirement, has proposed legislation that would deny business corporations tax exemptions on any executive pay that runs over 25 times the pay of a company’s lowest-paid worker.

That same principle could easily be applied to higher education: no tax exemptions for any college or university that pays its top administrators — or coaches — over 25 times the pay of their lowest-paid employees.

Higher ed figures like Vanderbilt president E. Gordon Gee ($1.2 million annual take-home) and Iowa football coach Kirk Ferentz ($4.7 million) may not be likely to give a good old college cheer to any mandate along these lines. The rest of us should.

Want to receive the Too Much online newsletter in your email box every Monday? Learn more about Too Much and then sign up here for a free subscription!