Colleges might be able to eliminate tuition fees if their endowment funds were invested in this particular stock index.

The Rise of Administrative Roles in Higher Education

In a previous piece, I suggested a radical approach to the challenges facing colleges and universities: gradually eliminate both faculty and students, shifting the focus of institutions from education to advancing the careers of administrators.

Those in administrative positions are typically responsible for hiring decisions, and unsurprisingly, they tend to favor expanding their own ranks. Between 1990 and 2022, for example, Pomona College saw its tenured and tenure-track faculty decrease slightly from 180 to 175, while the number of administrators—including deans and their associates—jumped from 56 to 310. (Notably, the college no longer publishes these figures, which may speak volumes.)

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The overwhelming feedback I received from former academics and disenchanted professors confirmed that this administrative expansion is not unique to Pomona. Many shared stories of excessive bureaucracy. For instance, one small college had a 12-person “Wellness Task Force” whose main accomplishment was organizing a 45-minute campus walk. Another institution had a 15-member team dedicated to events like a “Winter Wellness Wonderland,” where staff could exchange thank-you notes.

While such initiatives are not inherently problematic, they hardly require such large committees. As one correspondent, who briefly held a senior administrative role, observed: “Administrators often fill their schedules to demonstrate how busy they are.”

Although even trustees seem unable to persuade administrators to prioritize faculty, a reader pointed out the existence of a covert group attempting a different tactic: curbing administrative growth at wealthy institutions by influencing endowment investment strategies.

Trustees oversee endowment investments, and by choosing underperforming assets, they can limit the funds available for further administrative hiring.

For many colleges, endowment income is the primary revenue stream. In fiscal year 2025, for example, Harvard derived 37% of its operating budget from endowment distributions. The figures for Yale, Princeton, and Pomona College were 33%, 55%, and 49%, respectively.

Most schools aim to distribute 4% to 5.5% of their endowment’s market value annually, expecting investment returns of 7% to 8% to preserve the endowment’s real value. If investments outperform, more funds become available, potentially fueling further administrative expansion.

Conversely, if investment returns lag, the growth of administrative staff is naturally constrained. This seems to be the result of the so-called investment cabal’s actions. Data from fiscal 2025 and the preceding decade show that none of the Ivy League schools, Stanford, the University of Chicago, or MIT matched the returns of the S&P 500, either in 2025 or over the 2016–2025 period.

This lackluster performance may be deliberate. Consider Harvard: its endowment stood at $56.9 billion in June 2025. Had it simply tracked the S&P 500 over the previous decade, the endowment would have reached $94.5 billion—a 66% increase. With a 5% withdrawal rate, that extra $37.6 billion could have generated $1.9 billion more per year, enough to pay 12,518 additional administrators at $150,000 each. These potential hires were effectively prevented by the endowment’s mediocre returns.

(Harvard’s net tuition and fees, after aid, total around $1.3 to $1.4 billion, so the extra endowment income could have eliminated tuition altogether—though this likely wouldn’t have been a priority for administrators.)

Pomona College’s endowment is much smaller at $3 billion, but if it had matched the S&P 500, it would be about 68% higher. This would mean an extra $2.04 billion, generating $102 million annually—enough to hire 680 more administrators or, as with Harvard, abolish tuition and fees.

Other institutions fall somewhere between these extremes. Without their questionable investment choices, we might be closer to a future dominated entirely by administrators.

Some defend these investment strategies by arguing that relying on the S&P 500 would introduce too much volatility, affecting annual withdrawals that support school budgets. One trustee told me, “Most people would find it odd to use the S&P as a benchmark. A 70/30 mix of stocks and bonds is more typical, given the endowment’s role in supporting the budget and administration. A 100% equity allocation probably isn’t prudent.”

As a result, most schools diversify into a range of average-performing assets to reduce market fluctuations. As John Maynard Keynes famously said, “It is better for reputation to fail conventionally than to succeed unconventionally.”

However, this reasoning is flawed in several ways. First, these alternative investments do little to stabilize returns. For example, in 2009—the worst year for the S&P 500 since 1950, with a return of -25.5%—Yale’s endowment lost 24.6%, Harvard’s 27.3%, and Pomona’s 23.0%.

Second, the emphasis on short-term stability is misplaced. Portfolios split between stocks and bonds are designed to balance growth and stability, but in reality, long-term growth is far more important than short-term steadiness.

After Yale’s endowment returned just 1.8% in 2023, compared to the S&P 500’s 19.8%, Yale’s chief investment officer, Matthew Mendelsohn, noted that as a centuries-old institution, Yale can afford to focus on long-term results. This is precisely why endowment managers should prioritize long-term growth over minimizing annual volatility.

Third, it’s a mistake to think that stabilizing withdrawals requires stabilizing the endowment’s value. Schools could instead use rules based on average endowment values or income over the past decade or two, rather than reacting to short-term market swings.

Given the expertise of those managing these endowments, I am inclined to believe that their underperformance is no accident.

About the Author

Gary Smith is an emeritus professor of economics at Pomona College and has authored over 100 scholarly articles and 20 books, including “Standard Deviations: The Truth About Flawed Statistics, AI and Big Data” (Duckworth, 2024) and, with Margaret Smith, “The Power of Modern Value Investing: Beyond Indexing, Algos and Alpha” (PalgraveMacmillan, 2024).

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