Tax-Exempt Schools Favor Insiders

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January 6, 2011; Source: Chronicle of Higher Education | Within all the investigations of how nonprofit colleges and universities use their nonprofit status and access to tax deductible charitable donations, one major question has been why tax preferred institutions of higher education in many cases get to use their tax-exempt status to serve children of immense wealth and privilege.

A subset question is the issue of "legacy" preferences: how much does having a mom or dad who went to Harvard help son or daughter get in? According to the Chronicle of Higher Education, "Colleges and universities have justified legacy preferences as a 'tiebreaker' in close admissions calls." A review of 30 "elite schools" designed with appropriate controls for variables and conducted by Michael Hurwitz of Harvard University concluded that "legacy preferences of all kinds increase one's chances of admission by 23.3 percentage points."

For “primary legacy” candidates – sons and daughters, as opposed to siblings, nephews, nieces, or grandchildren – the increased chance of admission was 45.1 percent. The Chronicle explained, "If a non-legacy applicant with a certain set of credentials has a 15 percent chance of admissions, a primary legacy applicant with identical credentials would have a 60 percent chance of getting in."

Is this right? Hurwitz explains, "Although the admissions advantage received by legacy applicants may strike some readers as unacceptably large, I urge readers to consider that donations from alumni are increasingly important to the well-being of this paper’s sampled colleges.” The Chronicle suggests that Hurwitz doesn't provide any statistical evidence for the contention that legacy admissions increase alumni giving, and nothing in the literature demonstrates a statistically significant causal relationship.

Assume Hurwitz's assertion is correct. There would be at least some justification, potentially, for legacy favoritism, though the question would be whether legacy factors should simply be tiebreakers as opposed to 45 percent preferences. But if that fig leaf of justification isn't supportable, then taxpayers are essentially permitting elite nonprofit colleges and universities to use charitable contributions for the benefit of insiders.—Rick Cohen