Canadian author Malcolm Gladwell has observed that Princeton University has become the mythic ideal of a “perpetual motion machine” — it can now run itself solely on the investments of its massive endowment fund.
That was worth $57.9 billion in 2021 and has returned an average of 11.2% a year for 20 years. Adjusted to 10%, Gladwell calculates it will reap $5.79 billion a year, more than double its total operating expenses.
“Princeton may have become the first university in human history that does not require external funding for its continued operation,” Gladwell wrote. “And even better, it can self-fund its own operations and have more than a billion dollars left over.”
In 2020-21, 80% of Princeton’s operating costs were covered by investment earnings. So successful was its funding model, that it was able to fund an interactive treasury report. Imagine that — a university not beholden to student fees or government handouts.
Crikey took a look at how Australia compares.
Australia often laps at the heels of its US counterpart, but when it comes to higher education funding models its universities are well under what’s required for Gladwell’s “perpetual motion machine”.
University of Sydney led the field with an investment income of $466 million. This was about 19% of its $2.4 billion operating expenses. Compare that with University of Melbourne’s 15%, ANU’s 12%, University of Queensland’s 11%, and University of NSW’s 7%.
The standard educational institution draws money from three pools: government grants, student tuition, and investment income. Gladwell determines that any university relying on all three of these is … “normal”.
Normal perhaps, but ANU Professor in the practice of higher education policy Andrew Norton said there was nothing exceptional about the US higher education system.
“Overall, Australia has a much better funding system than the US,” he said, citing Australia’s common subsidies, common loan systems, flat rates, means-tested contributions — none of which the US has. “It’s designed to mix the public and the private. It’s sustainable.”
Big Ivy League universities in the US such as Princeton and Harvard operate as a “weird kind of honour system”, which Norton said guaranteed funding from past students would continue to flow through the doors: “There’s a kind-of moral obligation, an expectation that you will donate back to the uni. But that’s not a sustainable business model.”
Australia also gets points for its management of student loans and debt.
As long as huge numbers of American students continue to default on student loans, perhaps the “perpetual motion machine” should not be the default for higher education.
