Payoff-based College Admissions
The Supreme Court is slated to weigh in this year on the legality of race-based admissions preferences in higher education. It is a crucial and complicated question rooted in fundamental American principles. But some questions regarding college admissions are much simpler, and some admissions practices are much more plainly obnoxious to our sense of fairness. One such question concerns the practice of publicly subsidizing payoff-based admissions.
As many are aware, wealthy parents can donate large sums to elite universities and significantly raise the odds that their child will be admitted. At Harvard, being connected to a wealthy donor boosts an applicant's chances of admission by a factor of nine. At Duke in recent years, up to 5% of the student body owed its admission to connections to deep-pocketed donors. Between 2013 and 2019, the state-supported University of California system admitted at least 60 students (and probably well over 400) due to family connections. As state auditors put it, "under normal circumstances" these applicants would otherwise have had "virtually no chance of admission."
This is all unfolding at colleges that avow themselves bastions of equal opportunity and access. These same institutions are all too content to sell seats to the wealthy and connected and to reap the rewards. In so doing, even private universities are not acting as private actors making private decisions; their actions are effectively subsidized by the federal tax code.
As long as there's no explicit quid pro quo agreement between family and university (and these things are done via nods and winks), the IRS turns a blind eye to wealthy families claiming the charitable-giving deduction for the "gifts" that lead to their children's admission. Given the incomes and tax situations of those making these contributions, taxpayers can wind up paying up to 50 cents on the dollar of any check a deep-pocketed donor cuts to purchase a child's admission.
It's time for that to change.
HOW IT WORKS
At our nation's elite colleges, the wealthiest applicants routinely purchase what's best understood as an admissions fast pass that includes individualized attention from high-ranking officials, a de facto appeals process should their application be denied on the merits, and the possibility that coaches and administrators will cut corners as needed. In short, colleges are selling dramatically increased admissions odds to children of wealthy donors.
This donations-for-seats racket is no secret. Indeed, the purported guardians of merit, opportunity, and equity at selective universities are bizarrely, even laughably, open about the fact that donating money buys special consideration in admissions. Robin Mamlet, Stanford's former admissions dean, has said that fundraising staff routinely flagged applicants whose families were significant donors, and that she would "certainly factor in a history of very significant giving to Stanford" in admissions decisions. Former Yale president Richard Levin conceded, "[w]e do advise the admissions office about applications coming from the children or grandchildren of significant donors." Former University of Texas president Bill Powers kept a "must-admit" list of applicants with connections to wealthy donors and politicians, and stepped in when the admissions department threatened to reject the academically unqualified. Powers's defense was simple, if revealing: "[S]ome similar process exists at virtually every selective university in America."
The promises of access and special treatment for one's children and grandchildren are fairly blatant. At the University of North Carolina in recent years, the development office promised donors they could "find great joy in sharing special campus access and custom-tailored experiences with their children and grandchildren." The "benefits of recognition" for joining the prestigious ranks of the Ohio State President's Club include "opportunities to hear from university leaders." At the University of California, Davis, donors of $1 million or more "receive access to special accommodations" as well as assistance with "general questions, concerns, and requests." These promises aren't as prominent on campus websites as they were a few years ago, but there's no evidence that institutions are dialing these practices back — just that they're making more of an effort to hide them.
For campus bureaucrats, admissions routines that cater to rich donors are a feature, not a bug. After all, this is how campuses erect buildings, construct new stadiums, add boutique programs, and finance their sprawling bureaucracies. Duke University pioneered this system during the tenure of former president Terry Sanford who, from 1969 to 1985, set his sights on elevating the institution from a regional university to a national one. Sanford, an extroverted former governor with deep political, business, and media ties, figured he could boost Duke's bottom line and curry favor with his network by catering to the children of major donors. Each year, he met with Duke's development and admissions officials to discuss 200 applicants related to influential people or generous donors. Of that group, about half would typically enroll.
By the late 1990s, Duke had crafted a regimented system that ensured no donor's child was left behind. Reporter Daniel Golden, in a 2004 Pulitzer-winning Wall Street Journal series, exposed how it worked. Using its extensive network of donors, trustees, and alumni, Duke's development office assembled a list of about 500 high-priority applicants each year. The development team would ply these students while culling the list to 160 highest-priority targets over the course of the year. At the end of the process, if any of the development office's priority targets wound up rejected, admissions and development officials would meet to weigh (in Golden's words) "their family's likely contribution against their academic shortcomings."
Duke proceeded to admit annually 100 or more donor-connected students who had been initially rejected or wait-listed, with the result that, for six consecutive years in the early 2000s, the university led the nation in unrestricted giving to its annual fund from non-alumni parents. Golden's exposé produced remarkably little shame or reflection on the part of colleges, while Duke's response contained no apology and no promise to end these programs. Instead, the university languidly explained that the process had "promoted worthwhile goals and served Duke well."
Rather than disavow Duke's system, other institutions have emulated it. Filings in a lawsuit initiated in 2014 revealed that Harvard's dean of admissions scrupulously tracked exceptionally wealthy and influential applicants on a "dean's list." Membership on that list came with perks, including a special application rating from the development office reflecting the level of interest that other university actors had in an applicant's admission prospect. From 2014 to 2019, members of the dean's list had an admission rate of 42.2% — roughly nine times the overall admission rate. In 2019, 192 Harvard seniors, or more than 10% of the graduating class, had been on the list.
Harvard's rival, Yale University, has followed Duke's example as well. In 2018, the Yale Daily News reported that the university maintained a list of "VIP" applicants. Asked how the admissions office defined who qualified as a VIP, Adam Cohen, the university's development program coordinator at the time, was blunt: "donors." (After a brief pause during his interview, Cohen recanted and then described VIPs as "guests.") As at Harvard, VIP applicants at Yale received perks unavailable to other students, such as the chance to huddle "with first-year counselors before they even submit an application." Of course, the real value of being a major donor comes during the admissions process, when university fundraising officials share documents detailing how much applicants' families have donated. While Yale's admissions statistics have not been forced into the open, a former Yale admissions officer estimated that 30 to 40 applicants each year receive this kind of special attention.
The practices that have been brought to light — thanks largely to recent lawsuits involving college admissions practices — are especially revealing. The University of Southern California's color-coded spreadsheet of VIP applicants, which was disclosed during the 2019 "Varsity Blues" admissions scandal, was peppered with notes such as, "given 2 million already," "1 mil pledge," "[p]reviously donated $25k to Heritage Hall," and "father is surgeon." In one telling note that surfaced during Harvard's race-preferences litigation, a high-ranking campus official mused that an applicant's family had "an art collection which conceivably could come our way." While the mechanics may vary across institutions, the common denominator is an unseemly focus on how much each prospective student's family has given or could give.
WHY IT MATTERS
These arrangements are unsavory. They also enmesh these institutions in deceptive practices. The Harvard admissions web page pledges "to bring the best people to Harvard, regardless of their ability to pay." Yale's website guarantees "that qualified students are admitted without regard to their financial circumstances." Many other universities make similar promises, which are misleading at best. As we have seen, financial status absolutely affects admissions decisions.
But there's also a more elemental and corrosive dishonesty at work. Colleges claim to be great equalizers and engines of opportunity, which is how they justify the hundreds of billions of dollars they pocket each year in state funding, federal grants, and federally underwritten student loans. "Historically," says Harvard president Lawrence Bacow, "the nation's colleges and universities have enabled the American Dream" because they "have the capacity to alter the trajectory of people's lives." "When we admit kids," he notes, "we don't look to see whether or not they can afford to come." Yale president Peter Salovey has expressed similar sentiments: "We are committed to welcoming to Yale exceptional students from every walk of life" with "an admissions process that looks at the whole applicant." Duke president Vincent Price has said that "developing and identifying human talent to the fullest extent possible...means valuing equally every member of the Duke community." Yet leading colleges routinely admit students precisely because they are privileged and among society's best connected.
The irony is that these wealthy, well-connected students would likely do just fine at less selective schools. While a college degree generally carries a major wage premium in the labor market, a large body of research shows that the additional premium for a selective college degree is not always significant after controlling for characteristics like ambition, aptitude, college major, and family background.
The major exception to this rule is students from the least advantaged backgrounds. In a landmark 2011 study, Princeton's Alan Krueger and Mathematica's Stacy Dale analyzed applicants with similar demographics and test scores who applied to the same mix of schools and found that, in comparing incomes two or three decades later, "the return to college selectivity [is]...indistinguishable from zero" — except for minority students and first-generation college-goers. As the Atlantic's Derek Thompson put it, "getting into Princeton if your parents went to Princeton? Fine, although not a game-changer. But getting into Princeton if your parents both left community college after a year? That could be game-changing."
The tragedy of wealth-based admissions is that wealthy students are taking up seats from the poor, unconnected students who need them most. This is not a victimless crime.
Of course, college officials like to contend that these wealth-based admissions practices are needed to generate resources and provide aid for needy students. If so, colleges should open their financial books and prove it. Until then, it's hard to give much credence to such protests when they're proffered by college leaders who sell access while squatting on multibillion-dollar endowments and spending vast sums of money on palatial campus buildings, leadership compensation, and administrative bloat.
College officials might also respond that, whatever the harm donations-for-seats schemes may cause middle- and low-income families, many of the institutions operating these admissions systems are private. If private institutions want to privilege one group of applicants over another, that may be unsavory and unfortunate, but it is not a public concern.
Such a response neglects the enormous public subsidy for this practice.
HOW YOU'RE PAYING FOR IT
If a donor earns seven figures a year and lives in California, taxpayers can wind up subsidizing more than 52 cents of every dollar used to buy his child's way into college. Even in states with less exorbitant tax rates, taxpayers routinely pick up more than 40% of the tab. That's because these kinds of donations are wholly tax deductible: As long as there's no explicit quid pro quo agreement, the IRS allows parents to write off their influence-peddling donations in full.
Clearly something is amiss. The IRS has long held that donors can only deduct the value of their contribution minus the value of any good or service they receive in return. For instance, an individual who donates $1,000 to a local arts center but receives a $400 concert ticket in return is only allowed to deduct $600 from his tax bill. This makes obvious sense: An exchange of goods or services is no longer a charitable contribution.
Additionally, the IRS holds that "where a transaction involving a payment is in the form of a purchase of an item of value, the presumption arises that no gift has been made for charitable contribution purposes." The IRS commissioner has wide latitude to determine what constitutes an "item of value." In 1984, for instance, Commissioner Roscoe Egger, Jr., issued a ruling holding that donations to university athletics aren't deductible if they yield special access to game tickets. Positing a scenario in which patrons donated $300 to become "members" of a scholarship program and purchase preferred seats, the IRS ruled that "the benefit received as a result of the payment is considered to be commensurate with the amount of the payment made, and therefore no part of the payment constitutes a gift." This standard has been applied to donors purchasing access to campus football stadiums, but not to donors purchasing access to lucrative credentials for their children.
Gifts that purchase coveted admission slots should not be deductible. When donors write checks for that purpose, they are no longer making a charitable contribution; they're making a purchase.
HOW TO END IT
What might be done to change the state of things? There are at least three strategies deserving of consideration.
One is simply to assert that the law means what it says. Institutions that want donations to continue to be tax deductible would need to honor the pledge that most have in their admissions materials — that wealth, donations, and ability to donate do not factor in to the admissions process. Officials could be required to erect a firewall between admissions and fundraising, annually attest that the two operations are wholly independent, and submit to a regular audit. The consequences for violation should be severe, with culpable officials held personally liable for wrongful conduct.
Indeed, much of this can be accomplished under the law as it exists. The IRS commissioner has the authority to clarify the rules regarding what constitutes a permissible charitable deduction, and in Hernandez v. Commissioner, the Supreme Court affirmed that the IRS is well within its power to reject deductions that represent a quid pro quo for goods and services. The IRS is thus already in a position to determine that, at any college that fails to erect and enforce a firewall between admissions and fundraising, a familial donation associated with admission is presumed to constitute a business transaction and does not qualify as a charitable deduction.
A second strategy would be to permit colleges to operate as they have, so long as they don't accept large donations from the parents or extended family members of prospective students or recent graduates. While the specific cutoffs are negotiable, federal officials might stipulate that institutions could not accept tax-deductible donations greater than $500 from the parents, grandparents, or immediate relatives of prospective students within, say, eight years of the matriculation of attendees, during the time they're enrolled, or within eight years after they graduate or depart the institution. It would be the college's responsibility to track gifts of greater than $500, inform donors of the circumstances under which gifts are deductible, report annually to federal officials all gifts in excess of $500, notify federal officials when any large gift is rendered non-deductible due to an admissions decision, and work with large donors and the IRS to facilitate prompt payment of the tax burden when an admissions decision makes it necessary. The pecuniary value of admission to a selective institution would need to be determined by the IRS when necessary, but it would not be any great challenge for economists to generate a workable estimate.
Senator Ron Wyden of Oregon has introduced a bill that would codify some of these suggestions. His College Admissions Fairness Act would require colleges to affirm that they have a policy that prohibits administrators from considering family members' donations or ability to donate as a factor in admissions. If a college refused to make such an affirmation, families would not be allowed to deduct more than $100,000 in donations within six years of their child's enrollment.
The time periods and dollar amounts that Wyden proposes may be too accommodating to colleges. A more significant concern, however, is that while the Wyden bill as formulated would prohibit parents, grandparents, and entities they control (such as partnerships, corporations, or trusts) from deducting influence-seeking donations, it doesn't address other relatives, leaving them free to purchase access on the taxpayer's tab. Wyden's proposal thus offers a valuable starting point, but one that would benefit from revision.
Finally, within the parameters of current law, prosecutors or enterprising litigators have ample opportunity to energetically challenge colleges for dubious practices. In fact, many colleges that collect huge sums of public funds are arguably engaging in false advertising and fraudulent conduct. Most every college charges an application fee to prospective students and, in exchange, promises to consider the application without regard for the applicant's financial status. When colleges set aside seats for the scions of big-dollar donors, they're failing to honor that promise.
This is very much a case of what's good for the goose being good for the gander. Many public and private college leaders have quietly (or not-so-quietly) cheered when officials have gone after for-profit colleges for deceptive marketing. In 2016 Kamala Harris, then serving as California's attorney general, won a $1.1 billion judgment against Corinthian Colleges for (among other things) advertising false job-placement statistics to attract prospective students. More recently, the Biden administration has canceled over $2 billion in student loans held by 107,000 students who allege they were defrauded by their university — often for-profit universities such as ITT Technical Institute and DeVry University.
The broader impact of lawsuits relating to admissions conduct may ultimately lie less in the specific outcomes than in the discovery process that would ensue. In the course of litigation, colleges could be forced to turn over records relating to admissions, the tracking of donors and potential donors, quid pro quo agreements, internal staff negotiations, and more. Indeed, the best windows we have into wealth-based admissions came from the discovery process of largely unrelated lawsuits — including the Harvard affirmative-action lawsuit and the legal procedures involved in the Varsity Blues scandal. Transparency around malfeasance and misconduct could help build a consensus regarding the need to battle self-dealing, corruption, and tax fraud at institutions that portray themselves as engines of opportunity and champions of equality.
Some observers might wish for government to seek ways to ban colleges from taking into account financial considerations when it comes to admissions. Senator Wyden, for one, has proposed as much for any college that receives federal aid. In the aftermath of the Biden administration's attempted $400 billion student-loan-forgiveness jubilee, Wyden's proposal deserves serious contemplation. Given that the taxpaying public is subsidizing attendance at these institutions, it's wholly reasonable for public officials to insist that participating institutions prioritize equal opportunity over the convenience of campus fundraisers.
Of course, legislating Wyden's proposal into the Higher Education Act — especially in the face of the powerful higher-education lobby — will be difficult. This makes addressing deductibility a useful interim step.
HONESTY IN ADMISSIONS
The code of ethics for professional university fundraisers, as described by the Council for Advancement and Support of Education, requires that development officers not "solicit or accept favors for their institutions where a higher public interest would be violated." For too long, fundraisers have turned a blind eye to this principle.
Offering a special admissions track to the wealthy on the taxpayer's dime impedes equal opportunity, rewards influence peddling, and robs the public. It's time for a change. Colleges and universities should be places of opportunity, not institutions where background or wealth determine success. Wealthy applicants should have to earn their place in a university by the same rules as everyone else.
Crucially, the solutions discussed here do not envision an extension of government authority, at least so long as colleges aren't asking taxpayers to underwrite their donations-for-admission efforts. Colleges reluctant to change their business model can simply acknowledge how they do business, inform donors that their gifts won't be taxpayer-subsidized charitable contributions, and go about their business as they like.
The consequences would be straightforward and not especially dire. Potential students would know which colleges are selling seats and make application decisions accordingly. Wealthy donors could still write big checks and buy access, but without taxpayer subsidies. Colleges would no longer be free to casually mislead students about whether they consider wealth in admissions. And when college presidents and faculty stand on soapboxes to lecture their fellow citizens about equity, social justice, and the rest, observers would be better able to judge their sincerity.
Would such a change have an untoward impact on collegiate fundraising? Removing the subsidy would undoubtedly make it harder for famed institutions to raise money by selling seats to wealthy donors. While the institutions will complain, that seems like a healthy development on the whole. If wealthy donors can't give to the institutions where they hope to send their own children or grandchildren, perhaps some will still make large tax-deductible contributions to higher education. If they're unable to do so in exchange for access, they will perhaps be more inclined to donate based on careful consideration of the institution and its mission.
That may mean fewer funds will be invested in payoffs and more will be driven by program quality and a donor's confidence in its social utility. It may drive more giving toward less elite institutions. No longer able to focus on buying access, donors may pay more attention to elements like institutional mission, responsibility, bloat, or commitment to free inquiry. More promising still, donors may wind up more open to investing in new or entrepreneurial ventures that they may not be inclined to send their own children to, but that they believe have significant potential. All of this would be healthy for higher education and society at large.
We should press college officials to mean what they say about opportunity and equity, and to spend less time strong-arming wealthy donors. But at a bare minimum, we should get taxpayers out of the business of subsidizing campus shakedown artists.
