The Secret of the University Cartels

Marc Andreessen explains how University funding creates a taxpayer-funded, monopolistic syndicate. “There is a government-supported and funded cartel that doesn’t allow new entrants to get access to Federal money. They must be allowed to fail,” says Andreessen.

The universities have four primary sources of federal funding:

The big one is a federal student loan program, which is, you know, in the many trillions of dollars at this point, and then only spiraling, you know, way faster than inflation. That’s number one.

Number two is federal research funding, which is also very large. And you probably know that when a scientist at university gets a research grant, the university breaks as much as 70% of the money for central uses.

Number three is tax exemption at the operating level, which is based in the idea that these are nonprofit institutions, as opposed to, let’s say, political institutions.

And then number four is tax exemptions at the endowment level, which is the financial buffer that these places have.

“Anybody who’s been close to university budget will basically see that what would happen if you withdrew those sources of federal taxpayer money, and then for the state schools, the state money, they instantly go bankrupt. And then you could rebuild.

“Then you could rebuild, because the problem right now, and you know, like the folks at University of Boston are like, mounting a very valiant effort, and I hope that they succeed, and I’m sure I’m cheering for them. But the problem is, … suppose you and I want to start a new university, and we want to hire all the free thinking professors, and we want to have the place that fixes all this.

“Practically speaking, we can’t do it because we can’t get access to that money. The most direct reason we can’t get access to that money? We can’t get access to federal student funding.

The next is accreditation

“Do you know how universities are accredited for the purpose of getting access to federal student funding, federal student loans? They’re accredited by the government, but not directly, indirectly. They’re not accredited by the Department of Education. Instead, what happens is the Department of Education accredits accreditation bureaus that are nonprofits that do the accreditation. Guess what the composition of the accreditation bureaus is: the existing universities. They are in complete control. The incumbents are in complete control as to who gets access to federal student loan money. Guess how enthusiastic they are about accrediting a new university, right?

A Government Funded and Supported Cartel

“And so we have a government funded and supported cartel that has gone, I mean, it’s just obvious now. It’s just gone like sideways, and basically any possible way, if it goes sideways, including, I mean, literally, as you know, students getting beaten up in the on campus for being, you know, the wrong religion.

“They’re just wrong in every possible way at this point. And they’re there. It’s all on the federal taxpayer back. And there is no way. I mean, I, my opinion, there is no way to fix these things without, without replacing them, and then there’s no way to replace them without letting them fail. And by the way, it’s like everything else in life.

“I mean, in a sense, this is like the most obvious conclusion of all time, which is what happens in the business world when a company has a bad job, is they go bankrupt, and another company takes its place, right? And that’s how you get progress. And of course, below that is what happens is, this is the process of evolution, right? Why does anything ever get better? Because things are tested and tried, and then, you know, the things that are good, survive.

“And so these places have cut themselves off. They’ve been allowed to cut themselves off from evolution at the institutional level and evolution at the individual level, as shown by the widespread abuse of tenure. And so we’ve just stalled out. We built it. We built an ossified system, an ossified, corrupt system. We’re surprised by the results. They are not fixable in their current form.”

I’d like to add that they’ve become greedy. Their endowments never go to reduce tuitions as they luxuriate in the funds from the student loan program. Also, take Columbia, half the students are foreigners. The schools aren’t mostly for Americans any longer. A lot of foreigners have the cash and make donations to get their sons and daughters into the schools.

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