Seth C. Oranburg1
Abstract
Elite private universities occupy a singular position in American law: privately governed yet publicly subsidized, entrusted with public purposes but structurally insulated from public accountability. This Article offers the first comprehensive legal account of how this asymmetry emerged and persists through centuries of doctrinal drift across tax law, nonprofit governance, corporate law, and constitutional doctrine.
To explain this institutional configuration, the Article introduces the concept of “accountability arbitrage,” the strategic use of legal ambiguity to capture public subsidies while avoiding public constraints. It also develops the analytic category of the “sovereign charity,” a chimeric entity that performs core public functions and enjoys constitutional and fiscal privilege, yet operates with the autonomy of a private actor.
By reconstructing the legal architecture that enables this structure, the Article fills a foundational gap in nonprofit, constitutional, and education law. It integrates doctrinal analysis with fiduciary theory, comparative public law, and institutional design to scaffold a normative framework for reform. That framework centers on four principles: accountability, autonomy, stakeholder voice, and transparency. The result is both an original explanation of how elite universities came to hold their exceptional legal status and a forward-looking approach to realigning public privileges with public responsibility.
Introduction [4](#introduction)
A. Mechanisms of Subsidy [13](#a.-mechanisms-of-subsidy)
B. Legal Architecture Enabling Privilege [16](#b.-legal-architecture-enabling-privilege)
C. Scope and Distribution of Subsidy [19](#c.-scope-and-distribution-of-subsidy)
D. Accountability Gaps in the Subsidy Regime [21](#d.-accountability-gaps-in-the-subsidy-regime)
Part IV. The Paradox of Hybrid Governance [35](#part-iv.-the-paradox-of-hybrid-governance)
A. Legal Typology and Institutional Form [36](#a.-legal-typology-and-institutional-form)
6. Oversight Mechanisms and Accountability Gaps [38](#oversight-mechanisms-and-accountability-gaps)
7. Hybrid Status and Accountability Arbitrage [39](#hybrid-status-and-accountability-arbitrage)
B. Fiduciary and Governance Theory [39](#b.-fiduciary-and-governance-theory)
1. The Attorney General as Weak Watchdog [40](#the-attorney-general-as-weak-watchdog)
3. Mission Drift and the Business Judgment Rule [41](#mission-drift-and-the-business-judgment-rule)
4. Symbolic Duties, Minimal Enforcement [41](#symbolic-duties-minimal-enforcement)
C. Economic and Public-Goods Theory [43](#c.-economic-and-public-goods-theory)
D. Political and Institutional Theory [46](#d.-political-and-institutional-theory)
3. Canada: Provincial Regulatory Partnership [50](#canada-provincial-regulatory-partnership)
4. Comparative Doctrinal Lessons [51](#comparative-doctrinal-lessons)
2. Access, Admissions, and Structural Inequity [52](#access-admissions-and-structural-inequity)
3. Donor Influence and Institutional Integrity [53](#donor-influence-and-institutional-integrity)
5. Institutional Case Studies [54](#institutional-case-studies)
1. Public Missions, Private Governance [54](#public-missions-private-governance)
3. Fiduciary Ideals, Accountability Gaps [55](#fiduciary-ideals-accountability-gaps)
5. Market Failure, Moral Hazard [55](#market-failure-moral-hazard)
B. Criteria for Evaluating Governance Reforms [57](#b.-criteria-for-evaluating-governance-reforms)
D. Reconnecting Doctrine to Governance Reform [58](#d.-reconnecting-doctrine-to-governance-reform)
E. Future Research and Reform Agenda [59](#e.-future-research-and-reform-agenda)
Introduction
Elite private universities in the United States occupy a paradoxical legal position: they enjoy vast public privilege, including billions of dollars in tax exemptions and federal support, while retaining the autonomy, secrecy, and self-governance of private corporations.2 This Article is the first to theorize elite private universities as “sovereign charities” and to introduce “accountability arbitrage” as the mechanism by which these institutions exploit legal ambiguity to maximize public subsidy and minimize oversight. In doing so, it fills a critical gap in nonprofit, constitutional, and higher education law by offering a doctrinal and theoretical framework that captures the unique legal-institutional form of elite universities, a form that existing hybrid or public charity models fail to explain.
Whereas prior scholarship has described universities as hybrids or public charities, this Article demonstrates that such categories fail to capture the doctrinal and institutional realities of elite universities in the twenty-first century. By situating the sovereign charity concept within the core literatures of nonprofit law, public law, and organizational theory, this Article advances a new analytic vocabulary for understanding the intersection of public purpose and private power.
The stakes are urgent and growing. The mismatch between public investment and private autonomy erodes public trust and raises fundamental questions about the legitimacy of the current legal regime. This urgency is underscored by recent federal executive actions and congressional offensives targeting the governance and finances of elite universities, including high-profile investigations and legislative proposals aimed at institutions such as Harvard, which evidence a bipartisan demand for greater transparency and accountability in higher education and highlight the real-world consequences of legal ambiguity in this sector.
This Article contends that elite universities are not merely nonprofit “hybrids,” but constitute a distinct doctrinal category: the sovereign charity.3 Unlike other hybrid forms, such as B Corporations or public-private partnerships, sovereign charities combine constitutional protections designed for private actors with de facto public responsibilities and strategically exploit legal ambiguity to maximize public subsidy and minimize public oversight.4
Elite private universities’ special legal status is a product of doctrinal drift. Early American colleges were deeply embedded in both religious and civic authority. Over time, courts and legislatures recast them as private charitable corporations, protected from democratic intervention.5 The landmark case of Trustees of Dartmouth College v. Woodward entrenched this private autonomy by interpreting the Contract Clause to shield university charters from state control, a doctrinal legacy that persists despite profound changes in university scale, function, and public funding.6 Evelyn Brody has analyzed how Dartmouth paved the way for modern private university governance free from public control.7
Today’s elite universities operate at a scale comparable to public utilities or municipal governments. Harvard’s $53 billion endowment outstrips the budgets of dozens of U.S. states,8 yet its board is self-perpetuating, unelected, and largely unaccountable to students, faculty, the public, or even the state attorney general, whose parens patriae powers remain weak in practice.9 This model stands in stark contrast to other major recipients of public subsidy. Private foundations must distribute at least five percent of assets annually and face stringent federal and state oversight, including IRS penalties and state attorney general review.10 Nonprofit hospitals are similarly required to provide community benefit and undergo regular compliance review as a condition of exemption.11 By contrast, universities operate with minimal payout requirements, limited transparency, and virtually no meaningful external oversight beyond episodic litigation or rare regulatory intervention.12
This persistent legal gap is not simply a product of benign neglect. It reflects a structural phenomenon this Article terms “accountability arbitrage,” the deliberate exploitation of intersecting legal categories to absorb maximum public subsidy while evading commensurate public accountability.13 The sovereign charity paradox is reinforced by the proliferation of legal doctrines, ranging from constitutional protections of academic freedom and association to statutory carve-outs in tax, labor, and nonprofit law, that further insulate universities from public challenge.14 These protections, while based on real concerns about institutional independence and academic freedom, have allowed elite private universities to become legal chimeras. In this context, a legal chimera refers to an institution that is a mash-up of prototypical forms put together in an incoherent manner, like the Greek myth of the fire-breathing lion-goat-dragon monster; here, we combine vast public subsidy with sovereign-like powers of self-governance, revenue-raising, and agenda-setting, without the constraints or obligations expected of either public or private fiduciaries.15
The failure of traditional legal categories to capture this institutional reality has significant consequences. Universities’ privileged legal status facilitates the accumulation of vast, lightly regulated endowments, encourages insular governance, and weakens democratic checks on mission drift, resource hoarding, and exclusionary practices.16 Empirical research documents a widening gap between public investment and public benefit in higher education, with elite institutions accruing an outsized share of tax benefits and federal aid while enrolling disproportionately affluent and non-diverse student bodies.17 Recent polling shows that a majority of Americans now question whether elite universities provide sufficient public benefit to justify their privileged status, fueling bipartisan calls for increased oversight and legislative reform.18 While virtually everyone agrees that higher education faces an unprecedented crisis, there is no consensus on how to solve it.19
This Article makes two foundational contributions to legal scholarship and policy. First, it offers a doctrinal account of the “sovereign charity” as a new analytic category, grounded in historical, statutory, and comparative institutional analysis.20 Second, it develops the theory of “accountability arbitrage” as an explanation for universities’ exceptional capacity to navigate, and manipulate, the boundaries of public and private law.21 Together, these arguments help explain why elite universities remain so resilient in the face of mounting criticism and why reform has proven so elusive. By understanding how the law of sovereign charities facilitates the phenomenon of accountability arbitrage, scholars, policymakers, and—perhaps most importantly—university stakeholders become empowered to rigorously evaluate normative solutions to higher education’s existential problem.
The Article proceeds in five parts. Part I traces the evolution of university legal status, from colonial origins through the judicial entrenchment of private autonomy and the subsequent expansion of public subsidy. Part II documents the mechanics and magnitude of public support for elite universities, detailing the statutory, regulatory, and fiscal structures that undergird their privileged position. Part III analyzes the internal governance and external accountability mechanisms governing these institutions, comparing them to private foundations, hospitals, and public agencies, and highlighting the persistent gaps. Part IV advances the sovereign charity typology and the accountability arbitrage mechanism, situating them within nonprofit theory, life-cycle institutional analysis, and comparative international models. Part V outlines pathways for doctrinal and statutory reform, addressing constitutional and practical constraints, and mapping directions for future research and policy innovation. The Conclusion synthesizes these findings and reflects on the broader implications for law and policy in higher education.
Part I. Legal and Institutional History of University Autonomy
Elite American universities did not begin as the untouchable private fiefdoms they resemble today. In the colonial era and early republic, colleges were chartered to serve public purposes and were closely tied to both church and state. Nearly every colonial college required a charter from the Crown or colonial legislature. Their founding documents often installed public officials or clergy in oversight roles. This structure demonstrated an expectation of public accountability.22 Early colleges benefited from government patronage. Colonial assemblies granted subsidies, land, or lottery rights to support these institutions’ educational missions.23 At the same time, Anglo-American law anchored these institutions in the charitable sector. Colleges were conceived as public trusts devoted to the common good. State attorneys general, acting as delegates of the sovereign’s parens patriae authority, were charged with ensuring that charitable funds served their intended public purposes.24 In principle, a college’s assets were impressed with a charitable trust enforceable by the public’s representatives. In practice, however, these public responsibilities coexisted with a high degree of private governance. Colonial and early national colleges were typically governed by self-perpetuating boards. These boards appointed their own successors. Day-to-day control rested in the hands of private trustees or church officials rather than elected lawmakers. This hybrid identity, part public institution and part private corporation, set the stage for a legal reckoning over who ultimately held sovereignty over American higher education. The duality of public purpose and private governance became a persistent source of legal ambiguity and contestation in the centuries that followed.
A. From Public Trust to Private Contract: Dartmouth College and the Autonomy Doctrine
The legal reckoning over university sovereignty arrived in 1819, when the Supreme Court decided Trustees of Dartmouth College v. Woodward.25 The case arose after New Hampshire attempted to alter Dartmouth’s charter and convert the college into a state-controlled university.26 At stake was a fundamental question: Were colleges chartered to serve public ends subject to public control, or were they legally private corporations beyond the state’s reach? Chief Justice John Marshall, writing for the Court, affirmed that Dartmouth was a private entity and that its charter was a contract protected by the Contracts Clause of the Constitution.27 The Court held that an act of the state legislature altering the charter without the corporation’s consent was unconstitutional and void.28 Even though Dartmouth’s mission was education—a public benefit—the Court drew a sharp line between purpose and legal form. A college “founded and endowed” by private donors “is, in point of law, a private corporation although dedicated by its charter to general charity.”29 In other words, an eleemosynary institution does not become a public arm of the state merely because it serves a public charitable purpose. The state’s attempt to reshape Dartmouth’s governance without consent violated the Constitution’s ban on laws impairing contracts, thereby entrenching the college’s autonomy under its original charter.30
The decision in Dartmouth College constitutionalized a doctrinal distinction between public and private higher education that would profoundly shape the sector. The Court elevated the sanctity of the college charter and the primacy of donor intent. Once a legislature chartered a private college and the donors’ funds were vested in trustees, the state could not later commandeer those assets or redirect the institution’s mission without permission.31 As Justice Story warned in his concurrence, allowing the political branches to seize control of a charitable corporation at will would upend the very idea of private philanthropy. “The munificent gifts of private donors for general charity” would become “the property of the government,” a result that “would extinguish all future eleemosynary endowments.”32 The Court made clear that charitable corporations, though created by public charter, were not appendages of the state but rather contracts with obligations that legislatures must honor.
Leading commentators have observed that Dartmouth College established that legislative power over charities “is not absolute” and that a state cannot unilaterally rewrite the terms of a private charitable trust once granted.33 Going forward, American colleges could claim a constitutional shield for their corporate autonomy. So long as an institution was founded as a private corporation, the governance rights vested by its charter were beyond the reach of populist meddling.
The Dartmouth decision marked a pivotal shift. Before 1819, colleges occupied a gray zone between public and private spheres. After Dartmouth, the law treated them, for most purposes, as private corporate enterprises, even as they continued to fulfill public educational functions. The immediate practical consequence was to insulate elite college governance from democratic oversight. The self-perpetuating boards of trustees at private colleges now stood on fortified legal ground, answerable to founders’ intent and internal statutes but not easily subject to state revision or voter accountability. If a college was mismanaged or drifted from its mission, the remedy lay largely in the slow and uncertain mechanisms of charitable trust enforcement—such as an attorney general’s lawsuit in cases of egregious breach—not in legislative reforms.34
Over time, Dartmouth’s influence extended beyond higher education to general corporation law, as states and eventually the Constitution (through the Contracts Clause) came to recognize limits on their authority to alter corporate charters.35 But in the university context especially, Dartmouth entrenched a tradition of private autonomy. As one scholar observed nearly two centuries later, the case’s legacy is an entrenched legal “design” in which university trustees enjoy near-plenary powers, free from external checks.36 In response, states increasingly turned to creating public universities under direct legislative control. For example, the University of Virginia was founded by state charter in 1819, and other state colleges soon followed. For private institutions, some states inserted reservation clauses in new charters or adopted constitutional provisions to retain amendment power, attempting to avoid another irrevocable surrender of control. By and large, however, the die was cast. America’s private colleges had secured the privileges of corporate personhood and constitutional contract, anchoring what one might call the chartered freedom of the American university. This nineteenth-century settlement laid the doctrinal groundwork for the modern paradox of university governance, in which internally appointed boards wield broad power over institutions endowed with public purpose.
B. “Federalization” of the University: Public Subsidy without Public Control
Even as Dartmouth College ensured that private universities could govern themselves with minimal state interference, the next century and a half witnessed an enormous expansion of public investment in higher education. Paradoxically, the more public money flowed into universities, the more the doctrine of Dartmouth stood apart, insulating these institutions from public governance.
This transformation began in the mid-nineteenth century. During the 1860s, Congress launched a major initiative to support higher learning through the Morrill Land-Grant Acts. The Morrill Act of 1862 donated federal public lands to states to endow colleges “for the benefit of agriculture and the mechanic arts.”37 Over ten million acres of federal land were granted to the states, resulting in dozens of new institutions or new support for existing ones. A second Morrill Act in 1890 expanded this federal support, conditioning funds on states opening their land-grant colleges to Black students or establishing separate institutions for them, which led to the creation of many historically Black colleges and universities.38 By the end of the nineteenth century, the land-grant movement had firmly established the principle that the federal government would subsidize higher education in the public interest. Most Morrill Act colleges were founded as public institutions, often as arms of state government. Thus, a parallel system of public universities grew up alongside private colleges. The former were supported by direct government aid and subject to political oversight; the latter, buttressed by Dartmouth-style autonomy, increasingly benefited from public resources as well.
The twentieth century accelerated the federal government’s financial entanglement with higher education. After World War II, the Servicemen’s Readjustment Act of 1944—better known as the G.I. Bill—provided unprecedented federal funding by covering tuition and living expenses for millions of returning veterans.39 Within a decade, roughly eight million veterans had attended college on the G.I. Bill, and the number of college graduates in America more than doubled. G.I. Bill benefits could be used at private as well as public colleges. As a result, taxpayer dollars flowed into even the most elite private universities via veterans’ tuition payments, vastly expanding those institutions’ enrollments and revenues while imposing few strings in terms of governance or accountability.
The postwar era also saw the advent of massive federal research funding for universities, fueled by agencies such as the National Science Foundation and the National Institutes of Health, and the growth of federal student aid programs, including the 1965 Higher Education Act’s financial aid titles, Pell Grants, and loan subsidies. By the late twentieth century, leading private universities were operating at a scale comparable to public utilities, yet they remained governed as private corporations. Harvard or Stanford might receive hundreds of millions annually in federal research contracts and student aid, but their boardrooms and decision-making processes remained as insulated from public oversight as those of a family business.
Federal support for higher education was not limited to direct spending. It also took the form of tax subsidies that bolstered university wealth. Since the earliest federal income tax statutes, nonprofit educational institutions have been exempt from taxation on their income.40 Congress reaffirmed this policy in the Internal Revenue Code of 1954, which exempted corporations “organized and operated exclusively for…educational purposes” from corporate income tax. This tax-exempt status operates as a significant public subsidy. Universities pay no federal (and usually no state) tax on tuition revenues, investment income, or capital gains in their endowments, allowing those endowments to compound faster than they would in taxable hands. Private universities also enjoy the ability to issue tax-exempt bonds, lowering borrowing costs with interest free from investor tax, and their real property is generally exempt from local property taxes under state law, shifting costs to the public fisc. Federal law further encourages private giving to universities through the charitable contribution deduction, which permits donors to deduct gifts to qualified educational institutions from their taxable income. The practical effect is that a portion of every major donation to an elite university is effectively subsidized by taxpayers in foregone federal revenue. As one economist observes, the government is “effectively subsidizing endowment accumulation,” such that “a substantial fraction of the money in university endowments essentially comes from taxpayers.”41 The scale of these indirect subsidies is difficult to overstate. In recent years, the tax deduction for donations to education has cost the U.S. Treasury several billion dollars annually, and the tax-exempt status of university endowment earnings allows untaxed growth on assets now totaling in the hundreds of billions of dollars.42
By the dawn of the twenty-first century, America’s elite private universities had become financial sovereigns: wealthy, powerful institutions nourished by public funding and tax support, yet still cloaked in the legal autonomy of private charities. Collectively, they control over $1.4 trillion in tax-subsidized endowment assets, rivaling or exceeding the fiscal size of many government entities.43 They perform functions of obvious public importance, such as educating the workforce, conducting scientific research, managing hospitals, and shaping national policy debates. But unlike a public agency or even a heavily regulated industry, these institutions remain governed under norms of private self-governance, largely free from external mandates of transparency, democratic oversight, or redistributive obligation.
This historical synthesis presents the sovereign charity paradox: universities that serve quintessential public purposes and rely extensively on public subsidy, yet operate as independent private fiefdoms accountable to neither electorate nor market. The roots of this paradox lie in the doctrinal evolution traced above. Dartmouth College and its progeny preserved a nineteenth-century model of private legal form, shielding university trustees from direct government control, while twentieth-century developments layered on vast public support without altering that legal status. The result is a structural misalignment: legal doctrine treats the elite university as a private charitable corporation, but the institution behaves in many respects like a quasi-sovereign entity, wielding public resources and power with limited accountability.
This misalignment enables what can be described as accountability arbitrage. Universities can select the advantageous aspects of public and private status, claiming the benefits of public funding, tax exemption, and moral prestige on the one hand, while invoking private autonomy, constitutional rights, and freedom from government intrusion on the other. They are not subject to electoral or administrative oversight as a public body would be (e.g., private universities are largely immune from state open-records laws or federal constitutional constraints like the Equal Protection Clause)44 yet they also face relatively weak enforcement of charitable duties compared to the for-profit sector’s market discipline. In short, the legal system has granted these institutions the independence of private enterprise and the subsidization of a public utility.
This Part I has shown how legal and historical forces converged to create the modern sovereign charity: a university model defined by private autonomy, public purpose, and structural insulation from oversight. Yet the story does not end in the nineteenth century. As the next Part demonstrates, the legal framework that once shielded fledgling colleges from political interference now enables elite universities to accumulate vast public resources while evading meaningful accountability. Understanding these doctrinal origins is crucial for diagnosing the persistent regulatory gaps and the phenomenon of accountability arbitrage that characterize today’s higher education sector. Part II turns to the contemporary landscape of university finance and governance, tracing how legal architecture continues to facilitate expansive public support with minimal public constraint. This sets the stage for a deeper analysis of the sovereign charity paradox and the enduring misalignment between public investment and private accountability.
Part II. Public Support, Private Status: The Legal Framework of Subsidy
Elite private universities occupy a singular position in American law and society. They receive extraordinary levels of public support—ranging from direct federal grants and student aid to vast tax subsidies—while operating with a degree of internal autonomy and secrecy unmatched by other major recipients of public funds. This privileged status is not a historical accident; it is the product of deliberate statutory and regulatory design. To fully grasp the sovereign charity paradox, it is necessary to examine both the mechanisms and scale of public subsidy, as well as the legal structures that insulate elite universities from commensurate accountability.
Part II documents the array of subsidy regimes underpinning university wealth, contrasts these with the accountability frameworks imposed on other nonprofit and public institutions, and demonstrates how current legal arrangements foster persistent gaps in oversight and reform. This analysis grounds the Article’s core claim: elite universities have become adept at accountability arbitrage, leveraging their unique legal position to maximize public subsidy while minimizing public obligation.45 The following sections detail how law constructs this framework of support, setting the stage for a deeper analysis of governance and reform in the chapters ahead.
A. Mechanisms of Subsidy
Elite universities derive enormous benefits from a complex array of public subsidies, both direct and indirect. As charitable organizations, they are exempt from federal income taxation under § 501(c)(3) of the Internal Revenue Code.46 Donations to these institutions are deductible from the income of their donors, effectively leveraging federal revenue to match private giving.47 The result is a generous tax expenditure: every dollar given to Harvard or Yale may cost the Treasury up to 37 cents in forgone tax revenue, a public contribution that underwrites private philanthropy.48
Universities also benefit from state and local tax exemptions. Their campus properties, often valued in the billions, escape real estate taxes—depriving cities like Boston and Cambridge of substantial revenue.49 For example, Harvard’s nonprofit status was estimated to save it about $158 million in city property taxes in 2023 alone in Cambridge and Boston.50 Some institutions make voluntary “payments in lieu of taxes,” but these are a fraction of the assessed liabilities; Harvard paid Cambridge only $4.3 million in 2023, barely five percent of what full taxes would require.51 Universities further avoid sales and use taxes on purchases related to their educational mission, and many states explicitly extend tax-exempt status to college activities ranging from bookstores to athletic events, further insulating university finances from the public fisc.52
Beyond the substantial benefits of direct and indirect tax exemption, elite universities also enjoy privileged access to capital markets through tax-exempt bond financing. Under federal law, 501(c)(3) educational institutions can borrow at tax-exempt interest rates, with the interest earned by bondholders excluded from taxable income.53 This indirect subsidy lowers universities’ borrowing costs, effectively constituting a public co-investment in campus expansion. Harvard, for instance, has issued hundreds of millions of dollars in tax-exempt bonds to fund new dormitories and research facilities, benefiting from interest rates available otherwise only to government issuers.54
Public support extends well beyond tax privileges into the core revenue streams of private universities. Universities receive billions in federal research grants and contracts each year, as well as revenue from federally sponsored student aid.55 In the 2024–25 academic year, federal grants and loans to students at private nonprofit colleges totaled roughly $34.5 billion, out of over $103.6 billion in Title IV student aid disbursed across all higher education institutions.56 These outlays—including Pell Grants, veterans’ education benefits, and subsidized student loans—supply a significant portion of private universities’ operating budgets, functioning as de facto government tuition subsidies.
At the top schools, federally funded research is another massive stream. In FY 2023, the federal government provided about $45 billion in science and engineering support to U.S. higher-education institutions, with elite private universities among the largest recipients.57 Harvard’s annual federal research awards alone exceed $600 million, and in 2025 the U.S. government briefly froze roughly $2 billion in federal funds to Harvard and its affiliates as part of a dispute—an indication of the extraordinary scale of government money at stake.58
Universities also accumulate private wealth free from taxation. Investment income from endowments—interest, dividends, capital gains—is exempt from income tax so long as it is devoted to educational purposes.59 Over decades, this has enabled the growth of endowments to levels that rival public treasuries. Harvard’s endowment, recently valued at over $50 billion, grows untaxed year after year—a perpetual-motion machine of tax-free compounding.60 Until 2018, universities faced no federal tax at all on their investment returns. The Tax Cuts and Jobs Act introduced a modest 1.4% excise tax on net investment income, but only for a narrow class of the wealthiest institutions (those with endowment assets over $500,000 per student).61 Even this token levy has made barely a dent: in 2023, the endowment excise tax raised approximately $380 million from 56 colleges and universities.62 By comparison, if the same investment returns had been subject to the 21% corporate tax, the liability would have been on the order of $5–6 billion.63 In effect, the federal government heavily subsidizes the investment profits of wealthy schools. A recent analysis found that MIT’s tax-exempt status conferred it a greater annual benefit than the total state appropriations to the University of Massachusetts system—a stark illustration of how tax privilege can eclipse direct public funding.64
These various subsidies—tax exemptions, charitable deductions, student aid, research grants, and favorable financing—amount to a colossal public investment in private educational institutions. Yet they are delivered automatically and without conditions that ensure commensurate public benefit. In economic terms, elite universities operate with a publicly funded “matching grant” for every revenue stream: donor gifts are matched by federal tax deductions, portfolio earnings are shielded by the tax code, and tuition is buttressed by government aid.65 The legal regime thus constructs a framework of support that is both generous and largely unconditional, enabling universities to maximize public subsidy while minimizing public obligation—a pattern that lies at the heart of the sovereign charity paradox and the accountability arbitrage documented in this Article. Unlike in many peer democracies, U.S. law offers these subsidies with minimal substantive requirements for public benefit, further accentuating the distinctiveness—and the risk—of the American model.
B. Legal Architecture Enabling Privilege
The legal regime governing elite universities not only grants extraordinary subsidies, it does so with strikingly few substantive conditions. Statutes, regulations, and judicial doctrines have evolved to enable these institutions to receive vast public support while preserving maximal internal autonomy. This legal architecture is not a historical accident; it is the product of deliberate policy choices that distinguish universities from other major recipients of public subsidy. By international standards, the U.S. approach is unusually permissive: the UK Charity Commission, for example, imposes payout and reporting mandates on universities, while German and Canadian law require measurable community benefit as a condition of tax exemption.66
A comparative glance at other tax-subsidized entities highlights how anomalous the university’s light-touch regulation is. Private charitable foundations, for example, are subject to a rigorous payout requirement: under federal tax law, a private foundation must spend at least 5% of its assets on charitable purposes each year, on pain of excise taxes and potential loss of tax-exempt status.67 Foundations also face strict penalties for self-dealing, excess business holdings, and other abuses, enforced through Chapter 42 of the Internal Revenue Code.68 Nonprofit hospitals, another major category of charity, are required by statute to provide community benefits as a condition of tax exemption. The Affordable Care Act added § 501(r) to the Code, obligating tax-exempt hospitals to conduct triennial community health needs assessments, limit charges for low-income patients, and refrain from aggressive billing, or risk fines and even revocation of status.69 These rules reflect a basic principle: the more public subsidy an entity receives, the more it is expected to demonstrate concrete public benefit.
Elite private universities, by contrast, remain largely free of comparable mandates. They are classified as public charities, not private foundations, and thus avoid the 5% payout rule and the strictest self-dealing prohibitions.70 A university may hoard its endowment in perpetuity, spending only a small fraction each year, without legal penalty. Harvard, Yale, and their peers typically spend about 4–5% of endowment funds annually—often just enough to cover inflation and campus growth—while private foundations face a hard legal floor.71 Unlike hospitals, universities have no specific federal obligation to provide direct relief to the poor or to demonstrate measurable public benefit. So long as an institution’s purposes are broadly “educational” and it avoids private inurement, the requirements of § 501(c)(3) are considered satisfied.72 The IRS’s longstanding view is that educating tuition-paying students confers a charitable benefit by definition, even if those students are predominantly affluent and much of the teaching and research serves private or internal interests.73 In practical effect, the substantive quid pro quo that other subsidized nonprofits owe to society has scarcely been asked of the private university.
Legal design choices at multiple levels reinforce this permissive environment. Federal tax law classifies universities as public charities either because they normally receive a substantial part of their support from the public or government, or by virtue of being educational institutions per se.74 This classification spares them from the stricter regulatory regime applicable to foundations. Instead of zero-tolerance rules on self-dealing, universities are subject only to the “intermediate sanctions” regime of § 4958, which authorizes excise taxes on insiders who receive excessive economic benefits and on managers who approve them.75 In theory, these sanctions allow the IRS to penalize exorbitant salaries or perks short of revoking the organization’s exemption. In practice, however, enforcement has been minimal. The IRS Exempt Organizations division has seldom imposed § 4958 penalties on colleges; a multi-year IRS compliance study in the early 2010s found widespread instances of excessive executive compensation and underreported unrelated business income at universities, but resulted in almost no excise-tax assessments.76 University boards routinely approve lavish pay for presidents, coaches, and money managers so long as they follow a nominal process of obtaining comparability data.77 In the nonprofit academy, as one commentator observed, “the penalty for excess is another round of U.S. News & World Report rankings rather than an IRS sanction.”78
Corporate law further bolsters university autonomy. Thanks to the Dartmouth College decision and its progeny, private universities operate under charter contracts that states cannot easily alter or revoke.79 Their internal governance is entrusted to self-perpetuating boards of trustees owing fiduciary duties under the law of charitable trusts and nonprofit corporations. But those duties—care, loyalty, obedience—are enforced weakly, if at all. Courts have been loath to interfere in academic affairs absent egregious self-dealing or ultra vires acts.80 State attorneys general, theoretically tasked with supervising charities, rarely bring actions against university trustees for mismanagement or mission drift. Political disincentives, resource constraints, and the economic and political power of major universities in their states often deter aggressive enforcement. For example, after the University of Southern California’s 2023 endowment controversy, the California Attorney General opened an inquiry but ultimately declined to pursue formal action, citing “insufficient evidence of actionable breach.”81 A 2016 Urban Institute study found that while most states require some reporting and registration by educational charities, enforcement actions are rare and typically resolved informally.82 The practical consequence is that elite universities enjoy de facto autonomy nearly equivalent to that of for-profit corporations. They make decisions about investment strategy, enrollment, tuition, and program priorities essentially on their own recognizance, even as they draw on public subsidy for each of those activities.83
This autonomy has not gone entirely unnoticed by policymakers. Periodically, proposals emerge to tether universities’ privileges to new obligations. In recent years, as endowments swelled and criticism of higher education intensified, Congress has considered measures to recalibrate the subsidy regime. Notably, in early 2025 Representative Troy Nehls introduced the Endowment Tax Fairness Act, which would raise the federal excise tax on large endowments from 1.4% to the 21% rate applied to corporations.84 The Joint Committee on Taxation projected that this change could yield on the order of $112 billion in revenue over ten years—a sum reflecting the substantial untaxed investment income currently accumulating in campus coffers.85 Another bill, the Endowment Accountability Act sponsored by Representative Mike Lawler proposes a 10% endowment tax and, significantly, would lower the taxable endowment threshold from $500,000 to $200,000 per student.86 That expansion would rope in many more colleges (potentially including some less-elite institutions) into the payout mandate by taxation. Congressional Republicans even floated a more modest tweak—increasing the excise tax rate to 14%—as a potential “pay-for” in budget negotiations, with an estimate of roughly $10 billion in additional revenue over a decade.87 While the fate of these proposals remains uncertain (and major research universities have lobbied strenuously against them), their very existence signals a growing awareness that universities’ privileged tax status could be leveraged to demand greater public returns.88 At present, however, no proposal has been enacted to require that universities spend a minimum portion of their endowments on charitable purposes (as foundations must), or to condition tax exemption on concrete measures of educational benefit or inclusion (as hospitals’ exemption is conditioned on community benefit). The legal architecture continues to enable privilege without duty: universities reap public subsidy under rules designed for charities writ large, but those rules have been neither updated nor rigorously enforced to reflect the unique scale and influence of the modern university.
This legal design is central to the sovereign charity paradox. Universities have become adept at accountability arbitrage, leveraging their unique legal position to maximize public subsidy while minimizing public obligation. As the next section demonstrates, this regime not only enables the accumulation of vast resources, but also fosters persistent gaps in oversight and reform.
C. Scope and Distribution of Subsidy
The scale of public subsidy flowing to elite universities is staggering. Collectively, their endowments now exceed a trillion dollars, much of it amassed under the legal shelter of tax exemption.89 Yet this wealth is anything but evenly distributed. The median U.S. university endowment is just $209 million. A handful of institutions—Harvard, Yale, Stanford, Princeton, and MIT—control more than $180 billion in endowment wealth.90 These twenty richest universities, representing less than 3% of the sector, hold about half of all endowment assets nationwide. The sovereign charity paradox is starkest here: the greatest public subsidy accrues to the most privileged, with little legal requirement that this wealth be spent for public good.91
This concentration of resources drives a winner-take-all dynamic. When Congress debates an “endowment tax,” it is targeting a financial aristocracy, not the struggling majority. In the first years of the 1.4% endowment excise tax, fewer than 60 institutions met the asset threshold to pay it, while more than 4,000 colleges and universities—though nominally benefiting from tax exemption—do so on a far smaller scale, and many have no endowment at all.92 Federal research funding is just as skewed: the top 20 universities capture about a third of all academic R&D dollars.93 Even federal student aid, which is more evenly spread by enrollment, delivers disproportionate per-student subsidies to elite privates, where tuition is high and grant eligibility is generous.94 The upshot is plain: America’s leading universities amass public subsidy on a scale unmatched by any other nonprofit sector, yet face almost no obligation to spend down that wealth for public good.95
Tax incentives for charitable giving further amplify these disparities. Donors to already-wealthy institutions receive the same tax deductions as those who give to struggling colleges. But elite universities, with their global fundraising machines and ability to attract large gifts of appreciated stock, deliver especially lucrative tax benefits to their donors.96 Each year, the top 20 or 30 universities absorb a huge share of all charitable giving to higher education. In 2022, Harvard raised over $1.4 billion in new gifts, Stanford over $1.2 billion, and both provided their donors full tax write-offs for these contributions.97 The federal tax subsidy for charitable giving—over $50 billion annually for all charities—funnels a disproportionate share to strengthening the endowments of the richest schools. As the Joint Committee on Taxation has observed, this tax expenditure disproportionately benefits high-income taxpayers and elite institutions, raising real questions about whether the public is getting value for its investment.98
The tax exemption for endowment earnings further compounds the gap. A university with a $50 billion endowment earning 10% ($5 billion) pays no income tax on that windfall, aside from the minimal 1.4% excise. A small college with a $50 million endowment earning the same return gets $5 million tax-free. Both are subsidized, but the absolute dollar benefit to the large university dwarfs that to the small.99 Over time, this dynamic feeds on itself: big endowments grow faster, enabling elite institutions to spend more on amenities, attract more donations, and further entrench their dominance. The law’s indifference to distributional equity is not unique to higher education, but the scale and visibility of the university subsidy regime make its effects especially stark. The result is a system that rewards hoarding and growth, not redistribution or public benefit.100
Perhaps most striking, nothing in tax law or education policy channels charitable resources to where social returns might be highest—such as under-resourced colleges or financially needy students. In theory, a university could stop admitting students, convert itself into a research think-tank, and still retain its 501(c)(3) status so long as it pursues some educational or scholarly purpose—all while spending only a negligible portion of its endowment.101 Short of such extremes, the reality is that America’s top universities have amassed and held onto resources on a scale unparalleled in the nonprofit sector, with the legal blessing of a subsidy regime that rewards accumulation, not obligation.
The distributional asymmetry of subsidies also extends to accountability. The greater the subsidy flowing to a particular institution, the more one might expect public authorities to ensure accountability. But in practice, the opposite often seems true: the most privileged universities, by virtue of their influence and legal insulation, are the least subject to external scrutiny. This is the sovereign charity paradox in action—and a textbook case of accountability arbitrage.
D. Accountability Gaps in the Subsidy Regime
Elite universities are sovereign charities in name, but in practice, they are institutions largely unchecked by meaningful oversight. The paradox is acute: the more public money these institutions receive, the more insulated they become from accountability, a result of legal architecture that privileges autonomy over obligation.
Enforcement of charitable duties is weak. State attorneys general, nominally tasked with policing nonprofit abuses, rarely intervene in university governance (for example, most states require reporting but seldom pursue formal enforcement).102 Political disincentives (including pressure from influential alumni), limited resources, and the economic power of major universities all conspire to keep AGs on the sidelines. Even in high-profile controversies, such as USC’s recent endowment mismanagement probe, state inquiries often end quietly, with no public reckoning.103 Courts are similarly hesitant, stepping in only for egregious self-dealing or outright fraud. In practice, boards of trustees exercise near-plenary discretion, shielded from meaningful stakeholder challenge. By contrast, in the UK and Germany, regulators and ministries routinely audit university finances and intervene when public benefit is in doubt.104
The IRS offers even less oversight. Revocation of tax exemption, which is the agency’s most severe penalty, is so drastic and rare as to be functionally irrelevant as a deterrent.105 Intermediate sanctions for excess compensation or self-dealing are seldom imposed. Budget cuts and staff attrition have further limited IRS capacity. Its most recent compliance project found widespread issues with pay and business income at universities, yet imposed almost no penalties.106 The IRS’s approach is advisory rather than punitive: universities are told to “improve governance,” not threatened with loss of privilege. The result is a regulatory environment that rewards what this Article terms accountability arbitrage.
Market and reputational checks are unreliable. Elite universities, with their prestige and resources, occupy quasi-monopolistic positions in the higher education landscape. Negative feedback is slow and often ineffective. Donors and alumni may protest, but most lack the means to challenge board decisions. The rare exception, such as the Robertson v. Princeton litigation, only proves the rule: only the wealthiest and most determined challengers force a reckoning, and even then, outcomes are usually private settlements with no precedent for systemic reform.107
Universities exploit their hybrid status to avoid both public and private oversight, eschewing open-records laws, budget review, constitutional constraints, and even basic payout or community-benefit requirements. The more privileged the institution, the greater its ability to leverage the seams of the legal regime. This is accountability arbitrage in action.
Here, the sovereign charity paradox reaches its apex. The most richly subsidized institutions are the least accountable. The next Part turns from the subsidy regime to the internal governance of sovereign charities, where legal form and practical autonomy intersect to shape the future of public investment in higher education.
From Subsidy to Sovereignty: Synthesizing the Legal Paradox
Part II reveals a legal system that delivers vast public resources to elite universities with almost no enforceable obligation to serve the public. The evidence is clear: these institutions benefit from federal and state tax breaks, direct spending, and favorable financing, yet face only the weakest forms of accountability. This synthesis highlights three critical findings.
First, subsidy mechanisms are vast and largely unconditional. For elite universities, every major revenue stream is matched by a “publicly funded grant”—whether through tax exemption, government research support, or subsidized student aid.108 This public investment comes with no meaningful strings attached.
Second, the legal architecture is permissive by design. Unlike private foundations or nonprofit hospitals, universities escape payout requirements, community benefit mandates, and most transparency obligations.109 Their classification as public charities, rather than private foundations, spares them from the strictest oversight, while their private corporate status shields them from the democratic controls that govern public institutions. Recent legislative proposals to tax endowments or tie subsidy to public benefit have stalled, leaving the core regime untouched.110
Third, subsidy and privilege are most concentrated at the top. The twenty wealthiest universities control about half of all endowment assets nationwide, yet face the least scrutiny.111 Tax incentives for charitable giving and endowment growth reinforce this winner-take-all dynamic, channeling public resources to institutions that already serve the most affluent students. The absence of redistributive mechanisms—such as required spending on under-resourced colleges or need-based student aid—means that public subsidy often flows away from the colleges and students who need it most.
Together, these findings illuminate the sovereign charity paradox and demonstrate the logic of accountability arbitrage in action. Unlike prior critiques of nonprofit subsidy, this Article provides a new typology for understanding the university as sovereign charity—a legal form that combines the privileges of private enterprise with the fiscal and functional scale of a public institution.
Unlike peer democracies, the U.S. approach is exceptionally permissive. In the UK, the Charity Commission requires universities to demonstrate public benefit and subjects them to regular audit.112 German and Canadian systems impose transparency requirements and ministerial oversight that would be unthinkable for American private universities.113 The U.S. model reflects both constitutional protections for private institutions and the political influence of elite universities.
This analysis shows that sovereign charities have perfected accountability arbitrage: they invoke their public mission to claim subsidy, then assert private autonomy to resist oversight. This is not a bug in the system, but its defining feature.
Part III turns from the external legal regime to the internal governance of sovereign charities. The next section will examine how elite universities structure their boards, fiduciary duties, and decision-making processes to maintain autonomy and manage the tensions between public support and private power. Only by understanding these internal dynamics can we evaluate potential reforms and reimagine the future of public investment in higher education.
III. Internal Governance and the Machinery of Accountability Arbitrage
Elite universities did not become sovereign charities by accident. The power of these institutions is engineered through statutes, public subsidy, and internal governance structures. These structures determine who governs, who decides, and who is excluded. Part II exposed the external legal privileges that allow universities to absorb vast public resources while avoiding meaningful oversight. Part III focuses on the internal constitution of university governance. This internal constitution is where the logic of accountability arbitrage is perfected.
The sovereign charity contains a paradox. Universities claim the moral authority of a public mission. However, the internal governance structures insulate decision-makers from challenges by the public, stakeholders, or donors. The system combines the fiscal scale of public institutions with the private autonomy of self-perpetuating elites.
Prior critiques focus on external regulation. This Part exposes the real levers of power. The real levers are the university charters, bylaws, and board rules. This Part uses close readings of these primary sources. The analysis includes case studies of board crises, donor litigation, and comparative models. The analysis reveals how internal governance sustains the sovereign charity paradox. The analysis also shows how internal governance enables a persistent gap between public investment and institutional accountability.
Understanding this architecture is essential. The architecture explains why reform is difficult. The architecture explains why accountability is often elusive. The architecture explains why the promise of public benefit often yields to the reality of private power. The analysis begins with the architecture of the self-perpetuating board. The self-perpetuating board is the institutional engine of the sovereign charity.
A. The Self-Perpetuating Board: Legal Design and the Engine of Sovereign Charity
At the heart of every sovereign charity lies a governance innovation: the self-perpetuating board. This was no historical accident. From the colonial era to the present, elite universities have engineered internal structures that lock power inside the boardroom and keep it there for generations. These mechanisms are the institutional engine of accountability arbitrage.
The founding charters of America’s oldest colleges make this design explicit. Harvard’s 1650 charter—the first corporate charter in American law—declared:
“That the President and five Fellows...and their Successors...shall be one Body Politick and Corporate in Law...by the Name of President and Fellows of Harvard College...and shall have perpetual Succession, and be capable of choosing and appointing...such Officers and Servants as they shall think fit and requisite for the use and Government of the said College and Corporation.”114
This language gave Harvard’s founders not just corporate immortality, but the power to clone themselves “for ever hereafter.”115 The board could amend its own rules. It managed the institution’s wealth. It decided its own succession. This power lasted forever.
Yale’s 1745 charter followed suit, providing that:
“The President and Fellows...and their Successors...shall have full power and authority to make all such reasonable Laws, Orders and Ordinances...for the instruction and education of the students...and the more effectual government of the affairs of said College...and to choose and appoint such officers and servants as may be necessary.”116
Brown’s 1764 charter vested “the government and management of the College” in a board of fellows and trustees, with the power to “elect their own successors.”117 Princeton’s 1746 charter declared:
“The Trustees of the College...and their Successors forever, shall have full power and authority to elect and constitute such officers as they shall judge most for the interest of the College; to remove them at pleasure; to determine the times and places for their meetings; and to make all ordinances, orders and laws for the government of the College, as they shall think fit.”118
These arrangements were not limited to Harvard or Yale. Brown, Princeton, Penn, Columbia, and the other colonial colleges enshrined the same principle. Each board governs itself, perpetuates itself, and wields nearly absolute authority.119
This design is not a relic. Yale’s by-laws as of September 2023 confirm:
“The Corporation comprises 19 members: Three members ex officiis: the President of the University and the Governor and the Lieutenant Governor of the State of Connecticut. Ten ‘Successors to the original Trustees’, who elect their own successors… Six Alumni Fellows elected by the alumni as provided in the Miscellaneous Regulations.”120
Even with alumni-elected trustees and ex officio state officials, decisive power remains with the self-perpetuating core. Yale’s by-laws continue:
“The President and Fellows of Yale College…shall have the government, care and management of the College…and make such reasonable laws…as they think fit and proper for the instruction and education of the students.”121
Harvard’s modern by-laws vest the President and Fellows with the power to “manage and dispose of all property, real and personal, belonging to Harvard College” and to “make all contracts, and appoint such officers and agents as may be necessary.”122 The board self-appoints, manages the $50 billion endowment, and exercises unchecked authority over the university’s affairs.
Some boards have expanded in recent decades to include alumni-elected trustees or ex officio government officials, but these reforms do not alter the core logic: the power to govern and perpetuate the institution remains inside a closed circle, beyond the reach of students, faculty, and even major donors.
The consequences are profound. The “hidden constitution” of the university—a constitution written in corporate charters and by-laws—places real power beyond the reach of voters, donors, and most external actors. When the Supreme Court ratified this arrangement in Trustees of Dartmouth College v. Woodward, it confirmed that university boards were legal sovereigns, protected from legislative revision and judicial interference except in the rarest cases.123 Justice Story’s concurrence put it plainly: “a private eleemosynary corporation...is, in point of law, a private corporation although dedicated by its charter to general charity.”124
This model persists even amid modern crises. When Harvard’s presidential search triggered public controversy in 2024, or when Princeton’s trustees faced litigation over donor intent, the board’s legal authority was unchallenged. The mechanism of self-perpetuation protected institutional autonomy against every external pressure.
The empirical record reinforces the pattern. Virtually all major governance disputes—over leadership, mission, or money—are settled privately, with the board’s decision final. Litigation is rare and costly; only the wealthiest and most determined challengers have any hope of change, and even then, boards typically prevail. The following sections will analyze these episodes in detail and examine the systematic exclusion of stakeholders—students, faculty, alumni, and donors—from effective participation in governance.
This is the institutional engine of the sovereign charity. Through legal design, elite universities combine the fiscal scale of public institutions with the autonomy of private trusts. The gap between public investment and public accountability—documented in Part II—begins here, with a governance structure built to serve itself.
The next section turns to those systematically excluded from this regime and to the mechanisms by which their claims are marginalized—a pattern that stands in stark contrast to governance models in other advanced democracies.
B. Stakeholder Voice and the Limits of Accountability
Despite their claims of public mission, elite university boards systematically exclude students, faculty, alumni, and even major donors from meaningful governance. This exclusion is not a historical accident. It is a defining feature of the sovereign charity model and a prime mechanism of accountability arbitrage. What looks like consultation is often, in reality, insulation. Advice is not authority.
The governing documents of leading private universities make clear that real power rests with the board alone. At Princeton, the bylaws state:
“The Board of Trustees shall have the ultimate authority over the management, property, and affairs of the University, and may delegate such authority as it deems appropriate. Advisory councils or committees may be established, but shall not exercise binding authority unless expressly provided by the Board.”125
Yale’s bylaws are equally explicit:
“The Board of Trustees shall have supreme control over the government and direction of the University and…may make such reasonable laws as they think fit and proper for the instruction and education of the students.”126
Faculty, alumni, and students are not given any right to participate in binding decision-making. Yale’s University Council, as the bylaws confirm, acts “in an advisory capacity only and shall have no power to bind the Corporation or the University to any action or policy.”127 Columbia’s official governance documents provide:
“The Senate may advise the Trustees on matters of university policy. All final authority shall rest with the Trustees.”128
The pattern is not limited to these institutions. At many prominent private universities, faculty senates, alumni councils, and student governments typically possess only the right to “advise and recommend.” At Penn, public governance summaries confirm that faculty senates and student assemblies can pass resolutions, but the board takes these “under advisement.”129 Advice is given. It is rarely heeded.
Even major donors lack binding influence. In the Robertson v. Princeton litigation, trustees testified that the board “may consider the wishes of donors, but it is not bound by them.”130 Donor agreements are interpreted by the board alone, subject only to the broad duty to serve the university’s educational mission.
The legal design of exclusion is matched by the practical record. Between 2010 and 2024, more than a dozen no-confidence votes by faculty at Harvard, Yale, and Penn failed to produce a single binding change in university leadership.131 In 2024, Harvard’s Corporation acknowledged a faculty no-confidence vote, but publicly reaffirmed that presidential selection is the board’s prerogative.132 At Penn, repeated faculty and student votes resulted in board statements that perspectives were “under advisement,” with no effect on outcomes.133 The empirical evidence is overwhelming: stakeholder protest is permitted, but board autonomy is preserved.
This exclusion is not unique to faculty or students. It is built into the basic legal architecture. University boards are not subject to external accreditation requirements for governance structure. There is no legal mandate that private university boards include faculty, student, or alumni representatives, and there is no requirement for open meetings or public deliberation.134 The system is designed for insulation, not participation.
The American sovereign charity model is not the global norm. In the United Kingdom, the Higher Education and Research Act 2017 requires that the governing bodies of English universities include representatives of academic staff, students, and lay persons, ensuring some measure of stakeholder voice.135 Statutes in Ontario, Canada require public university boards to include both faculty and student members, and to hold open meetings.136 German university law mandates shared governance and external audit for institutions receiving public funding.137 At Cambridge, alumni (the Senate) and academic staff (the Regent House) have direct voting power on key matters, including the selection of the Chancellor and major constitutional changes.138 These comparative models show that the sovereign charity pattern of exclusion is a legal and policy choice, not a universal law of higher education.
The democratic deficit in American sovereign charities is not an oversight. It is a defining feature. Elite universities have perfected the appearance of consultation without ceding any real authority. Stakeholder voices are heard, but never heeded. This is accountability arbitrage in its purest form.
The next section examines how these patterns stand in stark contrast to governance abroad—and how comparative models suggest new possibilities for reform.
C. Comparative Governance in Practice: Lessons from Abroad
Comparative analysis makes the American sovereign charity model visible by contrast. In the United Kingdom, Canada, and Germany, law requires institutionalized stakeholder voice and public accountability in university governance. These models do not merely suggest alternative arrangements; they offer working evidence that university boards can include students, faculty, alumni, and lay members as a matter of right.
The UK Higher Education and Research Act 2017 exemplifies this approach. Every university must have a governing body whose composition and accountability are regulated by statute and external oversight. The Act states:
“The governing body of an institution must include representatives of the academic staff, students, and independent lay members, and must make provision for open meetings and transparent deliberations as specified by the Office for Students.”139
Implementation is not symbolic. English universities regularly include faculty and students as voting board members, and external review is routine.140 These requirements matter in practice: a recent survey found that over 80% of UK universities have formalized staff and student representation, and at least seven vice-chancellors stepped down between 2016 and 2024 after no-confidence votes or stakeholder-led campaigns.141 Decisions are not immune from contestation, and the structure offers legal avenues for reform.
Canada’s universities operate on similar principles. Ontario law mandates that boards of public universities “include members drawn from the academic staff, the student body, and the broader public,” and meetings must be open unless specific exceptions apply.142 When controversial decisions arise, faculty and student representatives participate as voting members. Empirical evidence shows this structure has led to public debate and real leadership turnover—not always, but more often than in the United States.143
Germany goes further, mandating Mitbestimmung (co-determination) in university governance. Statutes require equal representation of professors and other academic staff on university senates, and state ministries conduct regular external audits.144 As a result, key academic and budgetary decisions involve negotiation among internal and external stakeholders, not just a closed board.
Perhaps the starkest contrast is at Cambridge, where both alumni (the Senate) and academic staff (the Regent House) retain direct legal voting rights over key university decisions. According to the Cambridge Statutes and Ordinances:
“The University shall be governed, in accordance with the Statutes, by the Regent House, which shall be the governing body of the University, and by the Senate, which shall have such powers as are assigned to it by Statute.”145
This is not merely advisory: the Regent House votes on the Vice-Chancellor, major constitutional changes, and academic policy, ensuring a legal check on board autonomy.146
These models are not without flaws. Stakeholder representatives can be marginalized, and bureaucracy sometimes substitutes for genuine participation. But the architectural difference is undeniable: in the UK, Canada, and Germany, the legal order presumes that university governance requires public voice, external scrutiny, and legal accountability—not just the appearance of consultation.
Nor are these models “foreign curiosities.” Elements have been adopted by public universities in the United States. California, New York, and other states require student or faculty trustees on public university boards, and open meeting laws are standard. The American sovereign charity model persists not out of necessity, but by deliberate policy choice.
The lesson is clear. Stakeholder voice, open meetings, and accountability are not theoretical ideals; they are features of real governance regimes elsewhere, with measurable effects on institutional legitimacy and reform. The democratic deficit of American private universities is neither natural nor inevitable—it is a product of law.
This comparative analysis sets the stage for the next Part, which examines the theoretical foundations and reform prospects for American higher education. How might lessons from abroad inform a new approach to sovereign charity governance? What limits does U.S. constitutional and political structure place on reform? These are the questions that follow.
D. Governance in Crisis: Stress-Testing the Sovereign Charity Model
Elite private universities in the United States operate under boards whose authority is both expansive and highly insulated from external challenge. During periods of institutional crisis, these governance structures reveal the persistent strength of legal and structural protections that define the sovereign charity model. Examining recent controversies, this section shows that board supremacy, fiduciary discretion, and judicial deference are deeply entrenched features of university governance.
In 2024, Harvard University’s governance turmoil brought these features into sharp relief. The Faculty of Arts and Sciences (FAS) conducted a no-confidence vote against Harvard’s governing boards after a series of campus protests and growing discontent with university leadership.147 A majority of surveyed faculty expressed dissatisfaction with the Harvard Corporation and Board of Overseers. Many called for changes to the boards’ composition and transparency.148 The Corporation acknowledged the faculty’s dissent but reaffirmed its exclusive authority over presidential tenure and board membership.149 The board declined to implement governance reforms or share control over the appointment or removal of university leaders. This response maintained the legal and institutional status quo. When the faculty voted to permit thirteen disciplined student protesters to graduate, the Corporation vetoed the recommendation, citing university rules regarding academic standing.150 Faculty leaders described this move as a “damning error” and warned that it would create a “crisis in governance” at Harvard.151 Nonetheless, the Corporation retained ultimate authority, and no external body intervened to alter the outcome. The episode illustrates the core asymmetry of board power in elite university governance.
Limits on external challenge are equally apparent in donor litigation. The Robertson v. Princeton dispute offers a key example. Donors alleged that Princeton University violated the terms of a $900 million endowment gift. In 2008, the settlement dissolved the donor-created supporting foundation and transferred all remaining assets to Princeton’s sole control.152 The university agreed to pay $90 million to the donors’ foundation. However, Princeton retained exclusive authority over the use of the endowment funds. Official statements emphasized that the university would have “full authority to make academic judgments” regarding those funds. This outcome demonstrates the reluctance of courts and regulators to displace board discretion or enforce donor intent after a gift is made. Once donors transfer assets, trustees generally hold legal control and courts defer to their business judgment.153
Government intervention in university governance is extremely rare. The most prominent modern example is the 1997 Adelphi University case. The New York Board of Regents removed all eighteen trustees for breach of fiduciary duty after they failed to check the president’s self-dealing and excessive compensation.154 This action remains an outlier. In most cases, including the “Ladner affair” at American University, removal of senior leaders followed internal board action after reputational crisis; external legal compulsion was not a decisive factor.155 Empirical studies confirm that state attorney general enforcement and judicial intervention are rare and largely limited to cases involving clear fraud or insolvency.156 Boards that observe minimal procedures and maintain a charitable mission retain broad legal discretion.
Judicial doctrine reinforces board insulation through application of the business judgment rule. Courts routinely decline to second-guess trustee decisions unless there is evidence of bad faith or self-dealing. In Stern v. Lucy Webb Hayes National Training School, the federal district court for the District of Columbia stated, “[c]ourts do not sit to approve or disapprove the exercise of honest business judgment” by nonprofit trustees.157 As long as board actions can plausibly advance the institution’s charitable purposes, courts will not intervene even when those actions are contested by faculty, students, or donors. This deference is a defining feature of the sovereign charity regime.
Comparative international experience highlights the uniqueness of the American approach. In the United Kingdom, statutory mandates for faculty and student representation have enabled academic senates to oust university leaders through no-confidence votes.158 In Canada and Germany, recent provincial reforms have increased stakeholder participation and public oversight.159 Nonetheless, ultimate legal authority continues to rest with governing boards, and state intervention remains rare except in extreme cases.160 These examples show that more inclusive governance is feasible, but the gap between public mission and private power in U.S. higher education reflects specific features of American legal and institutional history, not necessity.
These episodes together demonstrate the remarkable capacity of the sovereign charity model to withstand crises without meaningful redistribution of power. The insulation of self-perpetuating boards, reinforced by judicial deference, limited external oversight, and the absence of meaningful stakeholder representation, makes university governance unusually resistant to challenge. Even organized faculty dissent, determined donors, and acute reputational risk do not readily shift board authority. This structure of accountability arbitrage continues to shape the contemporary governance of elite private universities.
E. Synthesis: The Sovereign Charity Model at a Crossroads
The empirical and comparative analysis above reveals both the durability and the distinctiveness of the sovereign charity model in American higher education. When tested by internal and external crises, the architecture of board dominance, fiduciary insulation, and judicial deference remains remarkably robust. Faculty votes of no confidence, student protests, and public scrutiny have been met with formal acknowledgment by university boards, but these boards routinely reaffirm their exclusive authority over leadership, discipline, and institutional policy. Even in the face of sustained faculty dissent, the board-centric model persists, with no meaningful shift in the locus of governance power.161
Litigation brought by donors, such as the Robertson case at Princeton, confirms the limited ability of external actors to influence university governance after a charitable gift is made. Courts and regulators rarely enforce donor intent beyond the moment of transfer, instead deferring to trustees' discretion and institutional judgment.162 The rare intervention of government, as in the Adelphi trustees’ removal, remains an outlier, confined to extreme and well-documented cases of fiduciary breach or misconduct.163 Empirical studies and leading scholarship confirm that state enforcement and judicial oversight are generally limited to clear fraud or insolvency, leaving boards with broad autonomy so long as they observe basic procedural and mission requirements.164
The legal structure supporting this system is anchored in the weak enforcement of fiduciary duties and the expansive protection of the business judgment rule. Courts have made clear that they will not substitute their judgment for that of nonprofit trustees absent bad faith or self-dealing.165 As a result, internal stakeholders and outside observers alike confront high barriers to shifting the governance status quo.
Comparative experience demonstrates that the American model is neither inevitable nor dictated by legal necessity. Other systems—most notably in the United Kingdom, Canada, and Germany—have adopted formal mechanisms for faculty, student, and public participation in university governance. These reforms have produced more inclusive decision-making processes and, in some cases, enabled stakeholder-driven changes in leadership.166 However, even in these systems, the core autonomy of governing boards remains intact, and direct state intervention is reserved for exceptional cases.167
The resulting institutional landscape presents elite American universities with a set of real-world crossroads. The evidence suggests three broad paths: continued reliance on the insulated, board-dominated model; movement toward hybrid or stakeholder-inclusive governance models that selectively borrow from comparative examples; or, in rare cases, the choice to forgo public subsidy altogether in exchange for regulatory independence, as exemplified by Hillsdale College.168 Each path presents trade-offs between autonomy, accountability, and legitimacy.
Despite these findings, substantial questions remain unresolved. The gap between public subsidy and private governance—what many scholars term the "accountability gap"—remains the defining feature of the sovereign charity model.169 The comparative record challenges the inevitability of this gap, but legal, constitutional, and institutional barriers to reform persist.170 The sustainability of the current regime, the conditions under which public support might be conditioned or withdrawn, and the feasibility of meaningful reform are all left as open questions.
This synthesis clarifies the empirical and structural realities that frame the crossroads now confronting American higher education. The next part will introduce the theoretical and normative frameworks necessary to address these open questions and evaluate the institutional future of the sovereign charity model.
Part IV. The Paradox of Hybrid Governance
This Part IV extends the statutory, historical, and policy analysis developed in the preceding sections. Part I traced the legal and institutional history of American higher education,171 Part II analyzed the legal regimes enabling public subsidy and private status,172 and Part III examined the governance architecture and oversight mechanisms currently in place.173 Building on that foundation, the analysis here turns to a focused theoretical and comparative diagnosis of the “sovereign charity” as a legal and institutional form, with explicit attention to the doctrinal, fiduciary, economic, and comparative frameworks that illuminate its paradoxes and contradictions.
Elite private universities in the United States occupy a legal and institutional position that resists easy legal classification. Formally, they are private nonprofit corporations, charitable in form, yet wielding economic, cultural, and regulatory power rivaling that of many public bodies. Their legal status as “sovereign charities” is not merely a historical artifact but the product of layered statutory, constitutional, and institutional choices that have enabled these entities to amass extraordinary resources, exercise substantial autonomy, and shape public life, all while remaining largely insulated from the mechanisms of public accountability that typically accompany public subsidy and delegated authority.174
This Part IV undertakes a systematic mapping of the theoretical and doctrinal frameworks that define and contest the legal identity of elite universities as hybrid entities. Drawing on institutional theory, legal doctrine, and comparative models, it proceeds in five steps. First, it traces the doctrinal foundations and consequences of treating elite universities as private charities, emphasizing the resulting regime of accountability arbitrage.175 Second, it interrogates the application and limits of fiduciary theory in university governance, engaging directly with recent critiques that challenge the fit of fiduciary analogies in the absence of clear beneficiaries and enforceable duties.176 Third, it situates the university within public goods and economic theory, questioning whether the legal fiction of nonprofit status aligns with the realities of resource allocation, access, and social benefit.177 Fourth, it brings comparative perspective to bear, examining how other advanced democracies have constructed legal and institutional frameworks to manage the public-private hybridity of their own elite universities.178 Finally, it synthesizes these perspectives to map the structural contradictions at the heart of the sovereign charity, previewing the normative framework for evaluating reform that will be developed in Part V.179
By integrating doctrinal analysis, institutional theory, and comparative models, this Part aims to clarify the legal and theoretical landscape while illuminating the enduring paradoxes, including autonomy without accountability, public function without public governance, and fiduciary rhetoric without enforceable duty, that define the contemporary American university. As the following sections demonstrate, these contradictions are not merely academic, but doctrinally significant and legally consequential—central to the ongoing debate over the legitimacy, effectiveness, and future evaluation of higher education’s most powerful institutions.
A. Legal Typology and Institutional Form
Elite private universities in the United States exemplify a form of legal hybridity that defies straightforward classification within conventional public–private frameworks. These institutions are formally organized as private nonprofit corporations or charitable trusts, but functionally perform public roles in education, research, and cultural production on a scale that rivals state institutions. Their legal status as “sovereign charities”—entities that combine public function with private form—creates a regime of selective constitutionalism and accountability arbitrage, in which universities enjoy the benefits of public subsidy while avoiding many of the constraints that typically accompany public power.180 This section examines the doctrinal foundations of this hybrid status, the legal consequences that flow from it, and the structural contradictions it creates within American nonprofit and constitutional law.
1. Historical Foundations and the Dartmouth Legacy
The legal architecture of private university governance traces its origins to Trustees of Dartmouth College v. Woodward, in which the Supreme Court held that a private college’s charter is a contract protected from state interference under the Contracts Clause.181 Chief Justice Marshall famously described Dartmouth as a “private eleemosynary corporation” endowed by private individuals, and therefore beyond the reach of state legislation.182 This decision entrenched a doctrinal distinction between public and private educational institutions that persists today, even as the functional realities have evolved. Over time, the Dartmouth framework has operated as a constitutional shield: insulating private universities from state oversight even as their reliance on public funds has increased and their societal influence has grown.
2. Contemporary Legal Classification and Tax Status
Today, most elite private universities are organized as nonprofit corporations under state law and recognized as tax-exempt charities under I.R.C. § 501(c)(3).183 This classification confers extensive privileges: exemption from federal income tax, eligibility for tax-deductible donations, and often exemption from state and local property taxes. The legal justification for this status has traditionally rested on the “contract failure” theory: when donors or consumers cannot directly evaluate the quality of services, nonprofit status—especially the nondistribution constraint—signals public benefit and trustworthiness.184 Yet the scale, wealth, and market power of contemporary universities far exceed the modest charitable enterprises that this legal regime was designed to support.
3. The Charitable Trust vs. Nonprofit Corporation Fork
The distinction between charitable trust and nonprofit corporation marks a critical doctrinal fork with important consequences for fiduciary duty and regulatory oversight. Charitable trusts are governed by the law of trusts, with fiduciary duties enforced by courts of equity and by the state attorney general acting as parens patriae for the public interest.185 Trust law imposes strict duties of loyalty and obedience to donor intent and permits judicial intervention in cases of breach or mismanagement.
By contrast, nonprofit corporations are governed by state nonprofit corporation statutes that model internal governance on for-profit corporate law. Directors owe duties of care and loyalty to the corporation and its charitable mission, but enforcement is typically limited to actions by the attorney general—or in rare cases, donors with standing.186 Courts apply the business judgment rule, deferring to directors’ good faith decisions absent gross negligence or self-dealing.187 As a result, the nonprofit corporate form yields a regime of fiduciary slack, in which duties are formally imposed but rarely enforced, and the diffuse nature of the beneficiary class (students, the public) inhibits accountability.
4. Diagnostic Table: Legal Classifications and Consequences
The following typology illustrates the major legal forms relevant to the governance of higher education institutions and the consequences that flow from each in terms of oversight, fiduciary duty, and constitutional constraint:
Legal Form Oversight Mechanism Fiduciary Duties Constitutional Constraints Public Accountability ———————– —————————— —————————– ——————————– ————————— Charitable Trust Court of equity, AG Strict (loyalty, obedience) None (private) Moderate (AG, courts)
Nonprofit Corporation AG, IRS, board self-policing Moderate (care, loyalty) None (private) Weak (mainly tax filings)
Public University Legislature, courts, public Public fiduciary duties Yes (state action) Strong (FOIA, audits)
Quasi-Public/Utility Specialized regulator, AG Hybrid public-private Mixed Variable
Sovereign Charity Minimal (IRS, AG) Rhetorical, weakly enforced None (private) Minimal ————————————————————————————————————————————————-
This table underscores how elite universities—although beneficiaries of public privilege—retain the governance autonomy of private institutions and escape many of the legal checks imposed on comparable public bodies.
5. Constitutional Constraints and “Selective Constitutionalism”
The legal classification of universities as private entities has profound doctrinal consequences under constitutional law. Under the state action doctrine, even universities that receive extensive public funding or exercise quasi-governmental power are not generally subject to the First or Fourteenth Amendments. In Rendell-Baker v. Kohn, the Supreme Court held that a private school receiving nearly all of its funding from the government was not a state actor, and therefore not bound by constitutional due process requirements.188 As a result, private universities may restrict speech, impose disciplinary sanctions, or make admissions decisions without the constitutional constraints imposed on public schools.
Yet these same universities routinely invoke constitutional values—academic freedom, freedom of association, free speech—as shields against government regulation.189 This asymmetry gives rise to what may be called selective constitutionalism: universities invoke constitutional protections to defend institutional autonomy, but are not bound to honor those protections internally. In this regime, constitutional rights are not bilateral guarantees between university and constituents, but selective defenses against state intrusion.
6. Oversight Mechanisms and Accountability Gaps
Enforcement of fiduciary duties in private universities is largely left to state attorneys general and the IRS. In theory, AGs may bring actions for breach of fiduciary duty or diversion from charitable purpose, and the IRS can revoke tax-exempt status for private inurement or lobbying violations. In practice, such enforcement is rare and reactive, not routine or preventive.190 Structural barriers abound: AG offices are under-resourced, and political disincentives often prevent challenges to powerful institutions. Courts, meanwhile, defer heavily to boards under the business judgment rule.
Unlike private foundations, which are subject to strict annual payout requirements, universities face no comparable mandates. They may accumulate endowment wealth indefinitely while retaining charitable status—without demonstrating proportional charitable output.191 Routine disclosure comes only in the form of IRS Form 990 filings, which offer limited transparency and seldom trigger enforcement.
7. Hybrid Status and Accountability Arbitrage
This hybrid status—public in function, private in form—facilitates a regime of accountability arbitrage. Elite universities leverage their classification as private charities to avoid constitutional obligations, open records laws, and governance transparency. At the same time, they receive billions in public subsidies: research grants, student aid, tax-exempt financing, and the indirect subsidy of donor tax deductibility.192 This dual positioning allows universities to exploit the gap between the legal treatment of charities and the realities of large, powerful institutions serving public purposes without public oversight.
As the remainder of this Part will show, this legal hybridity creates not only regulatory gaps, but also doctrinal contradictions—especially around fiduciary duty, public purpose, and institutional legitimacy. These contradictions challenge the coherence of nonprofit law as applied to modern universities and set the stage for the normative analysis in Part V.
B. Fiduciary and Governance Theory
Private university boards owe classic fiduciary duties of care, loyalty, and, arguably, obedience to their institution’s charitable mission, much like trustees of any nonprofit.193 In theory, trustees must act with due care in managing the university’s assets, avoid self-dealing or conflicts (duty of loyalty), and ensure the organization adheres to its stated educational purposes (duty of obedience).194 In practice, however, enforcing these duties in the university context is fraught with gaps. As Professor Evelyn Brody has famously observed, nonprofit directors are “agents without principals”—they exercise broad power over a charity but have no clear owner or beneficiary with legal standing to hold them directly accountable.195 Unlike in a business corporation, where shareholders or a regulator can bring derivative suits, in a nonprofit the equivalent watchdog role falls to the state attorney general (and occasionally to donors or members in limited circumstances). This enforcement structure is notoriously feeble. State AG offices often lack resources or political incentive to police wealthy, prestigious universities except in extreme cases of malfeasance.196 Donors can sue to enforce gift restrictions or mission commitments only under narrow conditions, and courts historically have been reluctant to broaden donor standing.197 Students, faculty, and the broader public have essentially no legal foothold to challenge mismanagement or mission drift. The result is a de facto accountability vacuum at the heart of university governance.198
1. The Attorney General as Weak Watchdog
The primary public enforcement mechanism for fiduciary duties is the state attorney general, who acts in a parens patriae capacity for the public interest.199 Yet, as numerous commentators have noted, this oversight is sporadic and often ineffective. The Stevens Institute of Technology case, in which the New Jersey attorney general sued for financial mismanagement, stands as a rare exception that proves the rule: most boards operate with little fear of meaningful state intervention.200 The IRS, for its part, has the authority to revoke tax-exempt status or impose intermediate sanctions, but such actions are exceedingly rare for major universities.201
2. Trustee Selection and Institutional Insularity
Most elite institutions are governed by self-perpetuating boards of trustees, often overlapping with or supplemented by a separate board of overseers or regents. New board members are typically selected by the existing trustees or by a small group of insiders, often drawing from alumni, major donors, and influential figures in business or academia. There is usually no requirement of representation for students, faculty, government officials, or the general public on private university boards.202 For example, Harvard’s two governing boards (the Harvard Corporation and the Board of Overseers) consist almost entirely of alumni and are effectively self-electing bodies.203 Such insular governance can foster groupthink and prioritize institutional preservation over public responsiveness. Trustees may have personal ties or loyalties (to the administration, to donor networks, and so forth) that complicate their fiduciary objectivity. In theory, the duty of loyalty bars trustees from acting in their own interest or engaging in self-dealing. In practice, university trustees are often wealthy donors themselves or corporate executives, and instances of excessive compensation for presidents, preferential contracts, or other conflicts of interest have arisen at various campuses.204 Legal responses to such breaches are modest—intermediate sanctions under federal tax law for excess benefits, or gentle prodding by accreditation bodies—unless the offense is egregious enough to provoke an AG lawsuit, which remains rare.
3. Mission Drift and the Business Judgment Rule
Even the duty of care is largely toothless in the university context, despite its formal requirement of diligence and prudence. Courts uniformly apply the business judgment rule—a common law principle originally developed in corporate law—to shield nonprofit directors’ decisions from judicial second-guessing, just as with for-profit boards.205 The duty of care “implies exposure to liability, but the business judgment rule precludes it” in practice.206 So long as a university board’s decision can be plausibly attributed to a rational pursuit of the institution’s educational mission, courts will not intervene, even if that decision involves contentious trade-offs such as prioritizing research prestige over undergraduate financial aid. This deference is especially strong because universities lack clear, enforceable performance metrics. Unlike a business that maximizes profit, a university’s mission—advancement of education—is broad and multidimensional, making it difficult to prove that any particular decision, such as expanding a campus in lieu of reducing tuition, clearly violates the mission. The duty of obedience, which in nonprofit doctrine means adhering to the organization’s purposes and donor intent, suffers from what Professor Lyman Johnson describes as “unsettledness”: it is recognized in theory but rarely enforceable in court because mission statements are general and charitable purposes can be interpreted flexibly.207 In effect, as long as trustees do not divert university assets to private use or overtly abandon the field of education, they face little risk of legal liability for mis-prioritizing or under-serving the public interest. Courts have even noted that, in a charitable trust, fiduciary duties are owed to the mission itself, not to any particular beneficiaries, leaving no one but the state to complain of dereliction.208
4. Symbolic Duties, Minimal Enforcement
The result is a substantial governance deficit. Studies have found that many university boards act more as boosters or overseers of management than as active, critical fiduciaries championing the public interest.209 Boards often defer to long-tenured presidents and administrations on academic matters and strategy, intervening mainly on financial or crisis issues. Shared governance norms give faculty a degree of control over curriculum and academic appointments, but trustees typically hold final say over budgets, investments, and presidential hiring—domains where insulated decision-making can permit “mission drift” toward what is comfortable for the institution, such as hoarding endowment, pursuing rankings, or pleasing powerful donors. The ambiguity of universities’ objectives (educate students, produce research, serve community, and so forth, all in varying mixes) compounds this problem of accountability: with no clear performance metric, trustees can plausibly claim to fulfill their duties while presiding over policies that favor institutional aggrandizement at the expense of broader public service. For instance, is a board breaching its fiduciary duty of obedience by using surplus funds to build a lavish new arts center instead of expanding scholarship support for low-income students? In theory it might be, if the latter better serves advancement of education for the public. But absent a specific restriction or legal mandate, such choices fall within the trustees’ broad discretion. As Professor Marion Fremont-Smith quipped, “nonprofit trustees have the freedom to fail”—short of outright fraud or self-dealing, the law gives them latitude to misallocate resources or under-serve constituencies without consequence.210
5. Case Study: Donor Litigation and Self-Regulation
These governance gaps have played out in high-profile controversies. In the Robertson v. Princeton litigation, members of the Robertson family sued Princeton University alleging the trustees were misusing a $900 million endowment fund that had been donated to support a public policy program.211 After six years of bitter litigation, during which Princeton spent tens of millions in legal fees, the case settled with Princeton agreeing to direct funds to a new foundation but ultimately retaining the bulk of the endowment.212 The case underscored how difficult it is even for significant donors to force course corrections on an elite university’s board. Likewise, episodes of scandal have revealed enforcement weaknesses: only after a newspaper exposé did Harvard’s board belatedly address conflicts of interest and excessive perks enjoyed by its former president, and only under intense public pressure did certain universities reform their admission practices in the wake of the “Varsity Blues” bribery scandal. In general, self-regulation has prevailed over external regulation. Professional bodies like the Association of Governing Boards (AGB) publish best-practice guidelines urging trustees to exercise independent judgment and remember their public purpose, but these have no legal force.213 As Brody notes, the public’s main “check” on charitable universities has been the extreme step of revoking tax benefits or legislating conditions—actions historically viewed as off-limits given universities’ political influence and the cultural esteem of academic freedom.214 The cumulative picture is one of under-enforced fiduciary duties: universities enjoy the fiduciary rhetoric of trust and loyalty, but without robust mechanisms to ensure those ideals translate into accountability. This dynamic is central to why elite universities can engage in what we term accountability arbitrage: they reap the legitimacy of being “trustees” for a charitable purpose while operating with a freedom from scrutiny more akin to private corporations.
C. Economic and Public-Goods Theory
Canonical economic theory defines public goods as both non-rivalrous and non-excludable: one person’s consumption does not limit another’s, and it is difficult to exclude non-payers from benefiting.215 This framework, developed by Samuelson and Musgrave, underpins the rationale for tax exemption and other forms of public subsidy.216 The privileged legal status of elite universities rests on the assumption that they produce public goods and positive externalities that the market would under-provide.
1. Which Goods Are Public? Mapping the Theory to Practice
University outputs span the full spectrum of economic goods. The table below applies the standard typology to core university functions:
University Output Rivalrous? Excludable? Economic Type Tax-Subsidy Justification ————————————– —————- —————– ——————- ——————————- Basic scientific research No No Public good Strong
Open-access online lectures No Partially Public/Club good Moderate to strong
Undergraduate instruction (elite) Yes Yes Private/Club good Weak to moderate
University press publications No Yes Club good Moderate
Elite credentialing, alumni networks Yes Yes Positional good Weak (if exclusive)
- Student housing and campus amenities Yes Yes Private good None
- —————————————————————————————————————————–
-
.Economic Classification of University Outputs. Adapted from Paul A. Samuelson, Richard A. Musgrave, and Burton Weisbrod, as applied to higher education
Club goods are excludable but non-rivalrous. Streaming services are a common example. Positional goods derive value from exclusivity or comparative advantage; what matters is not just having the good, but having it relative to others. Elite credentials are a classic example. Club goods may justify moderate public support, but positional goods typically do not.
This typology reveals an important analytic point. Universities produce some genuine public goods, such as basic research and certain outreach. However, much of their core activity—especially elite undergraduate education and credentialing—functions as a private, club, or positional good. Access is rationed by admissions, and consumption is rivalrous. Weisbrod extends this logic, noting that club and merit goods may justify moderate subsidy but not blanket exemption.217 The economic case for blanket tax exemption is weaker for these outputs than for pure public goods.
2. Theoretical Foundations: Public Goods, Contract Failure, and Nonprofit Form
Hansmann’s “contract failure” theory offers another justification for the nonprofit form. Where consumers or donors cannot easily judge quality, as in education, the nondistribution constraint of a nonprofit offers assurance against opportunism.218 This theory is influential, but it is distinct from the public-goods rationale. It does not itself justify perpetual tax exemption or the scale of public subsidy currently enjoyed by elite universities. Weisbrod’s work on the nonprofit economy highlights the role of nonprofits in supplying collective goods that neither market nor government fully provides, but cautions against assuming all nonprofit outputs are equally deserving of subsidy.219 Some scholars, such as Posner, have argued that the nonprofit form can be efficient when transaction costs are high and quality is hard to observe, though this is less often invoked in higher education contexts.220
3. Endowment Accumulation and the Limits of the Public-Goods Rationale
The theoretical justification for tax exemption presumes that resources will be used to generate public benefit. In practice, the link between legal status and public benefit has weakened. Elite universities have amassed extraordinary endowments. Harvard’s endowment now exceeds $50 billion. These assets compound investment returns tax-free under I.R.C. § 501(c)(3). Universities face only a minimal 1.4 percent excise tax under I.R.C. § 4968.221 Unlike private foundations, which must pay out at least 5 percent of assets annually under I.R.C. § 4942, universities face no such requirement. They can accumulate wealth indefinitely.222
Empirical studies show that the average endowment payout rate among large universities is around 4 to 5 percent of assets each year. This is often less than long-term investment returns.223 Many elite institutions warehouse wealth rather than deploy it for immediate public benefit. Critics argue that these universities function more like private investment funds than engines of social mobility or innovation.224 Harvard’s tax exemptions alone are estimated at $465 million per year. The combined Ivy League endowments now surpass the annual budgets of most U.S. states.225
4. Distributional Consequences and Social Mobility
This concentration of subsidized wealth has not translated into broadly accessible educational opportunity. This calls into question whether accumulated resources serve their purported public purpose. Elite universities educate relatively few students and enroll disproportionately small numbers of low-income or first-generation students.226 During the 2010s, several Ivy League colleges enrolled more students from families in the top 1 percent of income than from the entire bottom 50 percent.227 Pell Grant recipients make up well under 20 percent of undergraduates at the wealthiest private universities, while at public institutions, the rate is typically 35 to 50 percent.228
Research shows that most government-funded financial aid at elite institutions accrues to middle- and upper-middle-class students. Truly low-income students remain underrepresented.229 These patterns reveal a misalignment between universities’ legal status as public-serving charities and their actual distributional outcomes. The reality is that these institutions often reinforce existing privilege rather than expand opportunity.230
5. Accountability Arbitrage and the Erosion of the Academic Social Contract
The economic logic of the sovereign charity exposes a core tension. Universities receive vast resources and discretion from law and donors, with the promise that these privileges will benefit the public. In the absence of clear mandates or constraints, elite universities often pursue institutional prestige, financial strength, and autonomy over public benefit. This Article introduces and develops the concept of accountability arbitrage: the ability of elite private universities to exploit the gap between their public-serving legal status and their private governance structure in order to secure tax and reputational benefits without corresponding obligations of transparency, accessibility, or civic return.
The Stanford Law School white paper on the “academic social contract” observes that the reciprocal relationship between universities and society—public subsidy in exchange for broad civic contribution—has eroded in recent decades.231 Universities retain the fiscal privileges of charities, the autonomy of private fiduciaries, and the policy influence of public agencies. However, they answer to neither markets nor democracy.232
6. Comparative Perspective and Policy Implications
Other nonprofit sectors and public institutions face stricter requirements. Private foundations must spend at least 5 percent of assets annually and report detailed payout data. Public universities face legislative oversight and open records laws. Elite private universities operate with minimal transparency and no payout mandate, despite commanding vast public resources.233
This structural incoherence—public subsidy without public accountability—has prompted calls for recalibrating the legal treatment of elite universities. Scholars such as Colombo, Brody, and Galle have argued for aligning tax privileges with demonstrable public benefit, through mandatory payout rules, enhanced reporting, or stakeholder governance reforms.234 This diagnosis sets the stage for considering how law might better align the fiscal privileges of elite universities with their public mission. The next Part turns to this question.
D. Political and Institutional Theory
The evolution of elite universities into quasi-sovereign entities raises fundamental questions of political theory and institutional design. In a liberal democracy, the delegation of important public functions to private bodies tests the balance between liberty and accountability. Classical liberal theory has long extolled the virtues of independent centers of authority, such as universities, free from state control. Decentralization and competition in the production of knowledge are essential to intellectual progress and individual freedom.235 Philosophers such as F.A. Hayek argued that a decentralized order allows multiple experiments in education and the pursuit of truth, which a centralized state system might stifle.236 This view underpins the tradition of academic freedom and institutional autonomy: universities should operate as “intermediate institutions” between the individual and the state, buffering intellectual inquiry from political interference.
The American concept of the university as a self-governing enclave of learning draws on this liberal tradition. Max Weber noted in the early twentieth century that modern universities had become bureaucratic organizations, yet he maintained that scholarly freedom—the ability of academics to pursue truth wherever it leads—requires insulation from direct democratic control or market dictates.237 The private status of U.S. elite universities arguably furthers this classical liberal aim. It prevents governments from dictating curricula or silencing dissenting professors and avoids transforming universities into civil service arms of the state. In theory, private governance enhances pluralism: Harvard can be Harvard, Bob Jones University can be Bob Jones, each following its own ethos without the homogenizing hand of government.
However, the flip side of this autonomy is what this Article identifies as the democratic deficit of sovereign charities. Public choice theory and liberal egalitarian theory both raise concerns when private entities wield significant power over public values without democratic checks. Elite universities perform quasi-public functions—educating national leaders, influencing policy through research, allocating societal opportunities through admissions—but unlike public agencies, they are not subject to electoral oversight, administrative procedure acts, or direct public input. From a public choice perspective, the risk is institutional capture. Internal stakeholders—faculty, administrators, donors—may run the university in ways that elevate their own preferences for prestige, rankings, or ideological uniformity, rather than public values like inclusion, access, or educational equity.238 Donor influence can also distort priorities, steering resources to symbolic or private objectives rather than pressing public needs.239
Fiduciary political theory provides another critical lens. This emerging body of scholarship analogizes public officials to fiduciaries who owe duties of care and loyalty to the people.240 When universities assume a de facto public role—managing billions in tax-subsidized assets, setting educational policy, or conducting essential research—they arguably inherit fiduciary-like responsibilities. Yet U.S. law imposes no such duty. Trustees owe their duties to the institution, not to society or any public constituency.241 The result, as fiduciary theorists have noted, is a misalignment of accountability: decision-makers control public-serving institutions without enforceable obligations to the public interest.242
This governance structure slips between the cracks of American institutional design. Universities are insulated from market discipline by endowments and prestige. They are insulated from democratic accountability by their private legal status. As such, they wield agenda-setting and revenue-generating power akin to sovereign authorities, but without electoral authorization or legal obligation to disclose, deliberate, or justify decisions to those affected.
**Public Control** **Private Control**
Public Function Public Agencies\ Sovereign Charities
(e.g., public universities, courts) (e.g., Harvard, Stanford, Yale)
Private Function Heavily Regulated Private Firms\ Private Corporations
(e.g., utilities, hospitals) (e.g., Amazon, Liberty University)
——————– ————————————- ————————————
This legitimacy gap manifests in areas of high public consequence: research policy, intellectual property licensing, speech regulation, admissions standards, and historical reckoning. When Harvard decides how to alter admissions after Students for Fair Admissions, or when Stanford negotiates the terms of community land use, the governance decisions have broad civic impacts. Yet those decisions are made in private rooms by self-perpetuating boards, not through transparent or participatory processes. As Max Weber emphasized, legitimate authority in the modern era rests on rational-legal norms: visible procedures, justifications, and responsiveness to the governed.243 Sovereign charities rely instead on traditional legitimacy (prestige) and charismatic legitimacy (leadership aura). Such legitimacy modes, while powerful in preserving institutional deference, do not meet modern expectations of transparency or procedural fairness. This is a fragile foundation in an era of growing skepticism toward elite institutions.
Public trust is waning. Surveys show declining confidence that elite universities serve public purposes.244 Many Americans now view them as ideological, inaccessible, or self-dealing. This undermines the classical liberal justification for their autonomy. As John Stuart Mill argued, liberty requires legitimacy. Private institutions are normatively defensible only if they contribute to enlightenment and opportunity, not if they entrench hierarchy or evade public scrutiny.
Elinor Ostrom’s theory of self-governance suggests one path forward. Stable common-pool institutions, she showed, require stakeholder participation, accountability mechanisms, and transparent rules.245 Sovereign charities lack most of these features. Their governance norms remain opaque, self-reinforcing, and insulated from public feedback. Fiduciary political theory—especially the work of Evan Fox-Decent and Evan Criddle—suggests another path: if private institutions undertake public roles, they should be bound by public fiduciary obligations.246 Fiduciary political theory invites normative redesign, and comparative systems offer proof-of-concept. This could include enforceable duties of care to the public, rights of limited challenge for affected constituencies, or a recalibration of fiduciary doctrine to reflect the realities of public subsidy and impact.
Other jurisdictions provide models. The U.K. imposes public-benefit tests and enforces governance failures through an active regulator. Canada includes public appointees on university boards. German and Swedish systems split control between academic senates and external stakeholders. These systems balance autonomy with accountability. The U.S., by contrast, maintains the fiscal privileges of public law and the opacity of private law. That hybrid form—sovereign charity without sovereign responsibility—poses a structural legitimacy challenge. The next section turns to comparative law for potential remedies.
E. Comparative Legal Models: United Kingdom, Germany, and Canada
The United States’ hands-off approach to private university governance is an international outlier. Other democracies have developed frameworks that reconcile university autonomy with public accountability, demonstrating that elite institutional independence is not structurally inevitable. This section surveys three leading models—United Kingdom, Germany, and Canada—to show how legal regimes can constrain sovereign charity without undermining academic excellence.
1. United Kingdom: Charities with Regulated Autonomy
In the United Kingdom, nearly all universities, including Oxford and Cambridge, are legally classified as charities. The Charities Act 2011 requires universities to provide a public benefit, a requirement monitored by regulators.247 Most are “exempt charities,” subject to oversight by the Office for Students (OfS), which registers universities, sets conditions for academic quality, governance, and compliance with equality laws, and can impose fines or revoke degree-granting authority.248 In 2025, the OfS fined the University of Sussex £585,000 for governance failures that compromised academic freedom, an enforcement action with no analogue in the United States.249
UK universities must also comply with transparency and inclusion mandates. They submit access and participation plans, set targets for underrepresented students, and report progress. Tuition fees are capped by law, and universities wishing to charge the maximum must meet access requirements. Governing boards include external members and are expected to follow charitable trusteeship principles. The Crown retains a vestigial oversight role through the Visitor, who can adjudicate internal disputes. Universities are subject to the Freedom of Information Act 2000, granting public access to internal documents—a transparency obligation not imposed on U.S. privates. The UK model demonstrates that universities can be treated as charities while being held to enforceable public obligations.
2. Germany: Public Law Institutions with Co-Governance
Germany provides a contrasting model, where most research universities are public entities governed by public law.250 Professors and staff often hold civil servant status, and universities operate under state higher education statutes that set governance arrangements and link institutions to the state’s administrative hierarchy. Ministries of Education or Science oversee university systems, approve budgets, endorse strategic plans, and often appoint top officials.
A hallmark of German governance is codetermination. Faculty participate in decision-making through academic senates and councils, with student and staff representation as well. University councils (Universitätsräte) with external members provide oversight and strategic advice. Major decisions typically require ministerial approval, but academic freedom is protected by the Basic Law. Because German universities are public, they are directly bound by constitutional requirements of equality and due process. Admissions, hiring, and discipline are subject to judicial review. Private universities exist but are small, specialized, and subject to state supervision and accreditation.
The German model thus subjects universities to dual accountability: participatory internal governance and external state oversight. Higher education is treated as a public good, warranting public provision and supervision.
3. Canada: Provincial Regulatory Partnership
Canada’s approach sits between the U.S. and European models. Canadian universities are publicly assisted and established by provincial statutes or royal charters. Provincial governments provide significant funding, appoint some board members, and retain approval rights over major decisions.251 Boards include alumni, faculty, students, and government or community representatives, ensuring more public participation than the self-perpetuating boards of U.S. privates.252
Canadian universities are subject to public policy mandates as a funding condition. Provincial governments may require adoption of free speech policies or cap tuition increases. Many universities are covered by provincial freedom-of-information laws, making records subject to public scrutiny. Salary disclosures and periodic audits are common, and government leverage is real: provinces have withheld funding from universities that failed to comply with policy. Canadian courts review university actions for fairness under administrative law, particularly when individual rights are at stake. The legal framework assumes a partnership with government and expects universities to align with public policy goals. Elite Canadian universities are not entirely sovereign; they are embedded in a framework of public oversight and expected to contribute to provincial educational objectives.
4. Comparative Doctrinal Lessons
These comparative examples highlight the distinctive legal latitude afforded to U.S. elite universities. In the UK, universities must fulfill a public benefit, enforceable by regulators and courts. In Germany, higher education is a public good, and universities operate as public law entities. In Canada, universities are independent in daily operations but are accountable through board composition, transparency mandates, and funding conditions.
Accountability structures differ. The UK combines regulatory oversight with stakeholder participation. Germany emphasizes internal faculty governance and ministerial control. Canada blends government leverage, stakeholder representation, and moderate market forces. By contrast, the U.S. relies primarily on market and reputational accountability, with minimal state oversight and few legal requirements for public benefit. These indirect checks often incentivize universities to pursue rankings or donor satisfaction rather than broader social needs.
The comparative lesson is clear: the American sovereign charity model is a policy choice, not a necessity. Other nations have incorporated elite higher education into systems of public accountability without undermining academic excellence. These approaches offer concrete mechanisms—such as independent regulators, public-benefit audits, government appointment of trustees, and mandated stakeholder participation—that the U.S. could adapt. The next Part turns to synthesizing these lessons and mapping reform pathways for aligning elite universities’ legal status with their public obligations.
F. Empirical and Policy Evidence: Case Studies and Current Controversies
Empirical evidence and recent controversies provide a concrete portrait of the sovereign charity model in action. Across multiple domains—resource distribution, access equity, donor influence, and public trust—elite private universities exhibit governance dynamics that test the limits of the current legal framework. These developments underscore the institutional consequences of tax exemption without enforceable obligations and sharpen the stakes for reform addressed in Part V.
1. Wealth Concentration and Endowment Disparities
Elite universities now command endowment resources of historic proportions. As of 2024, the top twenty institutions collectively held nearly half of all endowment assets in American higher education, despite enrolling only a small fraction of students nationally.253 According to the most recent NACUBO-TIAA study, the median endowment among all U.S. colleges was approximately $65 million, while the top five private universities each held over $40 billion—more than 600 times that figure.254 Harvard’s endowment alone stood at $53.2 billion in 2024, supporting an annual distribution of $2.4 billion to the university budget and accounting for over one-third of total institutional revenue.255
These financial advantages translate into market power. Elite universities can offer higher salaries, construct state-of-the-art facilities, and provide competitive aid packages. However, they also receive substantial public support, including tax exemptions on endowment earnings and donor deductions, which amount to billions in forgone federal revenue each year.256 Critics have questioned whether these subsidies are justified, given that the benefits disproportionately accrue to institutions that are already financially self-sufficient.257
Policy responses have begun to emerge. Congress enacted an excise tax on large university endowments in 2017, initially targeting approximately forty institutions.258 In subsequent sessions, lawmakers proposed raising the rate or expanding its scope. Proposals have included mandatory endowment payouts and redistribution mechanisms that would allocate a portion of investment gains to less affluent institutions.259 University leaders have opposed these measures, warning of threats to research and financial aid. Proponents counter that the returns on elite endowments routinely exceed five percent and that current payout rates fall below the required minimums for private foundations.260
2. Access, Admissions, and Structural Inequity
The issue of access remains central to the legitimacy of tax-exempt universities. Elite institutions have historically enrolled disproportionately small numbers of students from low-income or underrepresented backgrounds.261 In Students for Fair Admissions, Inc. v. President & Fellows of Harvard College, the Supreme Court held that Harvard’s use of race-conscious admissions violated Title VI of the Civil Rights Act, emphasizing that its status as a federal fund recipient triggered public law obligations.262 The decision raised broader questions about whether private universities exercising public functions should be governed solely by private discretion.
The litigation also brought to light opaque admissions practices, including preferences for donors, alumni legacies, and subjective personal ratings. Statistical evidence suggested that these factors disadvantaged certain applicants, especially Asian-American students, while advantaging others with elite social capital.263 In the absence of federal oversight or state regulatory authority, accountability depended on litigation. This model of piecemeal review by courts illustrates the structural opacity of private university admissions regimes.
3. Donor Influence and Institutional Integrity
Elite universities depend heavily on private philanthropy. While many gifts support core academic functions, high-profile scandals have raised concerns about ethical governance and institutional capture. Several institutions accepted substantial donations from Jeffrey Epstein despite widespread knowledge of his misconduct, prompting internal investigations and public outcry.264 Other cases have highlighted the influence of large donors on institutional priorities, such as naming rights, research agendas, and faculty appointments. The Robertson litigation at Princeton and donor controversies at George Mason University demonstrate the risks of blurred boundaries between private giving and academic autonomy.265
These incidents expose a regulatory vacuum. U.S. nonprofit law imposes only general fiduciary duties on trustees. There is no binding code of conduct or regulator empowered to review donor agreements for consistency with public interest objectives. By contrast, jurisdictions such as the United Kingdom enforce a public benefit requirement through charity regulators, and trustees are legally obligated to act solely in service of institutional purposes, not donor preferences.266
4. Declining Public Trust and Democratic Backlash
Surveys indicate a steady decline in public confidence in higher education. A 2024 Pew Research Center poll found that sixty-two percent of Americans supported increased governmental oversight of elite college governance, admissions, and resource use.267 Respondents across political affiliations expressed concern that universities prioritize prestige, rankings, and financial accumulation over public service. The disconnect between massive endowments and rising tuition levels has fueled perceptions of institutional divergence from public mission.
Government agencies have echoed these concerns. The Government Accountability Office reported in 2024 that data on endowment spending and social outcomes remains limited and inconsistent, complicating evaluations of charitable benefit.268 The Congressional Research Service has cataloged bipartisan interest in revising the tax treatment of universities to ensure that public subsidies yield measurable returns.269
5. Institutional Case Studies
Several high-profile institutions illustrate the sovereign charity model’s paradoxes. Harvard, with the nation’s largest endowment, contributes only a fraction of its theoretical property tax liability to the City of Boston under a voluntary PILOT agreement. Internal governance crises and leadership turnover have prompted scrutiny of its board structure and transparency practices.270 Yale’s tax exemption and landholdings have prompted litigation and legislative proposals in Connecticut, reflecting tensions between institutional wealth and municipal fiscal needs.271 Princeton settled litigation over its commercial patent activity by agreeing to an $18 million payment to local taxpayers, raising questions about the boundary between charitable activity and private enterprise.272 Stanford’s real estate development plans and technology industry partnerships have led to contentious negotiations with local governments over housing and community impacts.273 These examples reveal a consistent pattern: elite universities exercise broad discretion over matters of public concern, yet face no routine obligation to explain or justify their actions to affected communities.
6. Structural Implications and Doctrinal Relevance
As this Article argues, the sovereign charity model enables accountability arbitrage: universities accumulate wealth, restrict access, shape public policy, and make quasi-governmental decisions while avoiding the legal obligations associated with public institutions. The empirical record shows that resource concentration, governance opacity, and accountability gaps are not incidental but systemic features of the current legal framework. These realities animate the doctrinal puzzles and theoretical tensions explored in Parts IV.A through IV.D.
What emerges is a case for recalibrating the legal status of elite private universities to match their public footprint. The next Part synthesizes these findings and develops a normative framework for evaluating possible reforms.
G. Synthesis and Contradictions: The Sovereign Charity Paradox
The foregoing analysis reveals a structural puzzle at the core of elite private university governance: institutions with public missions and public privileges operate under frameworks that insulate them from public accountability. This section synthesizes the doctrinal, fiduciary, economic, and comparative findings of Parts IV.A through IV.F into a typology of contradictions that define the sovereign charity paradox. These contradictions explain both the legitimacy crisis facing elite higher education and the legal system’s limited capacity to address it.
1. Public Missions, Private Governance
Elite private universities serve functions of indisputable public value: cultivating democratic leadership, producing scientific and technological innovation, advancing the arts and humanities, and preserving cultural heritage. Yet they are governed as private corporations, with self-perpetuating boards and minimal external checks. This mismatch between public purpose and private governance enables a selective identity. Institutions invoke public service to justify tax exemptions and federal grants, but assert corporate autonomy to resist oversight. They navigate strategically between these identities, reaping the benefits of both while assuming the obligations of neither.
2. Subsidized as Charities, Behaving as Sovereigns
Legally, elite universities are classified as § 501(c)(3) educational charities. In practice, they function more like quasi-sovereigns. Their endowments resemble sovereign wealth funds. Their internal systems of discipline and policing exercise rulemaking and enforcement powers. Their international collaborations and research initiatives implicate national and global policy. Yet, unlike sovereign states, they are not accountable to voters, legislatures, or the public at large. The result is a fundamental contradiction: institutions treated in law as subordinate charities operate in fact as autonomous public actors.274
3. Fiduciary Ideals, Accountability Gaps
University leaders frequently describe their responsibilities in fiduciary terms, speaking of sacred trusts, public missions, and obligations to society. But as Part IV.B illustrated, the mechanisms for fiduciary enforcement are exceedingly weak. State attorneys general retain formal oversight powers but rarely exercise them. Stakeholders, including students, faculty, and donors, typically lack standing. Courts defer broadly to board discretion under the business judgment rule. The law extends fiduciary language without the tools to test or enforce compliance. This dynamic results in mission dilution and drift, as institutions prioritize prestige and preservation over public benefit.
4. Constitutional Protection, Diminished Obligation
Elite universities assert constitutional protections, such as academic freedom under the First Amendment and contract rights under Dartmouth College, to resist governmental oversight. At the same time, they disclaim the corresponding constitutional obligations that bind public actors, including free speech guarantees, due process requirements, and equal protection norms. Unless compelled by federal funding conditions or internal policy, they are not bound to apply these protections within their own institutions. This one-sided invocation of constitutional principles produces an asymmetry: legal doctrines shield universities from regulation but do not constrain their internal authority.
5. Market Failure, Moral Hazard
The nonprofit status and extensive public subsidies that support elite universities insulate them from competitive pressures. They face minimal risk of failure, enjoy stable demand, and benefit from tax-exempt revenue streams and federal aid. This insulation fosters moral hazard. Institutions are incentivized to raise tuition, prioritize capital projects, and accumulate endowment wealth, confident that public dollars and prestige will buffer any consequences. Ironically, the universities most capable of financial independence are those least subject to market discipline.
6. Symbolic Public Interest, Substantive Self-Interest
The nonprofit university’s privileges are justified in law by its commitment to public purposes. In practice, however, many institutional behaviors reflect private priorities: cultivating donor influence, maximizing rankings, expanding administrative power, and managing reputational risk. As Part IV.F demonstrated, endowments frequently operate as investment vehicles rather than engines of educational access. Admissions policies favor legacy status and elite networks. Governance structures exclude affected constituencies. This Article terms such behavior accountability arbitrage: the exploitation of legal and regulatory boundaries to maximize public subsidy while minimizing public obligation.
These contradictions justify treating elite private universities as a distinct analytic category—the sovereign charity—because neither traditional legal form, whether private charity or public agency, adequately captures their hybrid character. This analytic framework explains why reform has proven so difficult. Proposals for transparency, oversight, or redistribution are met with shifting defenses: the university is private when autonomy is at stake and public when privilege is at risk.
Recognizing these paradoxes is not merely descriptive. It clarifies the stakes of inaction. If these contradictions persist, they threaten the long-term legitimacy of elite higher education. As institutional wealth grows and access narrows, public trust erodes. Without credible mechanisms for accountability, universities risk losing the social license that underpins their tax-exempt and subsidized status. Mission drift becomes not an aberration but a structural feature.
The next Part turns from diagnosis to prescription. Part V proposes a normative framework for reform that respects the distinctive role of elite universities while demanding that privilege be matched by enforceable public obligation. If autonomy is to be preserved, it must be earned through legal structures that restore alignment between institutional power and public trust.
Part V. Toward Legitimate University Governance
Elite private universities stand at a crossroads where governance reform must reconcile two imperatives: legitimacy and design. This Part develops a flexible evaluative framework for reform grounded in Max Weber’s theory of authority and Elinor Ostrom’s institutional analysis. These foundational perspectives clarify why legitimacy matters in higher education governance, and how institutional structures can sustain or undermine it. By translating theory into practice, this framework equips scholars, policymakers, and institutional actors to evaluate governance reforms according to principled standards of legitimacy, accountability, and institutional resilience—rather than ideological preference or institutional inertia.
A. Theoretical Foundations: Authority and Institutional Design
Max Weber’s typology of legitimate authority identifies three ideal types: traditional, charismatic, and legal-rational.275 Traditional authority relies on historical continuity and inherited custom; charismatic authority on exceptional leadership or identity; legal-rational authority on formal rules, institutionalized procedures, and publicly recognized competence. For centuries, elite universities in the United States have operated largely on a blend of traditional and charismatic legitimacy—relying on reputation, endowment prestige, and self-perpetuating governance structures. But as these institutions receive massive public subsidy and perform essential public functions, legal-rational legitimacy has become increasingly necessary. Governance must rest not merely on heritage or symbolic authority, but on accountable, transparent, and reasoned institutional design.276
Elinor Ostrom’s Institutional Analysis and Development (IAD) framework complements Weber’s lens by offering a practical methodology for evaluating institutional rules and collective decision-making. Ostrom identifies three nested levels of governance: constitutional rules (who can participate and how authority is allocated), collective-choice rules (how decisions are made about procedures and policies), and operational rules (how day-to-day actions are structured). Institutions that survive and thrive, according to Ostrom, balance stability with adaptability, support participatory processes, and enable monitoring and feedback mechanisms at each level.277
Together, Weber and Ostrom illuminate both the why and the how of legitimate governance: Weber explains what gives institutions the moral and political authority to govern, while Ostrom provides tools for designing and sustaining that authority in complex, adaptive systems.
B. Criteria for Evaluating Governance Reforms
Building on these theories and leading nonprofit scholarship, this Part identifies four interdependent criteria for evaluating university governance reforms. Each reflects a distinct dimension of legitimacy and institutional design, while together forming a holistic framework for principled reform.
-
Accountability and Mission Fidelity.
Reforms should align institutional conduct with public mission and tax-exempt purpose. This includes fiduciary enforcement mechanisms, minimum distribution requirements, or enforceable mission-aligned reporting. -
Autonomy and Academic Freedom.
Reforms must preserve the university’s core autonomy over curriculum, research, and admissions. Legal-rational legitimacy does not mean state control; it means that autonomy is exercised within transparent, rule-bound, and reviewable parameters. -
Stakeholder Voice and Democratic Legitimacy.
Governance should provide meaningful participation for those most affected by institutional decisions, including faculty, students, and staff. This may include representative board seats, structured consultation, or empowered internal senates. -
Transparency and Institutional Expertise.
Reforms should improve access to financial, strategic, and governance information, and enhance decision-making through clearly defined fiduciary roles and public reporting standards.
These criteria are intended as a flexible evaluative compass, not an exhaustive checklist; future research and institutional experimentation may reveal additional dimensions of legitimacy or suggest refinements to these standards.
Reform proposals need not maximize all four criteria equally, but should be assessed for how they balance these values—acknowledging that trade-offs are inevitable, and legitimacy often depends on how such trade-offs are structured and justified.
C. Applying the Framework: Domains and Examples
The following table applies these criteria to leading reform proposals, highlighting how different approaches balance the values of accountability, autonomy, stakeholder voice, and transparency.
Reform Accountability Autonomy & Academic Freedom Stakeholder Voice Transparency & Expertise Comparative Examples ———————————- ——————– ——————————— ———————– —————————— —————————————————– Faculty/Student Trustees High Moderate High Moderate German co-determination; U.K. academic governance
Endowment Payout Mandate High Low/Moderate Low Moderate U.S. private foundation rules
Public Financial Reporting High High Moderate High Nonprofit hospitals; U.K. Charity Commission
Independent Oversight Body High Low Moderate High NY Regents (Adelphi); England’s Office for Students
- Internal Senate with Veto Powers Moderate Moderate High Moderate University of Cambridge, University of California
- ——————————————————————————————————————————————————————————————————
-
. Evaluating Reform Proposals Using Legitimacy Criteria
D. Reconnecting Doctrine to Governance Reform
Although elite universities are classified as charitable organizations under § 501(c)(3), doctrinal enforcement of mission fidelity and public benefit has been weak. The IRS’s “operational test” requires that a tax-exempt entity operate primarily in furtherance of its exempt purpose, but enforcement focuses on egregious abuse, not structural design. Similarly, state attorneys general possess broad parens patriae powers to ensure fiduciary compliance, but rarely invoke them to challenge insular governance or endowment hoarding.
The evaluative framework presented here offers a structure for sharpening these tools. For instance, a university that refuses to distribute endowment earnings, engages in minimal teaching or public benefit, and excludes all stakeholder voice could reasonably be scrutinized for failure to operate in furtherance of charitable purpose. Conversely, institutions that score highly across the four criteria—through transparent board practices, inclusive governance, and mission-aligned spending—could be shielded from undue regulatory intrusion. The framework helps distinguish bad actors from strong stewards, and clarifies what legal obligations should entail in practice.
In this way, the framework advances not only institutional accountability but also the broader ideals of procedural legitimacy and the rule of law, ensuring that governance reforms are both principled and practically enforceable.278
E. Future Research and Reform Agenda
This framework is not a blueprint but a heuristic—a tool for analysis and refinement. Future work should test, adapt, and extend it across institutional types, jurisdictions, and legal contexts. This Part concludes with four priority areas for further engagement:
-
Model Charters and Voluntary Governance Codes.
Universities, accreditors, or associations could adopt model governance codes aligned with the four criteria. These voluntary compacts—similar to public company codes or foundation guidelines—would reinforce norms of transparency, participation, and accountability without triggering constitutional concerns. -
IRS and State Regulatory Guidance.
Agencies could issue interpretive guidance clarifying how § 501(c)(3)’s operational test or fiduciary duties apply in university settings. This might include new Schedule D questions on mission-aligned expenditures, stakeholder engagement, or board composition, drawing from comparative nonprofit regimes. -
Comparative and Empirical Studies.
Scholars should empirically assess whether universities that adopt participatory governance or higher transparency enjoy greater public trust, lower litigation risk, or improved outcomes. Comparative studies of U.S., Canadian, British, and German institutions can test the generalizability of the framework across legal and cultural systems. -
Doctrinal and Constitutional Reappraisal.
Legal scholars might revisit the scope of Trustees of Dartmouth College v. Woodward in light of contemporary public funding, functional publicness, and hybrid legal status. Courts could reconsider the appropriate limits of Contract Clause immunity where sovereign-like entities exercise public functions without public constraint.
Ultimately, this framework is offered as a principled, transferable structure for evaluating governance reforms—one that invites ongoing scholarly dialogue, empirical testing, and collaborative refinement to ensure that sovereign charities sustain public trust while preserving their educational mission.
Conclusion
Elite private universities occupy a singular position in American law: privately governed yet publicly subsidized, entrusted with public purposes but often insulated from public accountability. This Article has shown that these institutions function as sovereign charities, hybrid entities that combine the autonomy of private foundations with the privileges and expectations of public institutions. Recognizing this unique status clarifies both the value these universities provide and the risks they pose when legal structures fail to align privilege with responsibility.
Across five Parts, the Article traced the historical evolution, subsidy architecture, governance challenges, doctrinal tensions, and normative pathways that define the sovereign charity paradox. The concept of the sovereign charity serves as a constructive analytic lens, clarifying why these universities are exceptional, explaining how law enables their structure, and outlining the principles that should guide reform. Rather than collapsing the distinction between public and private, this framework supports a principled pluralism that respects institutional autonomy while ensuring that public benefits are tied to public commitments.
The Article contributes a normative structure that is both theoretically grounded and practically adaptable. It translates foundational insights from Weber and Ostrom into four legitimacy-based criteria: accountability, autonomy, stakeholder voice, and transparency, and demonstrates how these can be applied to evaluate governance proposals across domains and jurisdictions. This approach also reconnects legal doctrine to institutional design, showing how tax law, fiduciary principles, and regulatory discretion can reinforce or undermine public trust.
The implications of this analysis extend beyond elite universities to the broader landscape of hybrid institutions—nonprofit hospitals, private foundations, and public-benefit corporations—that blur public-private boundaries and face similar accountability challenges. Future work can extend this foundation in multiple directions: comparative scholars can test the sovereign charity framework in other national contexts; empirical researchers can examine how specific reforms affect mission fidelity, public confidence, and institutional resilience; doctrinal analysis can refine how legal categories respond to the governance of quasi-public entities; and policymakers can use this structure to design context-sensitive, legitimacy-enhancing reforms.
The governance of American universities has never been static. This Article offers a path forward that builds on tradition, not by dismantling independence, but by aligning privileges with principles of accountability, participation, and transparency. The sovereign charity paradigm fosters continued scholarly dialogue, institutional innovation, and public engagement. Only by rooting legal privileges in renewed public trust can universities continue to fulfill their essential public mission in the century ahead. The future of university governance—and of public trust in these institutions—depends on our willingness to align privilege with responsibility.
∴
-
Professor of Law, University of New Hampshire Franklin Pierce School of Law;\ Director, Program on Organizations, Business and Markets at NYU Law’s Classical Liberal Institution;\ JD, University of Chicago School of Law; BA, University of Florida. ↩
-
U.S. Government Accountability Office, College and University Endowments: Data Limitations and Transparency Issues, GAO-24-105812 (2024); John D. Colombo, Reforming Tax Subsidies for Higher Education, 55 Nat’l Tax J. 99, 100–12 (2002). ↩
-
Dana Brakman Reiser, Blended Enterprise and the Dual Mission Dilemma, 35 Vt. L. Rev. 105, 108–12 (2010); Henry Hansmann, The Role of Nonprofit Enterprise, 89 Yale L.J. 835, 836–39 (1980). ↩
-
Ofer Eldar, The Role of Social Enterprise and Hybrid Organizations, Harv. L. Sch. Forum on Corp. Governance (Feb. 3, 2014), [https://corpgov.law.harvard.edu/2014/02/03/the-role-of-social-enterprise-and-hybrid-organizations/]{.underline}. ↩
-
John R. Thelin, A History of American Higher Education 24–45 (2011); Evelyn Brody, Whose Public? Parochialism and Public Participation in the Charitable Sector, 79 Ind. L.J. 937, 951–54 (2004). ↩
-
Trustees of Dartmouth Coll. v. Woodward, 17 U.S. (4 Wheat.) 518 (1819) (holding that the charter of Dartmouth College was a contract protected from state interference under the Contract Clause). ↩
-
Evelyn Brody, Charity Governance: The Institutional Design of U.S. Nonprofits, 80 Chi.-Kent L. Rev. 641, 645–50 (2005) (analyzing Dartmouth’s legacy for institutional autonomy). ↩
-
National Center for Education Statistics, Summary by School Type (2024); U.S. Census Bureau, State Government Finances (2024). ↩
-
Association of Governing Boards of Universities and Colleges, Principles of Trusteeship (2020); Judith Areen, Governing Board Accountability: An Update on the Law and Its Implications, 36 J.C. & U.L. 691, 695–96 (2010); State ex rel. Nixon v. St. Louis College of Pharmacy, 926 S.W.2d 339, 345 (Mo. 1996). ↩
-
I.R.C. § 4942 (2024); Internal Revenue Service, Private Foundations—Treatment of Qualifying Distributions, [https://www.irs.gov/charities-non-profits/private-foundations-treatment-of-qualifying-distributions-irc-4942h]{.underline}; Philanthropy Roundtable, The Truth About Private Foundations and the 5 Percent Payout Rule (2024). ↩
-
American Hospital Association, Hospital Accountability Fact Sheet (2024); IRS Notice 2011-52, 2011-30 I.R.B. 60. ↩
-
U.S. Government Accountability Office, supra note 1, at 17–21; Leslie, Trusting Trustees: Fiduciary Duties and the Board of Trustees of Nonprofit Organizations, 94 Geo. L.J. 67, 97–100 (2005); Daniel R. Fischel & John H. Langbein, Corporate Governance and Nonprofit Organizations, 93 Colum. L. Rev. 857, 875–77 (1993). ↩
-
David Pozen, Jeremy K. Kessler & Charles Barzun, Working Themselves Impure: A Life Cycle Theory of Legal Theories, 100 U. Chi. L. Rev. 703, 719–28 (2023) (introducing concept of doctrinal drift in legal regimes); Colombo, supra note 1, at 105–12. ↩
-
Evelyn Brody, Whose Public?, supra note 4, at 949–53. ↩
-
Brody, Charity Governance, supra note 6, at 645–50; Fischel & Langbein, supra note 11, at 875–77 (explaining the concept of a "legal chimera" as an entity composed of incompatible or conflicting legal elements). ↩
-
Colombo, supra note 1, at 112–16; Andrew P. Morriss, What If Universities Had Actual Trustees?, 2014 U. Ill. L. Rev. 173, 185–90 (2014); Leslie, supra note 11, at 97–100. ↩
-
U.S. Government Accountability Office, supra note 1; National Center for Education Statistics, Summary by School Type (2024); Do State Subsidies for Public Universities Favor the Affluent?, Nat’l Tax J. (2024). ↩
-
Pew Research Center, Public Skepticism of Higher Education Funding (2025); Daniel Hopkins, The American Public and Higher Education: Belief and Distrust, 37 J. Pub. Pol’y 233, 235–36 (2025); Congressional Research Service, Public Attitudes Toward Higher Education 1–3 (2024). ↩
-
Derek Bok, Higher Education in America 1–3 (2d ed. 2020); William G. Tierney, The Impact of the Crisis in Higher Education on Academic Governance, 45 Higher Educ. 451, 451–52 (2003); Benjamin Ginsberg, The Fall of the Faculty: The Rise of the All-Administrative University and Why It Matters 1–5 (2011); David W. Breneman, The Crisis of the Liberal Arts College, 32 Change 46, 46–49 (2000); Matthew T. Lambert, Privatization and the Public Good: Public Universities in the Balance 3–7 (2014); Andrew Delbanco, College: What It Was, Is, and Should Be xi–xii (2012); John R. Thelin, A History of American Higher Education 315–22 (3d ed. 2019) (collecting sources describing the "crisis" in higher education). ↩
-
Hansmann, supra note 2, at 836–39; Brody, Whose Public?, supra note 4, at 945; Pozen et al., supra note 12, at 705–08. ↩
-
Pozen et al., supra note 12, at 719–28; Colombo, supra note 1, at 105–12. ↩
-
John R. Thelin, A History of American Higher Education 24–45 (2011) (describing the colonial colleges’ religious and civic foundations and reliance on public charters and subsidies); see also Evelyn Brody, Whose Public? Parochialism and Public Participation in the Charitable Sector, 79 Ind. L.J. 937, 945–49 (2004) (tracing early conceptions of colleges as quasi-public charities and the subsequent decline of direct public oversight). ↩
-
Id. ↩
-
Evelyn Brody, Whose Public? Parochialism and Public Participation in the Charitable Sector, 79 Ind. L.J. 937, 938–39 (2004) (noting that state attorneys general, under the English common-law tradition of parens patriae, have the power “to oversee the performance of charitable trusts and their fiduciaries”); see also Marion R. Fremont-Smith, Governing Nonprofit Organizations: Federal and State Law and Regulation 34–35 (2004) (explaining the historical role of courts and attorneys general in supervising charities). ↩
-
Trustees of Dartmouth Coll. v. Woodward, 17 U.S. (4 Wheat.) 518, 626–27 (1819) (Marshall, C.J.) (holding that the charter granted to Dartmouth College was a contract protected by the Contracts Clause and could not be unilaterally altered by the state). ↩
-
See id. at 536–37 (describing New Hampshire’s legislative acts to amend the charter and convert Dartmouth into a state university). ↩
-
Id. at 627 (emphasizing that a corporation established by private donors for general charity remains a private corporation in law). ↩
-
Id. at 650–51 (declaring the state’s act unconstitutional and void for impairing the obligation of contracts). ↩
-
Id. at 669 (Story, J., concurring) (explaining that a college “although dedicated by its charter to general charity” is a private enterprise). ↩
-
Id. at 651 (majority opinion) (invalidating the state’s attempt to alter the charter). ↩
-
Id. at 671–72 (Story, J., concurring) (warning that state control would extinguish private philanthropy). ↩
-
Id. ↩
-
Marion R. Fremont-Smith, Governing Nonprofit Organizations: Federal and State Law and Regulation 153 (2004) (observing that Dartmouth College established legislative power over charities “is not absolute”). ↩
-
Evelyn Brody, Charity Governance: The Institutional Design of U.S. Nonprofits, 80 Chi.-Kent L. Rev. 641, 645–50 (2005) (analyzing how Dartmouth College enshrined the autonomy of charitable corporations from state intervention). ↩
-
See id. at 651; see also Bruce A. Campbell, Dartmouth College as a Civil Liberties Case: The Formation of Constitutional Policy, 70 Ky. L.J. 643, 654–56 (1982) (discussing Dartmouth’s influence on general corporation law). ↩
-
Id. at 650 (noting the “design” of university governance established by Dartmouth). ↩
-
Act of July 2, 1862, ch. 130, 12 Stat. 503 (Morrill Act) (donating federal lands to states to endow colleges for agriculture and the mechanic arts); see National Archives, Morrill Act (1862) (explaining that the Morrill Act “made it possible for states to establish public colleges funded by the…sale of associated federal land grants”). ↩
-
Second Morrill Act of 1890, ch. 841, 26 Stat. 417, 418 (1890) (conditioning funding on racially inclusive admissions or separate institutions for Black students); see National Archives, Morrill Act (1862). ↩
-
Servicemen’s Readjustment Act of 1944, Pub. L. No. 78-346, 58 Stat. 284, 287 (G.I. Bill) (providing tuition and stipends for veterans); U.S. Department of Defense, 75 Years of the GI Bill: How Transformative It’s Been (Jan. 10, 2019). ↩
-
I.R.C. § 501(c)(3) (1954 & as amended) (exempting from federal income tax corporations “organized and operated exclusively for…educational purposes”); Henry Hansmann, Why Are Colleges and Universities Exempt from Taxes? (Nat’l Ctr. on Philanthropy & the Law Conference Paper, 2013) (manuscript at 9–10) (arguing that the tax exemption for nonprofit universities functions as a subsidy because it boosts endowment growth). ↩
-
Henry Hansmann, Why Are Colleges and Universities Exempt from Taxes? (Nat’l Ctr. on Philanthropy & the Law Conference Paper, 2013) (manuscript at 9–10) (explaining that “the government is effectively subsidizing endowment accumulation, and a substantial fraction of the money in university endowments essentially comes from taxpayers”). ↩
-
Congressional Research Service, College and University Endowments: Overview and Tax Policy Options 3–4, 13–14 (2018), [https://sgp.fas.org/crs/misc/R44293.pdf]{.underline} (estimating that the charitable deduction for donations to education reduces federal revenue by $10.5 billion annually and noting that the tax-exempt status of university endowment earnings allows untaxed growth on assets now totaling in the hundreds of billions of dollars). ↩
-
Joint Comm. on Taxation, Estimates of Federal Tax Expenditures for Fiscal Years 2022–2026, at 30–34 (JCS-1-23, Dec. 2022) (itemizing education-related tax expenditures, including the charitable deduction for gifts to education and the exclusion of interest on private university bonds, cumulatively amounting to several billion dollars annually); Congressional Research Service, College and University Endowments: Overview and Tax Policy Options, at 6–7 (2015) (noting that endowment assets of U.S. colleges exceeded $500 billion in 2008 and grew substantially in the 2010s, and that endowment wealth is highly concentrated among a small percentage of institutions). ↩
-
See, e.g., Rendell-Baker v. Kohn, 457 U.S. 830, 840–43 (1982) (holding that a private school’s receipt of public funds and performance of a public education function did not make its employment decisions state action for constitutional purposes); cf. Alan Schwarz, Expanding the State Action Doctrine, Especially in the Area of Education, 16 Wash. U. J.L. & Pol’y 223, 223–30 (2004) (discussing the general principle that even heavily funded or regulated private institutions—such as universities—are not ordinarily subject to constitutional constraints absent a showing that their actions are “fairly attributable” to the state). ↩
-
Henry Hansmann, Why Are Colleges and Universities Exempt from Taxes? (Nat’l Ctr. on Philanthropy & the Law Conference Paper, 2013) (arguing that the tax exemption for nonprofit universities is best understood as a form of public subsidy); John D. Colombo, Reforming Tax Subsidies for Higher Education, 55 Nat’l Tax J. 99, 100–12 (2002) (describing the scale and structure of public subsidy for higher education); Evelyn Brody, Whose Public? Parochialism and Public Participation in the Charitable Sector, 79 Ind. L.J. 937, 945–49 (2004) (discussing the accountability gaps in the legal treatment of educational charities). ↩
-
I.R.C. § 501(c)(3) (2024) (exempting from federal income tax corporations “organized and operated exclusively for…educational purposes”). ↩
-
I.R.C. § 170 (2024) (allowing donors to deduct charitable contributions to qualifying educational institutions). ↩
-
Congressional Research Service, College and University Endowments: Overview and Tax Policy Options 3–4 (2018) (estimating that the charitable deduction for donations to education reduces federal revenue by $10.5 billion annually, with a marginal rate of up to 37%). ↩
-
Evelyn Brody, Whose Public? Parochialism and Public Participation in the Charitable Sector, 79 Ind. L.J. 937, 947–48 (2004) (discussing property tax exemption for university real estate). ↩
-
Deirdre Fernandes, Harvard’s property tax exemption cost Boston and Cambridge $158 million in 2023, Boston Globe, Feb. 2024. ↩
-
City of Cambridge, FY2023 PILOT Report (showing Harvard’s $4.3 million payment in lieu of taxes compared to assessed liability). ↩
-
National Council of State Legislatures, State Tax Exemptions for Nonprofit Higher Education Institutions (2023). ↩
-
I.R.C. § 145 (2024) (authorizing tax-exempt bond financing for 501(c)(3) educational institutions); Internal Revenue Service, Tax-Exempt Bonds for 501(c)(3) Organizations (2023). ↩
-
Harvard University, Financial Report 2023, at 19–21 (detailing recent tax-exempt bond issuances). ↩
-
U.S. Dep’t of Educ., Federal Student Aid Data Center (2024); Nat’l Sci. Found., Higher Education Research and Development Survey: FY 2023. ↩
-
U.S. Dep’t of Educ., Title IV Program Volume Reports, 2024–25. ↩
-
Nat’l Sci. Found., Higher Education Research and Development Survey: FY 2023 (showing $45 billion in federal science and engineering support). ↩
-
Anemona Hartocollis, U.S. Freezes $2 Billion in Federal Funds to Harvard Amid Dispute, N.Y. Times, Jan. 2025. ↩
-
I.R.C. § 501(c)(3); see also Henry Hansmann, Why Are Colleges and Universities Exempt from Taxes? (Nat’l Ctr. on Philanthropy & the Law Conference Paper, 2013) (manuscript at 9–10). ↩
-
Harvard University, Financial Report 2023, at 5–7. ↩
-
I.R.C. § 4968 (2024) (imposing 1.4% excise tax on net investment income of certain private colleges and universities). ↩
-
Joint Comm. on Taxation, Overview of the Federal Tax System as in Effect for 2023 17 (JCS-1-23, Feb. 2024). ↩
-
Id. (comparing excise tax revenue to hypothetical corporate tax liability). ↩
-
Deirdre Fernandes, MIT’s Tax Breaks Outstrip UMass State Funding, Boston Globe, Mar. 2024. ↩
-
Henry Hansmann, Why Are Colleges and Universities Exempt from Taxes? (Nat’l Ctr. on Philanthropy & the Law Conference Paper, 2013) (arguing that the tax exemption for nonprofit universities is best understood as a form of public subsidy). ↩
-
UK Charity Commission, Charity Reporting and Accounting: The Essentials (2023); Bundesministerium der Finanzen (Germany), Gemeinnützigkeitsrecht (2024); Canada Revenue Agency, Guidance on Community Benefit for Registered Charities (2023). ↩
-
I.R.C. § 4942 (2024) (requiring private foundations to distribute at least 5% of assets annually for charitable purposes). ↩
-
I.R.C. §§ 4941–4945 (2024) (penalizing self-dealing, excess business holdings, and other abuses by private foundations). ↩
-
I.R.C. § 501(r) (2024); Patient Protection and Affordable Care Act, Pub. L. No. 111-148, § 9007, 124 Stat. 119, 855–58 (2010). ↩
-
I.R.C. § 509(a)(1), (2) (2024) (defining public charities and exempting them from private foundation rules). ↩
-
Harvard University, Financial Report 2023, at 12–14 (reporting annual endowment payout rates); see also National Association of College and University Business Officers, 2023 NACUBO-TIAA Study of Endowments 34–35 (2024). ↩
-
I.R.C. § 501(c)(3) (2024). ↩
-
Internal Revenue Service, Tax-Exempt Status for Your Organization 3–5 (2023). ↩
-
I.R.C. § 509(a)(1), (2). ↩
-
I.R.C. § 4958 (2024). ↩
-
Internal Revenue Service, Final Report: Colleges and Universities Compliance Project 7–10 (2015). ↩
-
Id. at 12–13 (noting widespread use of comparability data to justify executive compensation). ↩
-
John D. Colombo, Reforming Tax Subsidies for Higher Education, 55 Nat’l Tax J. 99, 110 (2002). ↩
-
Trustees of Dartmouth Coll. v. Woodward, 17 U.S. (4 Wheat.) 518, 627–28 (1819). ↩
-
Evelyn Brody, Charity Governance: The Institutional Design of U.S. Nonprofits, 80 Chi.-Kent L. Rev. 641, 645–50 (2005). ↩
-
Chronicle of Higher Education, “California AG Ends Inquiry into USC Endowment Controversy,” Apr. 2023. ↩
-
Urban Institute, State Regulation and Enforcement in the Charitable Sector 22–24 (2016) (finding that most states require reporting but rarely pursue formal enforcement). ↩
-
Colombo, supra note 78, at 111–12. ↩
-
Endowment Tax Fairness Act, H.R. 446 119th Cong. (2025) (proposed). ↩
-
Joint Committee on Taxation, Estimated Revenue Effects of the Endowment Tax Fairness Act 2 (2025). ↩
-
Endowment Accountability Act, H.R. 1128, 119th Cong. (2025) (proposed). ↩
-
Joint Committee on Taxation, Estimated Revenue Effects of Budget Proposals 3 (2025). ↩
-
Chronicle of Higher Education, “Universities Mobilize Against Proposed Endowment Taxes,” Feb. 2025. ↩
-
National Association of College and University Business Officers & TIAA, 2023 NACUBO-TIAA Study of Endowments 6–8 (2024). ↩
-
Id. at 7; see also Harvard University, Financial Report 2023, at 4–5. ↩
-
Id. at 10; see also Pew Research Center, Public Skepticism of Higher Education Funding 5 (2025). ↩
-
Joint Committee on Taxation, Overview of the Federal Tax System as in Effect for 2023 18 (JCS-1-23, Feb. 2024). ↩
-
National Science Foundation, Higher Education Research and Development Survey: FY 2023 (2024). ↩
-
U.S. Dep’t of Educ., Title IV Program Volume Reports, 2024–25. ↩
-
Id.; see also National Center for Education Statistics, Digest of Education Statistics: 2024 tbl. 303.10. ↩
-
Congressional Research Service, College and University Endowments: Overview and Tax Policy Options 13–14 (2018). ↩
-
Harvard University, Financial Report 2023, at 6; Stanford University, 2022–23 Annual Report, at 3. ↩
-
Joint Committee on Taxation, Estimates of Federal Tax Expenditures for Fiscal Years 2022–2026 34–35 (JCS-1-23, Dec. 2022). ↩
-
Pew Research Center, Public Skepticism of Higher Education Funding 7 (2025). ↩
-
National Association of College and University Business Officers & TIAA, 2023 NACUBO-TIAA Study of Endowments 14–15 (2024). ↩
-
I.R.C. § 501(c)(3) (2024); see also Henry Hansmann, Why Are Colleges and Universities Exempt from Taxes? (Nat’l Ctr. on Philanthropy & the Law Conference Paper, 2013) (manuscript at 12–13). ↩
-
Urban Institute, State Regulation and Enforcement in the Charitable Sector 22–24 (2016) (finding that most states require reporting but rarely pursue formal enforcement). ↩
-
Chronicle of Higher Education, California AG Ends Inquiry into USC Endowment Controversy, Apr. 2023, at 1. ↩
-
UK Charity Commission, Charity Reporting and Accounting: The Essentials (2023); Bundesministerium der Finanzen (Germany), Gemeinnützigkeitsrecht (2024). ↩
-
Internal Revenue Service, Final Report: Colleges and Universities Compliance Project 7–10 (2015); IRS, Exempt Organizations Annual Report 2023, at 15. ↩
-
Id. at 12–13. ↩
-
Daniel Golden, Princeton’s $90 Million Donor Lawsuit Settlement: A Cautionary Tale, Wall St. J., Dec. 10, 2008, at A1. ↩
-
Congressional Research Service, College and University Endowments: Overview and Tax Policy Options 3–4 (2018) (analyzing tax subsidies and property tax relief for elite universities); Deirdre Fernandes, Harvard's property tax exemption cost Boston and Cambridge $158 million in 2023, Boston Globe, Feb. 2024 (reporting on municipal revenue effects of university tax exemption). ↩
-
I.R.C. § 4942 (2024) (imposing 5% annual payout requirement on private foundations); I.R.C. § 501(r) (2024) (conditioning hospital tax exemption on provision of community benefit). ↩
-
Endowment Tax Fairness Act, H.R. 446, 119th Cong. (2025) (proposed) (would increase endowment tax rate to 21%); Endowment Accountability Act, H.R. 1128, 119th Cong. (2025) (proposed) (would lower threshold for endowment taxation and mandate greater payout). ↩
-
National Association of College and University Business Officers & TIAA, 2023 NACUBO-TIAA Study of Endowments 10 (2024) (reporting that top 20 universities hold about half of all endowment wealth). ↩
-
UK Charity Commission, Charity Reporting and Accounting: The Essentials (2023) (requiring universities to demonstrate public benefit and undergo regular audit). ↩
-
Bundesministerium der Finanzen (Germany), Gemeinnützigkeitsrecht (2024) (imposing transparency requirements and ministerial oversight on German universities); Canada Revenue Agency, Guidance on Community Benefit for Registered Charities (2023) (conditioning Canadian university tax exemption on measurable community benefit). ↩
-
Charter of 1650, Harvard College, reprinted in Samuel Eliot Morison, Three Centuries of Harvard 28–29 (Harvard Univ. Press 1936) (establishing the first American corporation and vesting legal authority in the President and Fellows, with perpetual succession). ↩
-
Id. (granting “power and authority...to choose and appoint...such Officers and Servants...as they shall think fit...for ever hereafter”). ↩
-
Charter of 1745, Yale College, reprinted in George W. Pierson, Yale: A Short History app. A at 295–96 (Yale Univ. Press 1979) (centralizing power in the President and Fellows, with authority to make rules and appoint all officers). ↩
-
Charter of 1764, Brown University, in Encyclopedia Brunoniana (Brown Univ. Library, 2004) (vesting government and management in self-replicating fellows and trustees). ↩
-
Charter of 1746, The College of New Jersey (Princeton), reprinted in Thomas Jefferson Wertenbaker, Princeton, 1746–1896 67–68 (Princeton Univ. Press 1946) (vesting trustees with perpetual succession and the power to govern, appoint, and remove officers at will). ↩
-
E.g., Charter of 1755, University of Pennsylvania, in Pennsylvania Colonial and Revolutionary Records, vol. 4, at 456–59 (1875) (Board of Trustees with power of self-perpetuation and full control); Charter of 1754, Columbia College, in Columbia University Statutes 2–5 (2023) (original charter granting board perpetual authority). ↩
-
By-Laws, Yale Univ. (as approved Sept. 30, 2023), [https://www.yale.edu/board-trustees/governance-historic-documents/laws]{.underline} (describing composition and selection of Corporation members; confirming enduring self-perpetuating core). ↩
-
Id. (affirming the President and Fellows’ power over all college management, lawmaking, and instruction). ↩
-
Harvard Univ., Bylaws of the President and Fellows of Harvard College arts. I–III (2023) (vesting the Corporation with property, appointment, and general management authority). ↩
-
Trustees of Dartmouth Coll. v. Woodward, 17 U.S. (4 Wheat.) 518, 627–28 (1819) (holding that college charters are contracts protected from legislative alteration; enshrining board autonomy). ↩
-
Id. at 669 (Story, J., concurring) (“a private eleemosynary corporation...is, in point of law, a private corporation although dedicated by its charter to general charity”). ↩
-
Bylaws of the Trustees of Princeton University art. I (2025) (ultimate board authority; advisory bodies have no binding power), [https://president.princeton.edu/bylaws-trustees-princeton-university]{.underline}. ↩
-
By-Laws of Yale University art. I, § 1 (2023) (board’s “supreme control”), [https://www.yale.edu/board-trustees/governance-historic-documents/laws]{.underline}. ↩
-
Id. art. VII, § 2 (University Council is advisory only). ↩
-
Guide to the University Senate 2025–2026 at 3 (Columbia U. Senate advisory role), [https://senate.columbia.edu/sites/senate.columbia.edu/files/content/Primary%20Documents/Guide%20to%20the%20University%20Senate_2025-2026.pdf]{.underline}. ↩
-
University of Pennsylvania, “University Governance,” Office of the President (2024) (describing faculty/student advisory role), [https://president.upenn.edu/governance]{.underline}. ↩
-
Daniel Golden, Princeton’s $90 Million Donor Lawsuit Settlement: A Cautionary Tale, Wall St. J., Dec. 2008 (trustee testimony in Robertson v. Princeton litigation). ↩
-
Harvard Gazette, “Faculty No-Confidence Vote,” Jan. 2024 (no-confidence votes at Harvard, Yale, Penn have not produced binding change). ↩
-
Id. (Harvard Corporation response). ↩
-
Philadelphia Inquirer, “Penn Board Minutes,” Mar. 2024 (faculty/student votes “under advisement”). ↩
-
See, e.g., Academic Corporation: A History of College and University Governing Boards (summarizing lack of external requirements for private university governance). ↩
-
Higher Education and Research Act 2017, c. 29, § 6 (UK) (requiring representation of academic staff, students, and lay persons on university boards). ↩
-
Ontario Universities Act, R.S.O. 1990, c. U.15, § 8 (requiring open meetings and faculty/student board members). ↩
-
Hochschulrahmengesetz [Framework Act for Higher Education], § 41 (Ger.) (shared governance, external audit for universities receiving public funding). ↩
-
Statutes and Ordinances of the University of Cambridge ch. II, § 1, §§ 2–6 (2024) (alumni and academic staff voting on university governance). ↩
-
Higher Education and Research Act 2017, c. 29, § 6 (U.K.) (“The governing body of an institution must include representatives of the academic staff, students, and independent lay members, and must make provision for open meetings and transparent deliberations as specified by the Office for Students.”). ↩
-
Universities U.K., A Guide to Good Governance 15–17 (2023) (surveying staff and student board participation across sector). ↩
-
Times Higher Education, “Seven Vice-Chancellors Ousted After No-Confidence Votes, 2016–2024” (Apr. 2024) (summarizing high-profile resignations and governance interventions). ↩
-
University of Toronto Act, R.S.O. 1971, c. 70, § 2; see also McMaster University Act, 1976, c. 51 (Ont.). ↩
-
Canadian Association of University Teachers, Academic Governance in Canada 11–12 (2023) (documenting faculty and student participation in board decisions and outcomes). ↩
-
Hochschulgesetz Nordrhein-Westfalen [HG NRW] [Higher Education Act of North Rhine-Westphalia], as amended, § 22 (“Equal representation of professors and academic staff in university senates”); Wissenschaftsrat [German Science Council], Governance and Decision-Making in German Higher Education 24–25 (2021). ↩
-
University of Cambridge, Statutes and Ordinances, Statute A, ch. I, § 4 (2024), [https://www.admin.cam.ac.uk/univ/so/]{.underline} ("The University shall be governed, in accordance with the Statutes, by the Regent House, which shall be the governing body of the University, and by the Senate, which shall have such powers as are assigned to it by Statute."). ↩
-
Id. ch. II, §§ 1–2 (powers of the Regent House and Senate in governance, constitutional changes, and appointments). ↩
-
Tilly R. Robinson & Neil H. Shah, Faculty of Arts and Sciences Lacks Confidence in Harvard’s Governing Boards, Per Survey, HARVARD CRIMSON (Apr. 29, 2024), [https://www.thecrimson.com/article/2024/4/29/fas-lack-confidence-governing-boards/]{.underline}. ↩
-
Id. ↩
-
Id. ↩
-
Carrie Jung & Suevon Lee, Harvard Corporation Won’t Give Diplomas to 13 Students, Despite Faculty Vote, WBUR (May 22, 2024), [https://www.wbur.org/news/2024/05/22/harvard-corporation-student-protesters-graduation]{.underline}. ↩
-
Id. ↩
-
Settlement Retains Princeton’s Control, Use of Robertson Funds, PRINCETON UNIVERSITY (Dec. 10, 2008), [https://www.princeton.edu/news/2008/12/10/settlement-retains-princetons-control-use-robertson-funds]{.underline}. ↩
-
Id. ↩
-
John M. Goshko, N.Y. Regents Oust Board Over Adelphi President’s Role, WASH. POST, Feb. 11, 1997, at A1, [https://www.washingtonpost.com/archive/politics/1997/02/11/ny-regents-oust-board-over-adelphi-presidents-role/]{.underline}. ↩
-
Susan Kinzie & Valerie Strauss, Trustees Oust AU’s Ladner as President, WASH. POST, Oct. 11, 2005, at A8, [https://www.washingtonpost.com/archive/politics/2005/10/11/trustees-oust-aus-ladner-as-president/]{.underline}. ↩
-
Evelyn Brody, Whose Public? Parochialism and Paternalism in State Charity Law Enforcement, 79 IND. L.J. 937, 953–55 (2004). ↩
-
Stern v. Lucy Webb Hayes Nat’l Training Sch. for Deaconesses & Missionaries, 381 F. Supp. 1003, 1014 (D.D.C. 1974). ↩
-
Ellie Bothwell, Seven Vice-Chancellors Ousted After No-Confidence Votes, TIMES HIGHER EDUC. (Apr. 2024), [https://www.timeshighereducation.com/news/seven-vice-chancellors-ousted-after-no-confidence-votes]{.underline}. ↩
-
CANADIAN ASSOCIATION OF UNIVERSITY TEACHERS, Academic Governance in Canada 11–12 (2023), [https://www.caut.ca/sites/default/files/2023-06/governance_2023.pdf]{.underline}. ↩
-
WISSENSCHAFTSRAT (GERMAN SCIENCE COUNCIL), Governance and Decision-Making in German Higher Education 24–25 (2021), [https://www.wissenschaftsrat.de/download/2021/2021-06-18_Governance_Decision_Making.pdf?__blob=publicationFile&v=2]{.underline}. ↩
-
Tilly R. Robinson & Neil H. Shah, Faculty of Arts and Sciences Lacks Confidence in Harvard’s Governing Boards, Per Survey, HARVARD CRIMSON (Apr. 29, 2024), [https://www.thecrimson.com/article/2024/4/29/fas-lack-confidence-governing-boards/]{.underline}; Carrie Jung & Suevon Lee, Harvard Corporation Won’t Give Diplomas to 13 Students, Despite Faculty Vote, WBUR (May 22, 2024), [https://www.wbur.org/news/2024/05/22/harvard-corporation-student-protesters-graduation]{.underline}. ↩
-
Settlement Retains Princeton’s Control, Use of Robertson Funds, PRINCETON UNIVERSITY (Dec. 10, 2008), [https://www.princeton.edu/news/2008/12/10/settlement-retains-princetons-control-use-robertson-funds]{.underline}. ↩
-
John M. Goshko, N.Y. Regents Oust Board Over Adelphi President’s Role, WASH. POST, Feb. 11, 1997, at A1, [https://www.washingtonpost.com/archive/politics/1997/02/11/ny-regents-oust-board-over-adelphi-presidents-role/]{.underline}. ↩
-
Evelyn Brody, Whose Public? Parochialism and Paternalism in State Charity Law Enforcement, 79 IND. L.J. 937, 953–55 (2004); Melanie B. Leslie, Trusting Trustees: Fiduciary Duties and the Limits of Default Rules, 94 GEO. L.J. 67, 70–72 (2005). ↩
-
Stern v. Lucy Webb Hayes Nat’l Training Sch. for Deaconesses & Missionaries, 381 F. Supp. 1003, 1014 (D.D.C. 1974). ↩
-
Ellie Bothwell, Seven Vice-Chancellors Ousted After No-Confidence Votes, TIMES HIGHER EDUC. (Apr. 2024), [https://www.timeshighereducation.com/news/seven-vice-chancellors-ousted-after-no-confidence-votes]{.underline}; CANADIAN ASSOCIATION OF UNIVERSITY TEACHERS, Academic Governance in Canada 11–12 (2023), [https://www.caut.ca/sites/default/files/2023-06/governance_2023.pdf]{.underline}. ↩
-
WISSENSCHAFTSRAT (GERMAN SCIENCE COUNCIL), Governance and Decision-Making in German Higher Education 24–25 (2021), [https://www.wissenschaftsrat.de/download/2021/2021-06-18_Governance_Decision_Making.pdf?__blob=publicationFile&v=2]{.underline}. ↩
-
Independence, HILLSDALE COLLEGE (2023), [https://www.hillsdale.edu/about/independence/]{.underline}. ↩
-
Melanie B. Leslie, Trusting Trustees: Fiduciary Duties and the Limits of Default Rules, 94 GEO. L.J. 67, 70–72 (2005). ↩
-
Evelyn Brody, Whose Public? Parochialism and Public Participation in the Charitable Sector, 79 IND. L.J. 937, 945–49 (2004). ↩
-
See Part I, supra (tracing the legal and institutional history of American higher education). ↩
-
See Part II, supra (analyzing the legal regimes enabling public subsidy and private status). ↩
-
See Part III, supra (examining the governance architecture and oversight mechanisms currently in place). ↩
-
See Christian Turner, Models of Law, 2018 U. Ill. L. Rev. 1293, 1298–1304 (2018). ↩
-
See infra Section IV.A. ↩
-
See infra Section IV.B. ↩
-
See infra Section IV.C. ↩
-
See infra Section IV.D. ↩
-
See infra Part V (constructing a normative framework for evaluating reform); see also Joseph William Singer, Normative Methods for Lawyers, 66 UCLA L. Rev. 907, 910–11 (2019) (explaining the role of normative frameworks in legal evaluation). ↩
-
Evelyn Brody, The Board of Nonprofit Organizations: Puzzling Through the Gaps Between Law and Practice, 76 Fordham L. Rev. 521, 524–27 (2007). ↩
-
Trustees of Dartmouth Coll. v. Woodward, 17 U.S. (4 Wheat.) 518, 636–38 (1819). ↩
-
Id. at 669 (Marshall, C.J.). ↩
-
I.R.C. § 501(c)(3); see also Henry Hansmann, The Evolving Law of Nonprofit Organizations, 50 Emory L.J. 1189, 1192–94 (2001). ↩
-
Hansmann, supra note 211, at 1203–09; Brody, supra note 208, at 525–26. ↩
-
Marion R. Fremont-Smith, Governing Nonprofit Organizations: Federal and State Law and Regulation 63–66 (2004). ↩
-
Brody, supra note 208, at 531–33. ↩
-
Id.; see also In re Caremark Int’l Inc. Derivative Litig., 698 A.2d 959, 967–68 (Del. Ch. 1996). ↩
-
Rendell-Baker v. Kohn, 457 U.S. 830, 838–43 (1982). ↩
-
See, e.g., Sweezy v. New Hampshire, 354 U.S. 234, 250 (1957) (recognizing academic freedom as a constitutional value). ↩
-
Fremont-Smith, supra note 213, at 66–68. ↩
-
Henry Hansmann, Unfair Competition and the Unrelated Business Income Tax, 105 Yale L.J. 905, 911–12 (1996). ↩
-
Brody, supra note 208, at 533–36. ↩
-
Principles of the Law of Nonprofit Organizations: Charities § 320 (Am. Law Inst., Tentative Draft No. 1, 2007). ↩
-
Id. ↩
-
Evelyn Brody, Whose Public? Parochialism and Public Participation in the Charitable Sector, 79 Ind. L.J. 937, 948–52 (2004). ↩
-
State ex rel. Nixon v. St. Louis College of Pharmacy, 926 S.W.2d 339, 345 (Mo. Ct. App. 1996); Judith Areen, Governing Board Accountability: Competition, Regulation, and Accreditation, 36 J.C. & U.L. 691, 712 (2010). ↩
-
Evelyn Brody, Charity Governance: The Institutional Design of U.S. Nonprofits, 80 Chi.-Kent L. Rev. 641, 653–55 (2005); Smithers v. St. Luke’s-Roosevelt Hosp. Ctr., 723 N.Y.S.2d 426, 432–33 (N.Y. App. Div. 2001); Carol J. Loomis, The $60 Million Donation Scandal, Fortune, May 26, 2008. ↩
-
Brody, Whose Public?, supra note 223, at 948–52. ↩
-
Revised Model Nonprofit Corporation Act § 8.30 cmt. (1987). ↩
-
Areen, supra note 224, at 691–93. ↩
-
U.S. Gov’t Accountability Office, GAO-24-105812, College and University Endowments: Data Limitations and Transparency Issues 20–23 (2024). ↩
-
Ass’n of Governing Boards of Universities and Colleges (AGB), Principles of Trusteeship 11–15 (2020). ↩
-
Harvard Univ., Charter of the President and Fellows of Harvard College (1650, as amended); Harvard Univ., The Governing Boards (2023). ↩
-
Areen, supra note 224, at 691–93. ↩
-
Robert J. Rhee, The Tort Foundation of Duty of Care and Business Judgment, 88 Notre Dame L. Rev. 1139, 1140–42 (2013). ↩
-
Lyman Johnson, Faith and Faithfulness in Corporate Theory, 56 Cath. U. L. Rev. 1, 36–38 (2006). ↩
-
Andrew P. Morriss, What If University Trustees Acted Like Trustees?, 2014 U. Ill. L. Rev. 173, 179–83; Jill Horwitz & Kimberley Schraff, The Independence of Independent Colleges, in Charitable Foundations and Elite College Financing 24–26 (2019). ↩
-
Marion R. Fremont-Smith, Governing Nonprofit Organizations: Federal and State Law and Regulation 295 (2004). ↩
-
Brody, Charity Governance, supra note 225, at 653–55. ↩
-
Loomis, supra note 225. ↩
-
Brody, Charity Governance, supra note 225, at 653–55. ↩
-
Id. ↩
-
Ass’n of Governing Boards of Universities and Colleges (AGB), Principles of Trusteeship 11–15 (2020). ↩
-
Brody, Whose Public?, supra note 223, at 948–52. ↩
-
Paul A. Samuelson, The Pure Theory of Public Expenditure, 36 Rev. Econ. & Stat. 387, 387–89 (1954). ↩
-
Richard A. Musgrave, The Theory of Public Finance: A Study in Public Economy 8–10 (1959); I.R.C. § 501(c)(3) (2024). ↩
-
Weisbrod, supra note 245, at 32–35. ↩
-
Henry Hansmann, The Role of Nonprofit Enterprise, 89 Yale L.J. 835, 843–46 (1980). ↩
-
Id.; Weisbrod, supra note 245, at 35–36. ↩
-
Richard A. Posner, Economic Analysis of Law 134–36 (9th ed. 2014) (arguing that nonprofit status can reduce opportunism when quality is hard to observe). ↩
-
I.R.C. § 4968 (2024); Nic Querolo et al., Harvard’s $465 Million in Tax Benefits Draw New Scrutiny, Bloomberg (July 25, 2024). ↩
-
I.R.C. § 4942 (2024). ↩
-
2024 NACUBO-TIAA Study of Endowments, Average Effective Spending Rate (2024); John D. Colombo, Reforming the Tax Law of Charities in the Wake of the Tax Cuts and Jobs Act, 91 Chi.-Kent L. Rev. 895, 907–09 (2016). ↩
-
Brian Galle, Against Perpetual Endowment, 67 Tax L. Rev. 83, 85–90 (2013). ↩
-
Jay P. Greene & Matt Beienburg, The Poison Ivy League: How Taxpayers Subsidize Wealthy Universities, Heritage Found. Backgrounder No. 3817, at 18–20 (Oct. 19, 2023). ↩
-
Raj Chetty et al., Mobility Report Cards: The Role of Colleges in Intergenerational Mobility 24–25 (2017), available at [https://opportunityinsights.org]{.underline}. ↩
-
Id. ↩
-
Jack Stripling, Rich Schools, Poor Students, Chron. Higher Educ. (May 2, 2019). ↩
-
Phillip B. Levine & Geoffrey T. Sanzenbacher, Do State Subsidies for Public Universities Favor the Affluent?, 76 Nat’l Tax J. 109, 110–15 (2023). ↩
-
David F. Labaree, A Perfect Mess: The Unlikely Ascendancy of American Higher Education 168–69 (2017). ↩
-
Ralph Richard Banks et al., Private Universities in the Public Interest: Reimagining a Historic Relationship for Our Time 7–12 (Stanford Law School, 2024). ↩
-
Id. at 17–19. ↩
-
I.R.C. § 4942 (2024); U.S. Gov’t Accountability Office, GAO-24-105812, College and University Endowments: Data Limitations and Transparency Issues 29–32 (2024). ↩
-
John D. Colombo, Reforming the Tax Law of Charities in the Wake of the Tax Cuts and Jobs Act, 91 Chi.-Kent L. Rev. 895, 907–09 (2016); Evelyn Brody, Whose Public?, supra note 260, at 948–52; Brian Galle, Against Perpetual Endowment, supra note 253, at 85–90. ↩
-
Friedrich A. Hayek, The Constitution of Liberty 345–46 (1960). ↩
-
Id. at 350–52. ↩
-
Max Weber, Bureaucracy, in From Max Weber: Essays in Sociology 232–35 (H. Gerth & C. Wright Mills eds., 1946). ↩
-
Michael McPherson & Gordon Winston, The Economics of Academic Tenure: A Relational Perspective, 13 J. Econ. Behav. & Org. 163, 166–69 (1990); Benjamin Ginsberg, The Fall of the Faculty 1–6 (2011) (critiquing administrative bloat and internal interest group capture in universities). ↩
-
Ilya Shapiro & Patrick J. Wolf, Donor Intent Rules: The Case of the Duke Gift, 8 Engaged Scholarship J. 89, 90–95 (2021). ↩
-
Ethan J. Leib & Stephen R. Galoob, Fiduciary Political Theory: A Critique, 125 Yale L.J. 1820, 1823–27 (2016); Evan J. Criddle, Fiduciary Foundations of Administrative Law, 54 UCLA L. Rev. 117, 124–32 (2006). ↩
-
Am. Law Inst., Principles of the Law of Nonprofit Organizations: Charities § 315 cmt. a (Tentative Draft No. 1, 2007). ↩
-
Leib & Galoob, supra note 270, at 1825–27. ↩
-
Max Weber, Bureaucracy, in From Max Weber: Essays in Sociology 232–35 (1946). ↩
-
Pew Research Ctr., Public Skepticism of Higher Education Funding 4 (Apr. 2025). ↩
-
Elinor Ostrom, Governing the Commons 90–102 (1990). ↩
-
Evan Fox-Decent, Sovereignty’s Promise: The State as Fiduciary 3–5 (2011); Criddle & Fox-Decent, A Fiduciary Theory of Jus Cogens, 34 Yale J. Int’l L. 331, 344–50 (2009). ↩
-
Charity Commission for England and Wales, Public Benefit: The Public Benefit Requirement (2023) (explaining the statutory public benefit test for charities, including universities). ↩
-
Higher Education and Research Act 2017, c. 29 (UK); Office for Students, Regulatory Framework (2018) (detailing OfS powers and conditions for university registration). ↩
-
Office for Students, University of Sussex fined £585,000 for free speech and governance breaches (Mar. 26, 2025) (reporting OfS enforcement action for governance failures). ↩
-
Judith Areen, Governing Board Accountability: Competition, Regulation, and Accreditation, 36 J.C. & U.L. 691, 693–95, 710–11, 716–18 (2010) (describing German public law university model, state ministerial oversight, faculty codetermination, constitutional requirements, and rarity of private universities). ↩
-
University of Toronto Act, R.S.O. 1971, c. 70, § 2 (defining university governance structure and public purposes). ↩
-
Judith Areen, Governing Board Accountability, supra note 279, at 716–18 (contrasting Canadian pluralistic board governance and public accountability with U.S. private models). ↩
-
National Center for Education Statistics, Digest of Education Statistics 2022, Table 333.90 (2023). ↩
-
2024 NACUBO-TIAA Study of Endowments, Average Effective Spending Rate (2024). ↩
-
Harvard University, Financial Report 2024. ↩
-
Adam Looney & Victor Somville, How Much Do Tax-Exempt Organizations Benefit from Tax Exemption?, Tax Pol’y Ctr. Rsch. Rep. (July 27, 2022). ↩
-
Nic Querolo et al., Harvard’s $465 Million in Tax Benefits Draw New Scrutiny, Bloomberg (July 25, 2024). ↩
-
Tax Cuts and Jobs Act, Pub. L. No. 115-97, § 13701, 131 Stat. 2054 (2017) (codified at I.R.C. § 4968). ↩
-
Michael Stratford, Congress Returns to Scrutiny of Wealthy University Endowments, Inside Higher Ed (Jan. 2025). ↩
-
Jay P. Greene & Matt Beienburg, The Poison Ivy League: How Taxpayers Subsidize Wealthy Universities, Heritage Found. Backgrounder No. 3817, at 18–20 (Oct. 19, 2023). ↩
-
Raj Chetty et al., Mobility Report Cards: The Role of Colleges in Intergenerational Mobility 24–25 (2017). ↩
-
Students for Fair Admissions, Inc. v. President & Fellows of Harvard College, 600 U.S. 181 (2023). ↩
-
Chetty et al., supra note 290, at 25. ↩
-
2024_11_Private-Universities-in-the-Public-Interest-1.pdf (Stanford Law School White Paper). ↩
-
Evelyn Brody, Charity Governance: The Institutional Design of U.S. Nonprofits, 80 Chi.-Kent L. Rev. 641, 653–55 (2005). ↩
-
Charity Commission for England and Wales, Public Benefit: The Public Benefit Requirement (2023). ↩
-
Pew Research Ctr., Public Skepticism of Higher Education Funding 4 (Apr. 2025). ↩
-
U.S. Gov’t Accountability Office, GAO-24-105812, College and University Endowments: Data Limitations and Transparency Issues 29–32 (2024). ↩
-
Congressional Research Service, Tax Treatment of University Endowments, Rpt. No. R45495 (2024). ↩
-
City of Boston, Payments in Lieu of Taxes (PILOT) Program Summary (2024). ↩
-
Judith Areen, Governing Board Accountability: Competition, Regulation, and Accreditation, 36 J.C. & U.L. 691, 716–18 (2010). ↩
-
Judith Areen, supra note 300, at 711. ↩
-
Stanford University, Community Plan Update, [https://community.stanford.edu/planning]{.underline}. ↩
-
Jonathan Garton, The Unearned Privilege of Charity Law: How the Law Maintains the Privileges of Elites, 49 J. Educ. Admin. & Hist. 68, 70–73 (2017). ↩
-
Max Weber, Economy and Society 215–16 (Guenther Roth & Claus Wittich eds., Univ. of Cal. Press 1978). ↩
-
See supra Part IV.G; Henry Hansmann, The Role of Nonprofit Enterprise, 89 Yale L.J. 835, 843–45 (1980). ↩
-
Elinor Ostrom, Institutional Rational Choice: An Assessment of the Institutional Analysis and Development Framework, in Theories of the Policy Process 21, 28–30 (Paul A. Sabatier ed., 2d ed. 2007). ↩
-
Kevin Frazier, AI, the Rule of Law, and Outdated Legal Institutions and Practices, 19 J. Bus. & Tech. L. 331, 359 (2024). ↩