Donation to Higher Education

Nurturing the tradition of perpetual giving in European higher education. By David J. Celone

People from countries all over the world wonder why higher education organizations, indeed many not-for-profit organizations, in the United States have such remarkable perpetual and renewable sources of funding from their alumni and membership. 

I like to take a slightly more Euro-centric view of these annual giving programs so common among American not-for-profits, instead calling them "perpetual giving programmes."

As a result of tax laws that favor philanthropy in the United States, Americans receive tax benefits when they give to any organization that is recognized by the Internal Revenue Service as a 501(c)3 not-for-profit organization.  That is to say, any organization that has applied for and received the IRS non-profit status of 501(c)3, a reference to the U.S. Internal Revenue Code section that recognizes organizations that do charitable work, may accept gifts from donors and receipt them.   Donors receive a federal income tax deduction for their charitable giving.  In addition, there are other tax-wise giving vehicles that encourage philanthropy such as tax deductions for charitable gifts of stock held for more than one year allowing the donor to take a tax deduction for the full fair market value of the stock donated while foregoing any capital gains taxes otherwise required to be paid if the stock was sold on the open market.  Gifts of stock, in a way, provide donors of appreciated stock with a double tax benefit when compared to a straight charitable gift of cash.

It would appear that European charities could not possibly compete with their U.S counterparts for charitable gifts as a result of the favorable tax laws that exist in the U.S.  However, I would like to offer an opinion that would suggest exactly the contrary.

As it turns out, tax laws do provide a strong incentive for Americans to make charitable gifts of cash and stock.  There are also other types of giving vehicles in the estate planning realm that offer attractive tax advantages, but I will leave that discussion for a future article.  Suffice it to say, that while there are these tax incentives available to Americans, there is a strong argument in favor of charitable giving by Europeans even without tax-based incentives.

Giving to higher education in the U.S., particularly among the Ivy League schools (Brown, Columbia, Cornell, Harvard, Dartmouth, Harvard, Princeton, University of Pennsylvania, and Yale) is akin to a religion among many alumni.  Alumni of these schools, largely, make charitable gifts because of their love for their school, their affinity to the school, the culture of philanthropy at the school, and the competitive nature among and between classes at these schools.  Indeed, the culture of friendly rivalry for giving that exists between these schools can frequently rival the competetive nature of play on the sports playing field.  Annual giving directors talk about getting alumni into the habit of giving soon after graduating so that this habit, once cultivated and nurtured, will yield significant dividends of revenue in future years.

European schools would do well to emulate the model of habitual, or perpetual, giving by alumni at their U.S. counterparts.  The questions I would ask to alumni of European colleges and universities before I would suggest that a perpetual giving programme was right for that school are:

1. Do you love your school?
2. Did you establish relationships with classmates or professors that have helped you since graduation?
3. Do you hope future generations of students at your school will have the same or increased access to high-quality learning experiences as you?
4. Is faculty excellence in education important to you?
5. Do you believe that higher education is a key to better living standards?
6. Has your education helped you in any way?
7. Do you have a competitive spirit that suggests your school might be better than its neighboring school, that your class is better than those immediately preceding or succeeding it, or that a sporting team at your school is better than others in its league?
8. Did you enjoy your days as a student?
9. Do you place value on the learning experience you had when in school?
10. Do you recall fondly your days as a student?

If any of the above answers are positive, then the college or university has an opportunity to develop a successful perpetual giving programme.  Starting with current students to inform them of the programme and the needs of the school would be a small step towards building a strong perpetual campaign that asks recently graduated students to make a gift every year.  Developing a competition that measures one class against another would provide an incentive driven by class spirit.  Incentives based on membership in a class will reap considerable benefits as the habit of giving is developed and classmates have fun competing against other classes.  A network of class volunteers can be developed so that classmates have a vehicle, an opportunity, and a reason to remain in touch with other classmates once the diplomas have been distributed and the commencement speeches are just distant memories.

The fact that small, annual gifts do not amount to much is a fallacy.  Relatively small gifts across an alumni population of 60,000 amount to more than 30 million USD annually at my College.  Our School of Business  reported 4.5 million USD raised by small annual gifts last year with an impressive 65% participation rate among it's nearly 8,000 alumni.  A closer look at the numbers reveals an even more impressive 91.5% of living Tuck alumni having made an annual gift a some point since graduation.  Annual gifts largely track consumer spending patterns and not the stock markets.  Thus, even in a down market, people writing cheques for groceries will also write cheques to support their school if they are in the habit of giving.  Of course, in strong market conditions, these same people can be prevailed upon to increase their gifts little by little with each passing year.  Over a period of years, the cumulative effect of tens of thousands of small gifts yields the benefit of millions of dollars (or GBP's, Euros, etc.) of funding for operating budgets.  The impact of this on any college or university is considerable and cannot be overstated. 

There are certainly other ways to encourage, or incent, alumni to make gifts without having the benefit of favorable tax laws.  The fact that people give to people, and people will give if they are asked to give when a compelling case for support is made, describe two fundamental reasons for giving. 

First, develop a perpetual giving programme that takes advantage of relationships between classmates.  Recruit volunteers to help raise perpetual gifts by educating them as students.  If there is one thing European colleges and universities do extremely well it is provide a high level of educational instruction.  Students are the captive audience professors love because they are still young and impressionable.  Once some cadre of students is educated to understand the benefits of giving to the school, they can then encourage their classmates to make small, perpetual gifts each year.  Investing relatively small amounts of money and resources in reunions for classes every 5 years and/or in developing programmes to put high-visibility faculty in front of alumni every so often for lifelong learning events is a great way to offer value that alumni will understand and, in essence, underwrite via their perpetual gifts.      

Second, make a strong case for support that volunteers can use when asking their classmates to make a perpetual gift.  What does the school need more than anything else?  If it needs money to attract and retain top faculty then make this point clearly and succinctly.  If it needs funding for research, laboratory space, textbooks, or a new building to introduce better programmes to students then make these points as well.  If there is a competition between classes for the highest percentage of alumni giving in a class then develop this as part of the case.  A focus not on how much people may give but on how many people give as a percent of their class and, by extension, the overall alumni body, will provide strong incentive to give. Setting a goal of 100% participation in the perpetual giving programme will send a powerful message that no graduate should feel exempt from giving.  Those who are already giving will feel the school is making a good faith effort to encourage everyone to give.  These donors will certainly feel better about giving to a school that encourages many to make small gifts in order to fund the greater whole. 

The benefits of perpetual giving from small, annual gifts made every year over the life of a donor will reap benefits over the short and long terms.  Certainly there's the immediate cash benefit to the school.  In addition, there is the benefit of alumni getting into the habit of giving back to their school every year.  As a graduate's net worth increases in value, the school will be better poised in the long-term to ask for a larger, more substantial gift from the perpetual donor than from the non-donor or occasional donor.  The perpetual donor will already understand the case for giving, the needs of the school, and the goodwill and sense of satisfaction that comes with giving back to future generations of students by virtue of being thanked regularly and sincerely for his or her giving. 

Finally, the sense of class and school pride that can be generated through giving programmes with exciting competitions between classes, even between schools or colleges within larger universities, cannot be underestimated.  Once class and school pride has been nurtured in the context of philanthropic giving, the sky is truly the limit for any school given the importance of strong financial resources to the delivery of excellent academic programmes in the European classrooms of today.  Harnessing the school spirit pervasive across European college and university campuses will provide more than a mere incentive for alumni to make small gifts every year.  It will instill in alumni a habit of giving, develop a cadre of committed volunteers, and provide much-needed resources while nurturing major donors who believe in giving back to their school every year.     

Dave Celone is the director of annual giving and alumni services at the Tuck School of Business at Dartmouth