When Amy Gutmann stepped down as president of the University of Pennsylvania, in 2022, after 18 years on the job, she left, as many presidents do, with a large payout — in her case, $23 million. The vast majority of that, more than $20 million, came in the form of deferred compensation, money beyond her regular salary that had been set aside over the years for tax benefits.
Deferred compensation is just one of the many presidential perks that have made headlines over the past couple of decades. Other familiar ones include housing, club memberships, supplemental health insurance, car allowances, travel reimbursements for spouses, and tuition discounts for family members.
Thanks to recent reporting, first by The Daily Pennsylvanian, then by The Philadelphia Inquirer, a new perk has been discovered: loans to presidents with extremely low interest rates. In President Gutmann’s case, she didn’t leave with just $23 million. She also left with a nearly zero-percent loan from the university for $3.7 million.
How widespread is this practice?
Using ProPublica’s Nonprofit Explorer website, we reviewed the tax returns (IRS Form 990) for the 31 private universities in the Association of American Universities. Specifically, we examined “Schedule L: Transactions With Interested Persons, Part II, Loans to and/or From Interested Persons.”
According to the IRS instructions for completing the form, an “interested person” includes current or former trustees, directors, officers, or key employees, a creator or founder of the organization, a “substantial contributor” who must be reported on Schedule B, family members of any of those individuals, and a 35-percent-controlled entity of any of the above. The university’s president would qualify as an “interested person.”
Of those 31 leading private research universities, 18 reported making loans during the last four reported tax years — 2018 through 2021. Those loans were made to provosts, vice presidents, athletics directors, general counsels, and faculty members. Most of the institutions reported one to four loans. Stanford University reported the most loans in any given year — 22 loans to nine people in 2018, including the largest for a single individual, $3.1 million. In 2020 the University of Southern California reported 16 loans to 10 people; the largest loan was $3 million. Princeton also reported 16 loans, in 2021.
Six of the 18 universities making loans to interested persons reported loans to their presidents. In 2021, Columbia University reported making a $6-million loan for housing to its departing president, Lee C. Bollinger. Beyond the $3.7-million “special employee loan” that Penn made to Gutmann, it provided her with two other loans — one for $1.25 million in 2014 and another for $700,000 earlier in her tenure. Altogether she received loans totaling $5.65 million.
Ronald J. Daniels, president of the Johns Hopkins University, received two retention loans totaling $1.5 million. USC also reported a $3-million housing loan in 2018 for its departing president, C.L. Max Nikias. Harvard University provided its former president, Drew Gilpin Faust, with a $1-million loan for the “construction of home.” Finally, David W. Leebron, the former president of Rice University, received a $950,000 loan in 2021. Those six people, among the nation’s most highly paid university presidents, received nearly $18.5 million in loans, all approved by their governing boards. Except for Johns Hopkins, all the loans were made to departing presidents to help them buy or build a new home.
The only loan with its interest rate disclosed was Gutmann’s, and only because she is now the U.S. ambassador to Germany and must complete a financial-disclosure report. The rate is 0.38 percent. That’s 0.38 percent, not 3.8 percent, which was the midterm applicable federal rate set by the IRS when the loan was made. In other words, she got a rate that was one-tenth the going rate at the time. Additionally, according to the university’s tax returns, Gutmann has not made payments on any of the loans for the past two years.
In completing the tax forms each year, the universities must state the amount of the original loan and the outstanding balance. In all but two cases, the new outstanding balance each year is reduced by a relatively even amount — a loan of $1 million reduced to $875,000 or $3 million reduced to $2.5 million. We wonder: Do those changes reflect actual payments made by the former presidents, or are the loans gradually being forgiven? If the latter, how is that justified to faculty members, students, the local community, and taxpayers?
Why are universities making the loans in the first place? It was well known that five of the presidents were stepping down shortly, yet the loans still were made. As reported by The Daily Pennsylvanian and the Inquirer, the reason Penn made the most recent loan to its former president was that she had been required to live in the presidential home and now needed to find a personal residence. We expect the other universities would provide a similar rationale.
It is true that neither the governing boards nor the presidents have done anything illegal. The tax code allows the universities to make loans to their employees. In the strict sense of ethics, they are coloring within the lines.
But it’s important to remember that university presidents, especially those at top institutions, are already very well compensated. Beyond their base salary, most receive bonuses and have supplemental retirement funding. Their contractual final payouts, as we saw with Gutmann, can be in the millions of dollars. Is it really appropriate for them to also get the benefit of such favorable loans?
The most common perk in presidential contracts — and the one that comes with the greatest risk of controversy — is the house or housing allowance. More than one president has lost his or her job because of something related to the presidential house. One even took her own life when it was disclosed that she had spent $600,000 renovating the president’s house, including a $30,000 dog run.
The revelation of those loans might become an even greater scandal because institutions themselves are taking part in secret financial transactions, and the secrecy continues after the president leaves. Even private universities receive substantial public support through federal financial aid for students, government-funded research, and their tax-exempt status. To some extent, the public is making these loans but has no say in the matter.
It’s bad enough that presidents get so many perks on top of their generous salaries, but at least information about those perks is publicly available. The same can’t be said of the low-interest loans colleges are giving to presidents. They may be legal, but that doesn’t make them right.
