Rich U.S. Schools Defend Tax-Free Status, Spending of Endowmentsby
Harvard, Yale, Princeton among schools responding to inquiry
Two congressional committees sent letters to 56 universities
The richest private U.S. universities, including Harvard and Yale, said a tax-exempt status is crucial to their endowments and the schools’ mission as academic and research institutions in response to an inquiry by U.S. lawmakers.
The Republican leadership of two congressional committees with oversight of tax policy asked the wealthiest 56 private colleges about their endowments -- with questions about financial aid, donations, investment returns and the cost to manage the funds. The deadline for the responses was April 1.
“We acknowledge that as a tax-exempt institution, we have been entrusted with a great responsibility to carry out the educational and charitable mission for which Yale was established,” Peter Salovey, Yale’s president, wrote in his response.
The inquiry by the Senate Finance and House Ways and Means committees comes at a time when the cost of college has grown faster than inflation for decades. Some endowments have reached record values. Harvard said its fund was $37.6 billion and Yale was at $25.6 billion as of June 30. The growth is bolstered by both investment returns and fundraising, both of which are tax exempt. Some of the wealthiest colleges offer the most generous aid packages to low-income students.
Orrin Hatch “appreciates the universities’ cooperation and will thoroughly examine the responses to determine next steps,” said Aaron Fobes, a spokesman for Hatch, chairman of the Senate Finance committee.
Harvard said its endowment consists of more than 13,000 funds. Of the endowment total, 84 percent, or $31 billion, is restricted by the terms of the original donations.
“The recognition and support the tax code offers to nonprofit organizations remain critical to Harvard’s success and excellence,” Harvard’s president Drew Gilpin Faust wrote in a letter to Hatch, Kevin Brady, chairman of the House Ways and Means Committee, and Peter Roskam, chairman of the House Oversight subcommittee.
Distributions in fiscal 2015 from Harvard’s fund totaled $1.6 billion, making up 35 percent of the budget for the Ivy League school in Cambridge, Massachusetts, according to the letter. Some $175 million was dedicated to financial aid for undergraduates in the fiscal year.
Princeton University spent $218 million from the endowment on undergraduate and graduate student aid in fiscal 2015, according to the university’s response. The school was the first to remove student loans from financial aid packages for undergrads and replaced them with grants.
“Endowments are frequently mischaracterized as ‘rainy day funds’ or ‘nest eggs,’” Christopher Eisgruber, president of the Princeton, New Jersey, school, wrote. “We depend on our endowment year-by-year to cover half the cost of our operating budget and to meet high-priority capital needs.”
Schools also explained in their responses that the endowments aren’t bank accounts that can be spent at will. Of the funds in Stanford University’s $22.2 billion endowment, 74 percent are restricted.
The endowment is made up of 8,000 funds, including the first established by Jane and Leland Stanford in 1885, after the death of their son and only child.
“The Stanfords believed that higher education served the greater good. They committed themselves to educating other people’s children and invested their wealth in the university,” John Hennessy, president of the school near Palo Alto, California, said in its letter.