Congress Asks Colleges How Endowments Help Reduce Tuitionby
Idea that tuition must rise isn’t ‘gospel truth,’ Roskam says
Committee is concerned about spiraling university costs
Washington College’s endowment is just $200 million, yet the Maryland school spends almost 60 percent of its annual payout on scholarships.
About 75 percent of the operating budget for Berea College, a private school in Kentucky that doesn’t collect tuition from any of its 1,600 low-income students, comes from investment earnings of the $1.1 billion endowment.
Leaders from both schools and three policy experts fielded questions from a U.S. House Ways and Means subcommittee Tuesday about what’s driving increases in tuition and how endowments are used to help lower costs. The subcommittee heard calls for more spending on aid, trimming expenses and increased transparency in university tax forms that would shed light on subsidies to schools.
“This entrenched idea -- that is tuition has to go up and up and up every year
-- is not gospel truth,” Ways and Means Oversight committee chairman Peter Roskam, an Illinois Republican, said in his opening statement.
“Given the families’ concerns and the big tax benefits colleges and universities get from taxpayers, the Ways and Means Committee believes it is important for us to keep learning about how these schools are working to fulfill their charitable and educational purposes,” Roskam said.
Berea stopped charging tuition in 1892 and requires each student to work for the college, said Jeff Amburgey, vice president for finance at Berea. The school replaces tuition revenue with a combination of investment income, annual fundraising and money from other sources, he said.
“The committee is right to be looking at college endowments,” Sheila Bair, president of Washington College and the former chair of the Federal Deposit Insurance Corp., said in a prepared statement to the committee. “I can think of no better purpose for endowment income than scholarships. I would love to have a $1 billion endowment.”
The committee listened to a range of reasons for rising costs, including the availability of federal student loans, cutbacks in state funding and more luxurious campus amenities.
Patrick Meehan, a Republican from Pennsylvania, discussed the burden of college loans on students and their parents.
“Whole generations of parents are just taking their entire retirement savings and turning them over to universities,” Meehan said.
The scrutiny over endowment spending comes at a time when many large funds including University of Virginia and Ohio State University are reporting investment losses.
Separately, two congressional committees are reviewing responses to a joint inquiry to the richest 56 private schools, as they examine policies that don’t tax endowment investments and give donors to universities a tax break.
Schools defended their endowments in their responses, telling the Senate Finance and the House Ways and Means committees that they must abide by gift agreements with donors and can’t redirect funds.
One speaker argued that the billions of dollars amassed by the richest private schools leads to further disparities among colleges and students, and the subsidy to the private nonprofit colleges is “far greater” than to public two-year and four-year schools.
“The size of the public subsidy increases with the size of the endowment,” said Mark Schneider, a vice president at the American Institutes for Research, said at the hearing. “Taxpayers are subsidizing rich students at rich universities.”
Schneider called for more transparency in tax forms filled out by colleges and a tax on the richest school endowments, up to 2 percent.
Sandy Baum, an economist who produces an annual report on college costs and financial aid for the nonprofit College Board, told the committee that few colleges have endowments of $1 billion and more.
Roskam said he is concerned that college prices are “spiraling out of control” as schools enjoy the tax benefits.
“The level of anxiety that I’m hearing from my constituents in suburban Chicago is palpable and I’m not alone,” Roskam said in an interview Monday. “A lot of people are feeling whipsawed by this.”
Another subcommittee member, Republican Tom Reed of New York, expects to introduce a bill this year that would require endowments with more than $1 billion to spend a fixed percent of investment earnings on financial aid.
“I think this is certainly more than reasonable, though it would be better for colleges to adopt such a policy on their own,” said Bair, who as president of Washington College created a policy to freeze tuition. “It saddens me that Congress would need to require colleges to do something so obviously in the best interests of their students.”
Reed said in an interview that using endowments can be a tool to find solutions to bridge the crisis of the “ever-increasing” cost of college.
“The ultimate goal is to bring these prices down,” said Reed, whose daughter recently started college.
Reed said he’s also exploring the issue the “abusive practices” of some donors receiving benefits such as preferential treatment of seats at sports stadiums, when they are already receiving tax benefits for their donations.