Last week, two key US senators asked the nation's 136 wealthiest colleges and universities for information on their tuition hikes, financial aid, and endowments. With those treasure chests rising rapidly, the lawmakers wonder if a college education can be made more affordable.
The senators, Democrat Max Baucus of Montana, who chairs the Senate Finance Committee, and Republican Charles Grassley of Iowa, its ranking member, are on to an issue that rankles many a parent. Tuition increases have outpaced inflation for years (in part due to an arms race of spending as colleges and universities try to outdo one another). But endowments have also ballooned. Why the disconnect?
The lawmakers raise a good question, and a timely one. Last week, the National Association of College and University Business Officers reported that a record 76 colleges and universities reached endowments of $1 billion or more in the schools' last fiscal year. On average, endowments at 785 institutions of higher learning in the US and Canada enjoyed investment returns of 17.2 percent – their biggest in a decade.
What the senators are after reflects a well-founded desire in Washington for more accountability in higher ed. Last year, Secretary of Education Margaret Spellings attempted to use the leverage of federal assistance to demand better education quality by having more federal say in school accreditation. Now these senators are trying to force higher ed to make college more affordable as well as improve transparency in stating what it actually costs to attend a college.
The senators rightly remind the leaders of higher education that their institutions enjoy a tax exemption on endowment earnings while donors get a tax deduction. Even though most of the endowment wealth resides at private institutions, these schools serve the public good and owe the public greater access by virtue of these tax breaks. The senators propose mandating that well-funded schools spend 5 percent of their endowments on tuition relief – just as nonprofit foundations must spend 5 percent in order to keep their tax-exempt status.
But the mandate idea may not transfer to higher ed. Colleges argue that endowments exist for their long-term security, must pay for campuses, and must meet donor restrictions. But surely they can adjust priorities away from expensive facilities to students and ask donors to target financial aid.
Pressure from Congress may already be having an effect. Harvard and Yale recently announced expanded tuition relief from their endowments, and other wealthy schools will likely follow. The senators should see what comes of their request before moving to mandate.
They should also keep in mind that looking to endowments will only get them so far. Just five institutions – Harvard, Yale, Stanford, Princeton, and the University of Texas – account for nearly a quarter of the $411 billion in last week's endowment tally. Most Americans in college go to public schools, whose budgets rise and fall with the economy, not endowments.
Yes, the senators are right to poke into the endowment issue. But the question of affordability and access is much bigger than the size of college endowments.