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Higher education groups say bill targeting endowments is bad policy

The latest bill targeting wealthy colleges and universities would require those with endowments over $1 billion — about 136 public and private colleges nationwide — to cover a certain percentage of tuition for all students.

The Changing Our Learning, Loans, Endowments, and Graduation Expectations (COLLEGE) Act was introduced in the Senate in early August by Republican Senator Rick Scott from Florida.

Under the bill, colleges with endowments of $10 billion or more, including Harvard University, the University of Texas, and Yale and Stanford universities, to name a few, would be required to cover 75% of student tuition, whether or not they are high or low income. Colleges with endowments between $5 billion and $10 billion would be required to cover 50%, and those with endowments between $1 billion and $5 billion would cover 25%. These colleges enroll many students who do not need the money; many of their students do not receive need-based aid.

“For too long, state and federal leaders have taken the wrong and failed approach to the management of public institutions of higher learning. The result of their decades of failed policy and mismanagement is that millions of Americans with mountains of student debt have racked up degrees that have not prepared them for good, well-paying jobs in the real world,” Scott said. in a press release on the invoice.

A spokesperson for Scott said the bill would force wealthy colleges to “have some play” by using their endowments to help cover tuition for all students.

However, universities are largely limited on how they can spend their endowment funding – much depends on donor requests. As a result, the bill would effectively create what Steven Bloom, assistant vice president for government relations at the American Council on Education, has described as government price controls on the cost of attending wealthy private and public universities.

Most of these well-endowed colleges are already using part of their endowment funds to help students with tuition. According to a report by the National Association of College and University Business Officers, student financial services accounted for 47% of endowment spending in 2021.

“We don’t believe the federal government should dictate to private companies what prices they should set,” Bloom said. “It’s really misguided and based on a totally flawed understanding of how endowments work.”

Under the bill, colleges would not be required to use endowment funds to cover the required portion of tuition, a Scott spokesperson said.

“Colleges and universities would just have to look to the other billions of dollars in their endowments,” the spokesperson said.

Many higher education experts called the bill bad policy. They say he fails to recognize that colleges must follow strict rules when spending endowment funds. A common misconception is that endowments work like bank accounts, where colleges can take money and spend it as they see fit. However, when colleges receive donations, they often come with a set of donor rules that colleges must follow.

“Unfortunately, the endowments section clearly shows a lack of understanding of how universities work and are structured. Endowments are made up of charitable contributions, made by donors, which are often restricted by those donors for specific purposes,” said Pedro Ribeiro, senior vice president of communications at the Association of American Universities, which represents major universities. country research. “Any returns generated from these contributions can only be used in accordance with the wishes of the donors.”

For example, universities like Harvard, which has an endowment of over $40 billion, would be required by federal law to cover about $57,000 per student each year, bringing its tuition down to about $18,000. per student, including room and board, among other costs. . (Harvard did not comment when asked by email Inside Higher Education about the invoice.)

Higher education experts also say the bill is not an effective way to ensure college affordability for those who need it most, as the bill would require colleges to cover the same amount. assistance for low-income and high-income students.

“This bill makes no distinction between poor and middle or rich students, so the aid it would force institutions to pay is very regressive,” Bloom said.

For example, at Harvard, 55% of students already receive financial aid, averaging about $53,000 per year. However, many Harvard students are wealthy themselves. Within the student population, 67% come from the highest earning households, while 15% come from families in the top 1%. Some say this bill would unevenly distribute aid to higher-earning students who need it less than others.

Republican attacks on well-endowed universities are not new. In 2017, Republicans passed a tax reform bill that sets a 1.4% excise tax on net investment income at private colleges with assets of at least $500,000 per student. . The tax impacts nearly 100 colleges and has generated intense pushback and even congressional lobbying from colleges like Harvard that are subject to the tax.

Unlike the controversial 2017 endowment tax, which only affects private universities, this would also affect large endowments at public universities.

The bill would also require colleges with endowments greater than $1 billion to notify the Department of Education if they are increasing their tuition fees and provide an explanation for any tuition increases. In 2019, Scott called on all colleges that raise tuition or fees to no longer receive federal aid.

“There is no reason for universities to increase costs for our students even a little. We can’t afford it,” Scott said in 2019.

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