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U.S. House Holds Hearing on College Endowments and Affordability

September 19, 2016

At a hearing last week titled, "Back to School: Review of Tax-Exempt College and University Endowments," members of the Oversight Subcommittee of the U.S. House Committee on Ways and Means expressed significant concern with rising college sticker prices and questioned whether schools are doing enough to combat student debt with endowment-funded aid.

The hearing followed a similar one held last October before the same subcommittee on tax policy and the rising costs of higher education, during which college and university endowments became a prime topic of discussion.

The witnesses who spoke last week had varied opinions on the topic. They included Neal McCluskey, director of the Center for Educational Freedom at the Cato Institute; Jeff Amburgey, vice president for finance at Berea College; Sheila Bair, president of Washington College; Mark Schneider, vice president and institute fellow at the American Institutes for Research; and Sandy Baum, senior fellow at the Urban Institute's Income and Benefits Policy Center.

Schneider, McCluskey, and Baum all expressed the view that endowments alone are not a sufficient funding source to tackle the college affordability issue for a variety of reasons, including: year-to-year endowment return volatility; significant inequality in endowment wealth across colleges and universities (in particular, that only a small percentage of colleges and universities have endowments greater than $500 million); and donor restriction of endowment gifts that prevent many institutions from legally reallocating a large amount of endowment funds to new student aid purposes.

Rep. Tom Reed (R-NY) raised his legislative plan, the Reducing Excessive Debt and Unfair Costs of Education (REDUCE) Act, as a possible solution but said the proposal on endowments is only one of a number of avenues to rein in college costs. If enacted, the REDUCE Act would require colleges and universities with endowments greater than $1 billion to allocate 10-15 percent of their endowment income to financial aid or risk losing their tax-exempt status.

While tax credit solutions for low-income students were discussed, both Chairman Peter Roskam (R-IL) and Baum expressed concern over the real-world benefit to low-income students; Baum specifically pointed out that students often need cash immediately to cover school expenses as opposed to an eventual credit at the end of the tax year. Roskam proposed creating credits that incentivize donors to direct their giving toward scholarships as a more useful alternative.

As other potential solutions were discussed, from improving 990 forms to reforming savings plans, to offering more support to students attending community colleges, Roskam conceded the difficulty in solving such a complex problem.

"...[I]nstitutions are differently situated from each other, and one-size-fits-all policy solutions may not be the answer," he added.

NACUBO expects the public and policymakers to continue to raise questions about how institutions are using their endowments to help students and families meet college costs. NACUBO has a variety of endowment-related resources available online to help with communicating endowment information.

Also last week, Liz Clark, director of federal affairs at NACUBO, participated in a webcast sponsored by the Education Writers Association, "The Debate Over College Endowments and How to Cover Them." Slides and video are available on the webpage noted above.

Contact

Liz Clark
Director, Federal Affairs
202.861.2553
E-mail