Large university endowments, such as those boasted by Harvard and Yale, could see their tax advantages threatened by Republicans concerned that those tax breaks are leading to lower costs for students.
Rep. Tom Reed, R-N.Y., said Wednesday that he was working on legislation aimed at addressing “what I believe is a crisis when it comes to higher educational costs in America.”
At a subcommittee hearing Wednesday on college tuitions and the tax code, Republicans presented a number of statistics they suggested indicate a problem with endowments and compensation for university officials.
Over 90 colleges have endowments over $1 billion, Republicans claimed. In 2013, 42 private college presidents made more than a million dollars, stated Peter Roskam, the Illinois Republican who chairs the subcommittee.
For nonprofits, “it seems like a lot of university presidents are making very good money,” Roskam noted.
Reed suggested that the tax benefits accruing to large endowments and university presidents could be better aimed to benefit students.
“I realized when you do the simple math … If we just changed the rules, and forced this endowment to be a pot of money to be utilized to reduce tuition for our students, we could have a headline that says: We propose in the crisis for the immediate short-term future that students at these institutions will pay zero dollars for tuition, zero,” he said.
Reed took the example of Harvard of a school whose endowment growth more than covered the money it made from charing tuition. Harvard’s endowment, the biggest in the country at a reported $36 billion, earned $5.5 billion tax-free last year, he said. The school only charged $360 million in tuition for all its students, he noted, while also receiving $100 million in funding from state and local governments.
Congress might consider making the endowment’s tax-free status contingent on the earnings covering tuition, and freeing up the $100 million in government funding for other schools, Reed said.
He cited similar numbers for other schools: Last year, Yale’s endowment earned $3 billion, while the school charged $291 million in tuition. The University of Texas system’s endowment earned $3 billion, while students were charged $339 million.
Changing the tax status of university endowments received some support from experts testifying Wednesday. Richard Vedder, an Ohio University economist, noted that schools generally don’t use endowments to lower state tuition, and concluded that “special tax preferences of endowments, especially for extremely wealthy schools, may be of questionable social value.”
Brian Galle, a law professor at Georgetown, also questioned the value of endowments as rainy day funds.
“Harvard could put all of its investments in a money market fund tomorrow, make its tuition free for all, and then keep spending at 2013 levels for another 12 years. That’s quite a rainy day,” Galle said.
He suggested a number of potential reforms, include restricting tax deductions for donations to colleges in some cases, taxing “excess” endowments, require minimum annual payouts from endowments, and requiring more disclosures of college executives’ pay.
Terry Hartle, an executive at the American Council on Education that represents colleges, pushed back on those suggestions. He noted that the median base pay for private college presidents in 2012 was about $313,000, while only 600 colleges, 13 percent of the total, have endowments over $50 million. Three quarters of all endowment assets, he testified, are held by just 2 percent of schools.
