Congress critiques college endowments

A House subcommittee will be holding several hearings on the tax code for college endowments

Legislators are cracking down on college endowments, Danielle Douglas-Gabriel reports for the Washington Post's "Grade Point."

Many argue that institutions should dig deeper into their endowments to expand financial aid programs or reduce tuition.

House and Senate committees sent a joint letter to 56 private colleges and universities in early February, requesting detailed information about endowment spending and management policies. Rep. Thomas Reed (R-N.Y.) is considering legislation that would require institutions with endowments of at least $1 billion to spend 25% of their endowment earnings on financial aid or lose their tax-exempt status.

A House Ways and Means subcommittee on Tuesday launched the first of several hearings on the tax code's impact on higher education, with a focus on institutions that use their endowments to make college more affordable for students.

Rep. Peter Roskam (R-Ill.) suggested that tax codes be used to encourage people to donate money specifically for college scholarships but did not propose any legislation.

Mark Schneider, vice president and institute fellow at the American Institutes for Research, called for an excise tax of up to 2% on private institutions with endowments of more than $500 million. He said the tax could generate $5.2 billion that could be put toward federal student aid programs or assistance for community college students.

Jeff Amburgey, vice president for finance at Berea College, testified that its $1.1 billion endowment is used to cover tuition for all students, with unrestricted donations put toward long-term investment.

Washington College President Sheila Bair testified that most of the major gifts the institution received last year were for scholarships, with 60% of its nearly $200 million endowment dedicated to scholarships. 

Converting endowed funds into increased enrollments

Bair said Reed's proposed legislation was fair, but was disappointed that Congress did not trust colleges to make their own decisions.

"It saddens me that Congress would need to require colleges to do something so obviously in the best interests of their students," she said (Douglas-Gabriel, "Grade Point," Washington Post, 9/13). 

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