The Coming Battle Over College Endowments

Jan Murphy, the Capitol Bureau Chief for Pennlive/The Patriot-News in Harrisburg, Pennsylvania, wrote a thoughtful piece late last month on how colleges with billion dollar endowments were now "sitting in congressional crosshairs."

Ms. Murphy reports that congressional concern is linked to rising tuition costs. She notes that "one longtime observer of federal higher education policy said he suspects this conversation could lead to some policy changes given the influential members of Congress who have taken an interest in it and how the topic resonates with the public."

Responding to her question to him, Bermak Nassirian, director of federal relations and policy analysis at the American Association of State Colleges and Universities asserted, "These are the two ingredients that it takes for something to take on a life of its own."

What's wrong with this picture?

As discretionary spending declines, the federal government has used its oversight authority with increasing regularity to intrude in the affairs of colleges and universities well beyond federal aid compliance and basic tax and regulatory concerns. But is the government now prepared to dictate policy based upon Congressional influencers and public polling?

Fueled by these drivers, do we have a dysfunctional Congress relating to higher education today largely by anecdote and inference?

Here are some thoughts for Congress to consider.

  • Understand the difference between cost and price, especially sticker price when presenting concerns about tuition. Tuition price is actually a comprehensive fee - tuition, fees, room and board - and price and cost mean different things.

  • Ask what the real cost of higher education is for the students and whether at most institutions the tuition, fees, room and board revenue cover this cost.
  • Think of higher education as an industry as "high touch/high tech" with disproportionately fixed costs for salaries, facilities, technology - and financial aid. Congress might be very surprised to learn how little discretion actually exists in college and university budgets.
  • When reminding America's colleges and universities that they hold tax-exempt status that could be threatened by Congressional legislation, ask Congressional researchers to calculate what the tuition sticker price would be without tax exemption. Private estimates add several thousand dollars to the sticker price without it, precisely the opposite of Congressional intent.
  • Congress should also be more sophisticated about the actual price that a college student pays, which for students from lower economic backgrounds is not the sticker price advertised. In fact, the discount rate at private colleges and universities for first-time freshman is about 50%. Depending upon their ability to pay, this discount number for admitted students may be substantially higher bringing their costs of attendance down.
  • Congress should agree on basic terms. Figure out what you mean by "student debt." Is this undergraduate debt, or is it "all in" debt to include graduate and professional debt? Does it incorporate debt from for-profits, "drop out" or "stop out" students, and other sources contributing to the general debt levels reported nationally?
  • Research what the level of state and federal student aid and institutional support has been over the past ten years.
  • Establish whether Congress and state governments should share the blame as contributing partners in rising tuition prices through their failure to provide stable levels of government support..
  • Establish the cost to colleges and universities associated with state and federal reporting mandates.
  • Ask if Congress can really create a benchmark for how much aid, including aid from endowment spending, should be provided to students and families. With missions, financial resources, and student compositions differing widely among American colleges and universities, is there a uniform acceptable level of support that can even be reasonably calculated across higher education?
  • Are there two sets of rules for college endowments? Why choose endowments with a1 billion threshold for further scrutiny? For large universities, does the endowment divided by the number of students reasonably translate to "excessive wealth?"
  • When these wealth vs. public good calculations occur, should it matter how much of an endowment is restricted in use for specific purposes?
  • Should Congress be concerned with the overwhelming number of American colleges and universities that do not have1 billion endowments and are therefore more sensitive to and dependent upon tuition and fees?
  • Is it more likely that hemorrhaging is occurring at small endowment institutions disproportionately dependent upon tuition, fees, room and board from which they derive almost all of their revenue? Does a large endowment or the lack of an endowment better explain the rise in tuition prices at most colleges and universities?
  • Perhaps it would be best to move past the anecdotes and polling. The problem is that American higher education is straining from older, antiquated financial models not from self-perpetuating big endowments leading to tuition increases.

    Harvard can undoubtedly defend its endowment spending policy with purpose and conviction. The problem is that Congress never got the memo on the rest of American higher education.