Colleges and universities raked in money by the billions last
year. But their investing success now has a price - a movement in
Congress to force the wealthiest schools to spend more of their
money to keep down tuition.
In recent weeks, a string of colleges and universities have
announced enviable investment results. Leading the way was Yale,
which earned 28 percent over the year ending June 30, increasing
the school's endowment to $22.5 billion overall.
Harvard, the world's wealthiest university with $34.9 billion,
beat the market again with a 23 percent return. There also were
good returns for smaller schools such as Bowdoin (24.4 percent) and
William & Mary (19.2 percent).
But while those numbers were coming out, some members of the
Senate Finance Committee in Washington were wondering aloud why the
rise in endowments isn't stemming tuition increases. At a hearing
last month, lawmakers batted around the idea of forcing at least
some of the wealthier colleges to spend more savings on reducing
"Senators, what would your constituents say if gasoline cost
$9.15 a gallon?" Lynne Munson, an adjunct fellow at the Center for
College Affordability and Productivity in Washington told the
committee. "Or if the price of milk was over $15? That is how much
those items would cost if their price had gone up at the same rate
that tuition has since 1980."
In the mid-1990s, a billion-dollar endowment was a mark of the
financial elite, a club with just 17 schools in its ranks. By last
year, 62 colleges had hit the mark. Within a few years there will
likely be 100.
Private foundations are required by law to spend at least 5
percent of their endowments each year on their missions, but public
charities - a category that includes colleges - face no such
requirement. Holding colleges to the same standard is an idea that
clearly interests Iowa Republican Sen. Charles Grassley, the
minority leader of the Senate Finance Committee and Capitol Hill's
closest scrutinizer of non-profits.
"It'd be good to see the very elite institutions, with the
richest endowments, take the lead and create a ripple effect
throughout higher education to make college more affordable for
everyone," he said in a statement. It's unclear right now, both
Republicans and Democrats say, whether the proposal will make it
out of the committee, which is considering several ideas related to
taxes and higher education.
In fact, colleges spent on average 4.6 percent from their
endowments last year, according to the latest figures from National
Association of College and University Business Officers.
But if the billionaire colleges alone spent the full 5 percent,
that would mean an extra $1.5 billion available annually for
financial aid, calculates Michael Dannenberg, director of education
policy at the New America Foundation, a Washington think-tank. He
says such a requirement would be fair, given that colleges are
allowed to invest tax-free. That perk has boosted many endowments
by billions and carries an obligation to public service.
Higher education officials were angry they weren't allowed to
speak out against the proposal at a hearing last month, but
submitted their own testimony last week, arguing they spend plenty
on public service and that endowments aren't simply savings
accounts that can be tapped at any time for any reason.
Many endowment funds come with strings attached by donors on how
they can be used.
Colleges also have to budget prudently, taking market swings
into account, and they try to avoid big jumps in spending just
because the market did well in a particular year. But by sticking
to gradual adjustments, they can look stingy.
For instance, Yale is slated to get more than third of it's
annual budget - $843 million - from its endowment this year. But
because its investments did so well, that's only about 3.7 percent
of the endowment.
But the underlying issue is that the proposal would represent a
major encroachment by Washington into university affairs. Colleges
oppose government involvement in anything from how they teach to
the criteria they use in admissions. They would not take kindly to
Congress directing them precisely how to spend their own money.
"We don't think as a general matter the federal government
ought to be telling private philanthropic organizations, that have
been around in some cases since before the federal government, how
to spend their money," said Terry Hartle, senior vice president of
the American Council on Education, the main group representing
colleges and universities in Washington.
Still, Hartle acknowledges colleges will have to take seriously
the complaints about colleges costs with which constituents are
"There isn't a college or university president in the country
that doesn't recognize that federal policy makers in both houses of
Congress in both parties are very concerned about rapidly rising
prices in higher education," he said.
(Copyright 2007 by The Associated Press. All Rights Reserved.)