Lawmakers questioned how the nation’s tax policies are impacting the skyrocketing cost of higher education during a House Ways and Means Oversight Subcommittee hearing Wednesday, questioning whether tax breaks for university endowments are a contributing factor to the rise in tuition.
Republicans suggested endowments could be better utilized to lower fees instead of funding high salaries for university presidents, 42 of which make $1 million or more a year, and building costly campus facilities.
“We understand that endowments can help assure financial stability to schools. But about 90 schools have endowments of more than $1 billion,” said chairman Peter Roskam. “Some of those schools have made great strides in providing exceptional financial aid to their students. Others have not.”
After inflation adjustments, the New York Federal Reserve (NYFR) said tuition costs rose 46 percent between 2001 and 2012 while student debt hovers around $1.2 trillion, making it the largest non-mortgage debt in the nation. NYFR research officer David Lucca told the panel the situation is reminiscent of the conditions that caused the mortgage crisis in the early 2000s.
“I think we are in the midst of a bubble, my wife and I have four children, and if you see Peter and Elizabeth Roskam out with a metal detector picking up the loose change to pay the tuition for our children the explanation is these incredible expenses in doing so,” the Illinois Republican said. “Writing these checks just takes your breath away, and I know I’m not unique in this.”
Under current law, donors can stipulate how their tax-deductable donation is used by the university, and according to Georgetown University law professor Brian Galle, most schools prohibit spending more than 5 percent of donations in any year. The donor can sue if the funds are used for other purposes.
New York Rep. Tom Reed said he is currently drafting legislation to address the issue, proposing a reform that would require the schools with the highest endowments to use them toward lowering fees.
“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 dollars,'” he said.
The New York Republican went on to suggest colleges with billion-dollar endowments that want to keep their tax-free status, like Harvard, be mandated to use their earnings for tuition relief at not just their university, but other institutions across the country with smaller endowments. Roskum questioned whether Galle’s proposal of an excise tax on endowment donations might alleviate some of the problem.
North Carolina Rep. George Holding attributed the rise in costs to universities absorbing the increase in accessibility to federal subsidies and financial aid.
Lucca said the main empirical finding in his study found subsidized loan amounts have been linked to the large increases in tuition, but could not conclude whether Pell Grants and unsubsidized loans impact costs.
Democrats argued the problem is not federal subsides, but states cutting back on higher education funding.
Ranking member John Lewis argued the government should be doing more, not less, when it comes to funding education.
“Federal student aid programs—like Pell grants and student loans—are critical tools to ensure that a college education is affordable and accessible for all who aspire. In light of decreasing state support for higher education, it is more important than ever for the federal government to do our part,” he said.