Higher Education Watch
Endowments Under Fire from Left and Right

It’s not just Democratic legislators in broke blue states who are eyeing colleges’ war chests; leading Congressional Republicans also have some pointed questions about how the the Ivory Tower is spending the hundreds of billions of tax-exempt dollars tucked away in its vaults. The Hill reports:

The tax-exempt endowments of colleges and universities are coming under scrutiny in a presidential election year where the cost of higher education has become a top issue.

Leading Republican tax-writers in Congress have sent questions to 56 private institutions with endowments of over $1 billion, giving them until April 1 to respond. The answers they receive could lead to legislation.

… Ways and Means member Tom Reed (R-N.Y.) is working on legislation that would require colleges with large endowments to spend a minimum portion of their endowment earnings on grants to students.

While Connecticut Democrats recently earned national media attention for a proposal to narrow their state’s budget deficit by taxing Yale’s $26 billion endowment-cum-hedge-fund, Congressional Republicans seem more interested in putting endowments to work directly for students (by forcing a certain share of them to go to tuition subsidies) rather than leveraging them as a government revenue stream. Either way, the underlying assumption is the same: highly-endowed colleges—which were granted tax-exempt status for their ostensible public service mission—are becoming an under-performing asset, and that the tremendous wealth they are accumulating could be put to better use on other public priorities.

There are a number of things colleges can do to try to fend off this kind of incursion. First and foremost, they can try to expand the number of students who can benefit from their repositories of expertise knowledge—either by meaningfully increasing enrollment (many top schools have not done this in decades, even as their endowment per student ratio has skyrocketed), by opening satellite campuses, or by making more courses available online.

Second they can spend more of their money on education and research in the public interest, and less on massive NCAA-backed athletic projects, luxury student amenities, or highly-ideological outposts for activist-scholars and Title IX bureaucrats. The overriding objective must be to demonstrate to the public that, at this time of economic scarcity and anxiety about access to higher education, the American people are not funneling tax subsidies to fantastically wealthy institutions that have essentially become vehicles for reinforcing elite privilege while promoting an array of corporate and ideological interests.

The pressure on big endowments is building and will continue to build. Forward-looking university presidents should be looking closely at avenues for reform, before politicians have had enough and send the tax man knocking on the tower’s door.

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