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Higher Education Watch
House Probes College Endowments

The fantastic wealth held by American university endowments has long been shielded from federal taxation on the assumption that non-profit educational institutions are a good deal for the public, educating future workers and creating new knowledge at relatively low cost. But as tuitions continue to rise with no end in sight—funding soaring administrative salaries, luxurious amenities, and costly athletic programs—even as many campus war chests seem to overflow with cash, lawmakers are re-visiting the endowments’ tax exempt status. The Washington Post reports:

One of the most polarizing issues in higher education took center stage on Capitol Hill on Tuesday as House members questioned whether universities could do more with their tax-exempt endowments to help families struggling with the high costs of college.

Wealthy universities, in particular, have drawn criticism from lawmakers for raising tuition far in excess of inflation while sitting on hefty endowments. Congressional Republicans have asked 56 private universities, each with endowments exceeding $1 billion, for information about the use of that money. Elite institutions have derided the attention on their endowments as misguided, arguing that they are not savings accounts that can easily be drawn down.

While lawmakers aren’t girding to sic the IRS on the Ivory Tower, they do seem prepared to brandish their taxing power as a negotiating tool as they lean on administrators to find ways to restrain the growth in college costs.

This is on the whole a worthwhile endeavor for Congress. Wealthy colleges increasingly seem to offer a luxury service available only to a privileged slice of the population, raising the question of why they are privy to such hefty tax subsidies. And the public is ultimately on the hook for a large share of tuition increases through federally subsidized student loan programs (which are themselves one of the principal drivers of tuition hikes).

The ideal outcome of Congress’ inquiry would not be a massive new endowment tax, but a negotiated settlement, where colleges are permitted to retain their tax status in exchange for meaningful commitments from academic leaders to rein in their bureaucracies, open access to more of their courses to the public, and increase financial aid offerings to students in need.

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