NAICU Washington Update

House Ways and Means Subcommittee Debates College Costs, Tuition, Endowments

October 08, 2015

The House Ways and Means Oversight subcommittee held a hearing to explore whether federal tax benefits and other subsidies contribute to rising tuition, the role endowments play in college costs, as well as executive compensation and campus amenities.

Chairman Peter Roskam (R-IL) opened the October 7 hearing by discussing the rate of increase of college tuition and its doubling compared to the cost of health care over the past decade. He wanted the committee to explore the reasons for rising tuition, whether “movie theatres on campus are really necessary,” presidential salaries, and whether the schools with the largest endowments are doing enough to provide student financial aid.

Witnesses at the hearing included Dr. David Lucca, Research Officer, Federal Reserve Bank of New York, author of a recent draft report that supports the so-called “Bennett Hypothesis” (the theory that federal student aid causes colleges to increase tuition); Dr. Richard Vedder, Distinguished Professor of Economics, Ohio University; Director, Center for College Affordability; Brian Galle, Georgetown University Professor of Law who has written extensively on nonprofit executive salaries; MaryFrances McCourt, Senior Vice President and Chief Financial Officer at Indiana University, on behalf of the National Association of College and University Business Officers; and Terry Hartle, Senior Vice President, American Council on Education.

While the witnesses were divided on the Bennett Hypothesis, much of the hearing was spent discussing state budget cuts and their effect on tuition at state colleges and universities.

Rep. Tom Reed (R-NY), who is a member of the Full Committee but not the Oversight Subcommittee, attended to speak in support of legislation he plans on introducing that would require institutions with endowments over $1 billion to spend 5% of the investment profits from those funds on tuition assistance for a certain income band of students. His bill would also require increased disclosure for campus employees at these institutions who earn over $200,000. He believes the largest institutions with the largest endowments should allow students to attend for free. Rep. Reed also hinted at adding additional language to his bill removing legal restrictions on endowments, or somehow discontinuing tax benefits for contributions made to restricted funds.

Interestingly, neither Chairman Roskam nor any of the subcommittee members discussed an upcoming endowment survey that was supposed to have been sent to campuses in September. Staff of the subcommittee met with higher education representatives in July to announce that a survey, similar to the one conducted by then-Senate Finance Chair Charles Grassley (R-IA) in 2007, would be sent to all public and private colleges and universities with endowments over $1 billion. It’s unclear whether that effort is still being planned and, if so, when it might take place.

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