Are Universities Overly Endowed?
In his opinion piece in the Los Angeles Times, Senator Charles Grassley of Iowa discusses the use of college endowments in the wake of increasing costs for higher education. College endowments have enjoyed high growths and college tuitions have steadily increased. Harvard University's endowment grew 19.8% from 2006 to 2007, to $34.6 billion; Yale University's endowment by 25%, to $22.5 billion; and Stanford University’s endowment by 21.9% to $17.2 billion. At the same time, tuition has increased by double digits every five years over the last two decades, according to the College Board.
Senator Grassley asked experts “why colleges can't draw on their bulging endowments to increase student aid or forgo tuition increases?” Some explanation as to why colleges shouldn’t use their endowments were: budget cuts by the state are making public institution fund operations on their own; donors decide how donation should be used; and it costs more than the tuition to educate a student so colleges are subsidizing higher education.
So just how are college endowments being used and how does this effect you? It all comes down to taxes. Universities are exempt from paying federal income tax on their operating income, they don’t have to pay tax on their endowment investment income, and donations to the colleges are tax deductable. These tax incentives were put into place so that universities would be able to fulfill their charitable purpose of educating students. Senator Grassley suggests that congress should place a tax on university endowments if it exceeds a certain amount but wants to see colleges initiate self-correction on college affordability.
In an effort to keep higher education affordable, should congress consider imposing a tax on high university endowments?