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Leveling the Playing Field on Endowments

Leveling the Playing Field on Endowments

Elite institutions are under pressure to spend more of their endowments to help low-income students.


To improve college affordability for low-income students, some lawmakers and education researchers are beginning to ask the question: Why don’t elite colleges spend more of their endowments on need-based financial aid?

From the halls of Congress to Ivy League institutions, the size and practices of college endowments are generating new interest. The powerful Senate Finance Committee is “likely” to examine college endowments this year, a committee aide told Diverse. A chief concern is transparency: While charitable foundations must spend 5 percent of their assets each year, the rule does not apply to college endowments. As a result, it’s not clear how some elite colleges use their endowments to help needy students.

Overall, 20 elite universities account for almost half of all university endowment funds, says the Congressional Budget Office.

Parents and students have a right to expect these universities with big endowments to end the hoarding and start the helping with skyrocketing tuition costs,” says Sen. Charles Grassley, R-Iowa, senior Republican on the Senate Finance Committee.

Some institutions are taking action prior to any congressional decisions. The latest example is Yale University, which has pledged to cut college costs for low- and middle-income students by 50 percent. Along these lines, Yale announced last year that it would increase payout from its endowment by 37 percent, from $843 million to $1.15 billion for fiscal year 2008-09. The funds would go to bolster financial aid, expand access to Yale’s resources and strengthen scientific research, according to a university press release.

Harvard University announced last year that families earning up to $180,000 a year will pay no more than 10 percent of their income toward tuition.

But some experts want more action. “Sweeping reform will require a whole rethinking of charitable giving,” says John Maguire, founder and chairman of Maguire Associates, an education policy and marketing firm.

People earning up to $180,000 a year don’t qualify as middle class,” Maguire says.

These are definitely upper-class people.”

Maguire is challenging Congress to take a much more aggressive stance toward these endowment-rich institutions. One way would be through revenue sharing, in which universities with large endowments would share some of their wealth with needier institutions. Another idea: Provide larger tax breaks for individuals who donate money to colleges serving a large percentage of lower-income students. “The top 50 private colleges [in endowments] serve only 2 percent of all students nationwide,” he says. These 50 could pool their resources and give one-third of their annual endowment income to colleges serving lower-income students.

We’ve got to level the playing field,” he says.

 Another telling statistic in reaching low-income youth is the percentage of students at a university receiving a Pell Grant, says Tom Mortenson, senior scholar at the Pell Institute for the Study of Opportunity in Higher Education. Nationwide, the number of Pell Grant recipients in college has increased 37 percent over the few past years. Yet among U.S. News & World Report’s top-rated institutions, he says, only four had Pell rates above that level.

“These ‘best’ universities are enrolling a declining share of Pell Grant recipients,” Mortenson tells Diverse. Based on enrollment of Pell Grant recipients and other indicators of disadvantage, he says, it is clear that elite universities are not behaving like charitable organizations.

For his part, Mortensen would put such elite universities “on probation” and not allow them to participate in student aid programs “until they implement a plan to become more engaged in the demographic changes taking place in the country.”

Another option would be to end the taxexempt status of colleges not serving the public interest. Revenue sharing or new tax policies favoring needy colleges are among the other options Congress should consider, he says.

“It’s not clear to me that Harvard would put $1 billion to better use than an HBCU,” according to Mortensen.

Overall, more than 60 colleges and universities have endowments of at least $1 billion, Grassley says, and more should act. “Yale’s action shows that despite some squawking, the sky won’t fall when universities increase the amount of money they spend from their endowments,” he adds. D


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