Well-funded schools vs. high college costs

Advocates for affordable education look forward to the debate sparked by growth in endowments

January 28, 2008|By Matthew Hay Brown | Matthew Hay Brown,Sun reporter

WASHINGTON -- Colleges and universities that are raising tuition costs even as they enjoy double-digit growth in their investment portfolios are drawing bipartisan scrutiny from Congress.

In the wake of a report showing that 74 U.S. schools have endowments of $1 billion or more, the Senate Finance Committee is asking the nation's wealthiest institutions of higher education, including the Johns Hopkins University and the University System of Maryland, for details on the fees they charge and the financial assistance they offer.

"It's fair to ask whether a kid should have to wash dishes in the dining hall to pay his tuition when his college has a billion dollars in the bank," said Sen. Charles E. Grassley of Iowa, the senior Republican on the Senate panel. "We're giving well-funded colleges a chance to describe what they're doing to help students."

Education officials, meanwhile, see the query as an opportunity to clear up misconceptions about college costs.

"The connection they're making is the growth of the endowments, the spending rates and the rising tuition costs," said William E. Kirwan, chancellor of the University System of Maryland. "Endowment income is such a small fraction of the operating budget at most public institutions that growth would have little effect on holding down costs."

With an endowment of more than $810 million in 2007, the University System of Maryland ranked 90th nationwide in the report released last week by the National Association of College and University Business Officers. The Johns Hopkins University, with an endowment of $2.8 billion, came in 25th.

University assets nationwide grew by 24.1 percent last year. But administrators say their endowments aren't simply bank accounts to fund whatever they would like. Much of the money has been directed by donors toward specific uses, and it must be managed carefully to protect against reversals.

"It's the pot of money that we rely upon to run the university not only this year but next year and the year after and 100 years from now," said Hopkins spokesman Dennis O'Shea. "We need to be able to rely on it to support the operations of the university after accounting for inflation, and we need to be able to rely on it after good investment years and after bad investment years."

Advocates for more affordable education are looking forward to the debate to come.

"Most people agree that college costs are too high, universities are probably not spending enough on financial aid and students are ... incurring too much debt, which is affecting their futures when they come out of school," said Steven Roy Goodman, a Washington-based education consultant. "This is the beginning of a much broader, a much farther-reaching question as to what the role of universities [is] in our society and how we should be financing these universities."

The Senate Finance Committee, which has jurisdiction over federal tax policy, has discussed legislation that would force colleges and universities to spend at least 5 percent of their assets each year, as most private foundations are required. Grassley and committee Chairman Max Baucus, a Montana Democrat, asked 136 schools last week for detailed financial information before they decide to proceed on what Grassley called "a potential pay-out requirement."

"University endowments receive very generous tax breaks under the Internal Revenue Code," Baucus and Grassley wrote in a letter to the schools, all of which have endowments of at least $500 million. "We want to better understand how these tax benefits for higher education endowments are improving education and making undergraduate studies more affordable for low- and middle-income families today."

The senators suggest that such talk has already goaded Harvard and Yale - ranked first and second with endowments of $34.6 billion and $22.5 billion, respectively - to expand financial aid. Schools generally have bristled at the possibility of a federal spending rule.

"Colleges and universities are actually doing quite a bit already in the financial aid front," said Brian Flahaven, director of government relations for the Council for Advancement and Support of Education. "But obviously endowments are not just geared toward student aid. They're for the long-term support of the university."

Lynne Munson, a fellow at the Center for College Affordability and Productivity in Washington, says the ballooning endowments of the past decade have caught administrators by surprise.

"They've put a great deal of effort into changing their investment and management strategies for their endowments, and obviously it's paid off wonderfully," she said. "My complaint is that they haven't put the same amount of effort or thought into what to do with those monies."

Johns Hopkins saw 19.1 percent growth in its endowment last year. Undergraduate tuition and room and board at the private university come to nearly $47,000 this school year.

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