13 September 2016 Ways and Means Subcommittee holds hearing on University endowments The House Ways and Means Oversight Subcommittee on September 13, 2016 held a hearing entitled "Back to School: Review of Tax-Exempt College and University Endowments," that included discussion of parallels between increased tuition costs/student loan debt and the subprime mortgage crisis, and of greater transparency for higher education costs and efforts to control them. In an opening statement, Chairman Peter Roskam (R-IL) referenced the Subcommittee's previous hearing on the topic in October 2015 and said members "have learned that institutions are differently situated from each other, and one-size-fits all policy solutions may not be the answer. But we also have learned that when institutions prioritize helping their students and creating efficiencies on campus, they can find creative ways to make that happen." Rep. Tom Reed (R-NY) said in a statement that he continues to work on his Reducing Excessive Debt and Unfair Costs of Education (REDUCE) act, to require colleges with endowments larger than $1 billion to distribute a portion of the profits earned as tuition relief for students from working families. He said he additionally also wants to put a spotlight on schools' cost-containment policies. "We care about helping students and working families afford college. That's why we are working on a proposal that will require colleges and universities to submit a plan detailing their efforts controlling college costs. Its only right that we go beyond our endowment proposal and address the real culprit of rising college costs." said Reed. — Sheila Bair, President, Washington College, Chestertown, Maryland (formerly chair of the Federal Deposit Insurance Corporation) — Mark Schneider, Vice President and Institute Fellow, American Institutes for Research (formerly Commissioner of the National Center for Education Statistics) With regard to proposals to require endowment payouts, McCluskey said it is important to note that the uses for endowment funds are often restricted by donors and cannot simply be directed to financial aid, and that very few institutions have multibillion dollar endowments of the type that have attracted attention. Baum also suggested that concerns about endowments are focused on a small number of institutions, while most colleges and universities are not so well resourced. Bair drew parallels between the problem of student loan debt and the sub-prime mortgage crisis, including a lack of underwriting standards to consider whether the borrower can repay; negative amortization under which repayment plans can have students falling farther behind because their payments aren't enough to cover the compounding interest; and growing loan default and non-payment rates that force taxpayers to pick up the bill. Schneider recommended greater transparency of the public costs of "private" not-for-profit colleges through improving the IRS 990 Form that tax-exempt universities must file annually. He also recommended an excise tax to both encourage institutions to allocate a larger share of their endowments to financial aid and raise revenue to improve the education of students attending community colleges. Rep. Patrick Meehan (R-PA) said the problem of increased tuition costs is "overwhelmingly more impactful" than most realize, and has resulted in parents turning over their retirement savings and students borrowing at a dramatic rate, creating a bubble that has yet to burst. He asked Bair about her comparison of tuition trends to the mortgage crisis. Bair said that, while not the only factor, the ability to freely borrow has made it easier for schools to increase tuition because children can just borrow to pay for it, and it is a dynamic that feeds an asset bubble. Rep. Danny K. Davis (D-IL) said attempting to adjust endowment benefits for educational institutions could have an effect on other types of endowments, such as those for private foundations. He asked whether there are other elements of the tax code that could more directly help low-income students. Schneider suggested a new charitable tax credit that builds on the tax credit bond model. Baum said she supports the idea of providing incentives in the tax code, but not necessarily through tax credits that may not benefit some students, even with refundability, or provide them immediate money to pay bills. Chairman Roskam agreed with the limitations of a tax credit. He raised the notion of incentivizing donors to make contributions toward scholarships, along the lines of Section 170(e)(3) that provides an additional benefit for donations of inventory that benefit the needy.
Document ID: 2016-1540 | |||||
