<p>I don't see any justification for the federal government getting involved in fiscal management of private universities, and it's really up to the states to manage the public ones. A reasonable conclusion might be "more hot air from Washington."</p>
<p>That said, the cost of higher education system is on the verge of being a bubble, and there's plenty of evidence regarding the end of bubbles. Every university I know is working hard on their endowment, a logical response to the current environment IMHO.</p>
<p>It's the tax-exempt part related to private schools that bothers me most. They are private so they can charge whatever the market will bear, but the tax-exempt portion I'm not too in favor of. Agree, too, that the states should manage their state schools not the feds.</p>
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<p>I think Sen. Grassley's point is that the federal government is already involved ,insofar as it gives an extremely valuable tax exemption to these pools of private capital. In exchange for that tax benefit, I don't see anything wrong with setting a minimum requirement of 5% spending from the endowment. That's already the rule for private foundations, and it essentially represents a quid pro quo: you get the federal tax exemption if and only if you spend some modest minimum fraction of the exempted money on charitable purposes. In other words, we don't want foundations (or university endowments) to be used simply as vehicles for tax-free accumulation of private capital without corresponding public benefits. You don't need to provide the minimum level of public benefit if you don't want to, but then you don't get the tax subsidy. Why not apply the same rule to the mega-endowments that Harvard, Yale et al. are accumulating? I wouldn't mandate that it be spent on financial aid or even on strictly education purposes, however. Research universities are also major engines of advances in human knowledge, and to my mind their research mission is every bit as important as their educational mission.</p>
<p>bclintonk - Good point. I'm big on consistency -- if the rule is 5% for private tax-exempt foundations then I can't really object to equal treatment for other tax exempts. (OK yeah, I'm bagging y'all here 'cause churches would be subjected also.) But leaving that out for now, it's much easier to determine what a charitable foundation's 5% distribution should be than it is for colleges. If a college builds a new dormitory to house and provide supplemental education to kids with remedial issues does that count as charitable giving? If it provides facilities for Special Olympics events (many colleges do) does that count? Need-based scholarships would probably count, but how about merit-based scholarships?</p>
<p>Remember that Congress cannot make a rule for HYP and another for colleges that do not have such large endowments. Many private institutions would be really strapped if they had to spend more. The public universities and the non-HYP private institutions educate the overwhelming majority of our students.</p>
<p>Sure they can. All they need to do is put a cap on what total amount of endowment is exempt from the 5% requirement. Anything above that must be spent.</p>
<p>"... put a cap on what total amount of endowment is exempt from the 5% requirement. Anything above that must be spent."</p>
<p>Bye bye Bill-and-Melinda-Gates Foundation, Bye bye Hartford Foundation, etc. etc. LOTS of private foundations have investment portfolios larger than HYPSM. Oh what a tangled web we weave when first we endeavor college monies to retrieve.</p>
<p>As was pointed out in post #4, it is ALREADY true for private foundations. Maybe not so tangled after all.</p>
<p>I have no problem with consistent application of regulation. Right now only charitable foundations (apparently) are required to distribute a percentage of their endowment (earnings?) each year. At least that's what I conclude from prior posts. Private colleges are not required to do so, public universities are not required to do so, and churches/religious-organizations are not required to do so. The tangled web I refer to is "require private colleges to distribute 5% of their endowment, but only if their endowment exceeds a certain (arbitrary?) amount -- continue to exempt the endowments of public universities and churches, and maintain the current levy on charitable institutions beginning with the first dollar." All this without defining what "distribution" means for an academic and/or academic/research institution. All I see in this is fuller employment for lawyers, accountants and lobbyists. For what? 5% of the $60B Harvard/Yale endowment is $3B --- a little less than one MONTH of Exxon-Mobil's net profit last year. (BTW, I'm against "excess profits" taxation for the same reason I'm against penalizing HYPS for their financial success.)</p>
<p>That's a reasonable point, but then you suggested the consequence would be "buh-bye" to private foundations which already live with this regulation.</p>
<p>I don't think this is that hard, people. Colleges and universities are already required to report how much they spend out of their endowments. They don't have any difficulty doing that. In most cases it's between 4 and 5%. Those with smaller endowments almost all spend 5%, sometimes a little more. Much more than that would be imprudent and would threaten to eat away at the endowment. The problem--if it is a problem, and I think it is--is that those with the largest endowments are spending a declining fraction of their endowments. So make 'em spend just a bit more, that's all. This is not rocket science.</p>
<p>I think the other driving component of the effort in congress is that they see the endowments escalating yet tuition keeps rising well ahead of the rate of inflation. It has done so for years and years.</p>
<p>Separately, I would take issue with requiring a school to spend if their endowment was greater than a certain amount. The burden would not be evenly distributed in that scenario. </p>
<p>Let's take an example from Massachusetts, Williams College and Boston College have similarly sized endowments. However, Williams College has less than 2,000 students total. Boston College has about 13,000 students when you could the graduate student.</p>
<p>To me, I think it is reasonable to expect something in return for the tax break. Making it consistent with other non-profits makes sense. I suspect that is what will probably happen.</p>
<p>Defend they may. However, I am beginning to think that there will be a break in the private tuitions. Some of these schools cannot be charging what the most selective schools are. As the clamp on borrowing and the financial crises in the US economy continue, I think there is going to be a slowdown on families who can pay the full freight. I'll bet all but the most selective schools are going to have to swallow some of these increases. This was a windfall year for schools with all of those 18 year olds. That population is diminishing as investments are decreasing and credit drying up.</p>
<p>It would be nice to have some enlightened government in Washington to seriously look at education (all levels) it is our future. The current cover of Business week: "Keeping America Competitive: How The U.S. Can Invent Its Way Back". Not going to happen unless education is a priority and people have access to it. This means everyone. Even the well off $75,000 according to gov can't pay as tax rates are starting to move to above 60%. See the thread on Stern.</p>
<p>Some of the most selective schools have already made adjustments or accommodations: families earning under $60K pay no more than 10% of income; loans capped at $9K for all families receiving finaid, home equity capped at $250K, etc. Others selectives will probably fall into line over the next few years and offer similar relief.</p>
<p>Of course the trick is getting in to one of those selective schools. I suspect that families whose kids don't make that cut will begin to seriously consider colleges with lower price tags ($38-40K as opposed to $48-52K) or public unis. Then. as families "vote with their feet," the cost of tuition willl plateau.</p>
<p>Ironically those very schools that are so generous with aid are the ones that many families are willing to break the bank for. I know a lot of folks who will borrow, beg, work extra to pay for a kid's Harvard education. But what about for a Hartwick, or Fordham, or Manhattan College education that costs just about as much? If the kid is way up there in stats, there are merit awards available but some of the kids who can most benefit from the smaller private school are those that will not get merit money from them, making them exorbitantly expensive.</p>
<p>nyc, I agree about voting with your feet. To me this is a no brainer. </p>
<p>cptofthehouse, I agree with what you say (not your last post, but the one before that). Frankly, parents will no longer be able to borrow what the colleges would like them to borrow. After all of the foreclosures and job losses, parents will now think again before borrowing more against their homes. Schools will need to give more in grants, watch their increases, or schools other than the more and most selective will have some empty seats and/or only educate students from wealthy families. You can't get squeeze blood out of a stone. JMO.</p>
<p>In the current economic climate, I'd expect to see several things:</p>
<ul>
<li><p>More families paying more attention to net COA, understood as COA less grant/scholarship aid---recognizing that loans may be difficult to secure, potentially a risky gamble in economically uncertain times, and essentially more a means of self-financing than true "aid"</p></li>
<li><p>More students opting for in-state public universities over private, given large differentials in net COA; and consequently some gains in selectivity at the top publics</p></li>
<li><p>Lower yield rates and consequently somewhat lower selectivity at the net costliest (mostly private) schools; though the same economic logic would affect OOS yields at the top publics, especially those with a large percentage of OOS students (e.g., Michigan, Virginia, Wisconsin) </p></li>
<li><p>More competition than ever to get into HYPSM, the other Ivies, and a handful of other well-endowed institutions that can afford to replace loans with grants and otherwise be generous with institutional aid</p></li>
<li><p>More top students, especially those with large EFCs, opting for schools that offer merit aid, consequently more pressure on more schools to increase merit aid, potentially at the expense of need-based aid. This would result in a "reverse Robin Hood" redistribution of aid from those with need to the more affluent.</p></li>
</ul>
<p>All in all, big changes in store. Some of the less well-endowed privates may be in for a rough ride.</p>