“A U.S. Congressman is floating an idea that’s likely to find opposition from the wealthiest colleges: devote 25 percent of a school’s annual endowment income for financial aid or lose tax-exempt status.” …
From the article:
This isn’t likely to become law. If it did, colleges might just admit fewer middle and low income students.
Dadof1, why would admitting fewer lower/middle income students avoid the requirement to spend more of the endowment on that type of student? If the school is require, for example, to spend 25% of some number, say $3M, on low income student, and the school admits only 100 students in that group, those 100 would split the pot. If 1000 were admitted, they’d split it and each student would get less.
^What would keep the college from admitting fewer low and middle income students to spend less of the pot-o-money and maintain status quo to their bottom line? I suppose altruism and wanting to build an appropriate student body might motivate a college, but I wouldn’t bet on it.
Colleges with endowments over 1 billion probably are mostly “meets need colleges” anyway. Not sure if there would even be enough matriculated low and middle income students to spend 25% of the endowment income each year.
Could be wrong though… haven’t given this too much thought.
The rich schools will definitely admit less lower-income students if they lose tax-exempt status.
This regulation was fueled by the obscene returns of their endowments during the last few years but that may not continue for long. We shall see how they did in 2015.
If this regulation goes through the rich schools will be much more conservative with their investments and the pot of finaid will go down.
The wealthiest schools are already making themselves affordable to everyone they admit. There’s no rational reason to measure financial aid expenditures solely as a percentage of endowment income. If the financial aid program is generous in the extreme, and the absolute value of the gifts is high, I don’t see why the school should suffer for its generous fundraising.
At any rate, the Harvards/Stanfords of the world could immediately fix the problem by raising tuition to $100k and boosting the financial aid to match. Presto, the financial aid expenditures just tripled – and the vast majority of families are still paying the same price.
Seems like a good idea to me. There is no reason to have tax exempt status for institutions worth billions who horde those billions. If they had to spend 25% of the income on financial aid, that would relieve the burden on taxpayers of other forms of governmental financial aid including the loans that may never be repaid. And more middle and low income students would be accepted in order to meet the goal of spending 25% of the income.
Considering just under 10% of Congress has studied at an Ivy League school, the odds this’ll become law are about the same as a C student’s chances of getting into Harvard.
Since very few voters go to these institutions and lots of folks are feeling the crunch of paying student debt, I think it would have populist appeal.
Populist appeal often does not equal common sense or consitutionally allowable statutes.
I love perverse incentives- let’s punish the successful universities who have high graduation rates and give a pass to the bottom-feeding colleges which prey on Pell grant students who have high drop out rates and end up owing on student loans when they can’t find a job and never can get back to finish that BA which was supposed to be their ticket to the middle class.
The stories which are heartbreaking are the students who take out loans to attend college for a degree in leisure studies and end up mostly unemployable.
I’m not crying for the student with the CS or Econ degree from Stanford. When congress cracks down on the degree mills (which actually recruit students with lies about how financial aid and loans work) then we can all worry about Harvard’s endowment.
“…devote 25 percent of a school’s annual endowment income for financial aid or lose tax-exempt status.”
One problem is that the income is volatile, so this needs to be smoothed out over long periods of time. Otherwise fin aid will be high in some years and low in others.
Second, the Ivies have the best fin aid now. If this causes the Ivies to further enhance their financial aid, then it will make the competition to get into those schools even more crazy than it already is. Imagine if, to spend enough money, they just make undergrad at Harvard, Yale, Princeton, Penn, and Columbia are free to anyone who gets in. I think the other 3 have somewhat smaller endowments.
On the other hand, it wouldn’t be a terrible thing if it nudged these schools to gradually expand their undergraduate enrollment. I think Penn added 20 seats this year. Not sure if any of the others changed.
And then less well endowed schools will raise their prices to mimic the “prestige pricing”.
Is there nothing that these congressional clowns don’t want to regulate? Better to eliminate all corporate income taxes altogether, and end the opportunities for continued congressional idiocy. The high cost of college is caused by Federal loans, Federal taxes, Federal healthcare regulations, etc, etc,
Fortunately Penn is exempt because they are Quakers. Gotta like the religious exemption. Lol
so, HYS and their ilk could then make tuition zero, right? That would help comply with the law, while giving the 1%'ers a free education. Gotta love those unintended consequences!.