In recent weeks, a string of colleges and universities have announced enviable investment results. Leading the way was Yale, which earned 28 percent over the year ending June 30, increasing the school’s endowment to $22.5 billion overall.
Harvard, the world’s wealthiest university with $34.9 billion, beat the market again with a 23 percent return. There also were good returns for smaller schools such as Bowdoin (24.4 percent) and William & Mary (19.2 percent).
But while those numbers were coming out, some members of the Senate Finance Committee in Washington were wondering aloud why the rise in endowments isn’t stemming tuition increases. At a hearing last month, lawmakers batted around the idea of forcing at least some of the wealthier colleges to spend more savings on reducing costs.
“Senators, what would your constituents say if gasoline cost $9.15 a gallon?” Lynne Munson, an adjunct fellow at the Center for College Affordability and Productivity in Washington told the committee. “Or if the price of milk was over $15? That is how much those items would cost if their price had gone up at the same rate that tuition has since 1980.”
In the mid-1990s, a billion-dollar endowment was a mark of the financial elite, a club with just 17 schools in its ranks. By last year, 62 colleges had hit the mark. Within a few years there will likely be 100.
Private foundations are required by law to spend at least 5 percent of their endowments each year on their missions, but public charities – a category that includes colleges – face no such requirement. Holding colleges to the same standard is an idea that clearly interests Iowa Republican Sen. Charles Grassley, the minority leader of the Senate Finance Committee and Capitol Hill’s closest scrutinizer of non-profits.
“It’d be good to see the very elite institutions, with the richest endowments, take the lead and create a ripple effect throughout higher education to make college more affordable for everyone,” he said in a statement. It’s unclear right now, both Republicans and Democrats say, whether the proposal will make it out of the committee, which is considering several ideas related to taxes and higher education.
In fact, colleges spent on average 4.6 percent from their endowments last year, according to the latest figures from National Association of College and University Business Officers.
But if the billionaire colleges alone spent the full 5 percent, that would mean an extra $1.5 billion available annually for financial aid, calculates Michael Dannenberg, director of education policy at the New America Foundation, a Washington think-tank. He says such a requirement would be fair, given that colleges are allowed to invest tax-free. That perk has boosted many endowments by billions and carries an obligation to public service.