[House Hearing, 114 Congress]
[From the U.S. Government Publishing Office]








                  THE RISING COSTS OF HIGHER EDUCATION
                             AND TAX POLICY

=======================================================================

                                HEARING

                               before the

                       SUBCOMMITTEE ON OVERSIGHT

                                 of the

                      COMMITTEE ON WAYS AND MEANS
                     U.S. HOUSE OF REPRESENTATIVES

                    ONE HUNDRED FOURTEENTH CONGRESS

                             FIRST SESSION

                               __________

                            OCTOBER 7, 2015

                               __________

                          Serial No. 114-OS08

                               __________

         Printed for the use of the Committee on Ways and Means





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                      COMMITTEE ON WAYS AND MEANS

                     PAUL RYAN, Wisconsin, Chairman

SAM JOHNSON, Texas                   SANDER M. LEVIN, Michigan
KEVIN BRADY, Texas                   CHARLES B. RANGEL, New York
DEVIN NUNES, California              JIM MCDERMOTT, Washington
PATRICK J. TIBERI, Ohio              JOHN LEWIS, Georgia
DAVID G. REICHERT, Washington        RICHARD E. NEAL, Massachusetts
CHARLES W. BOUSTANY, JR., Louisiana  XAVIER BECERRA, California
PETER J. ROSKAM, Illinois            LLOYD DOGGETT, Texas
TOM PRICE, Georgia                   MIKE THOMPSON, California
VERN BUCHANAN, Florida               JOHN B. LARSON, Connecticut
ADRIAN SMITH, Nebraska               EARL BLUMENAUER, Oregon
LYNN JENKINS, Kansas                 RON KIND, Wisconsin
ERIK PAULSEN, Minnesota              BILL PASCRELL, JR., New Jersey
KENNY MARCHANT, Texas                JOSEPH CROWLEY, New York
DIANE BLACK, Tennessee               DANNY DAVIS, Illinois
TOM REED, New York                   LINDA SANCHEZ, California
TODD YOUNG, Indiana
MIKE KELLY, Pennsylvania
JIM RENACCI, Ohio
PAT MEEHAN, Pennsylvania
KRISTI NOEM, South Dakota
GEORGE HOLDING, North Carolina
JASON SMITH, Missouri
ROBERT J. DOLD, Illinois

                       Joyce Myer, Staff Director

         Janice Mays, Minority Chief Counsel and Staff Director

                                 ______

                       SUBCOMMITTEE ON OVERSIGHT

                  PETER J. ROSKAM, Illinois, Chairman

MIKE KELLY, Pennsylvania             JOHN LEWIS, Georgia
PAT MEEHAN, Pennsylvania             JOSEPH CROWLEY, New York
GEORGE HOLDING, North Carolina       CHARLES B. RANGEL, New York
JASON SMITH, Missouri                LLOYD DOGGETT, Texas
KRISTI NOEM, South Dakota
JIM RENACCI, Ohio























                            C O N T E N T S

                               __________

                                                                   Page

Advisory of October 7, 2015 announcing the hearing...............     2

                               WITNESSES

Brian Galle, Professor of Law, Georgetown University Law Center..    21
Terry W. Hartle, Senior Vice President, American Council on 
  Education......................................................    44
David Lucca, Ph.D., Research Officer, Federal Reserve Bank of New 
  York...........................................................     5
MaryFrances McCourt, Senior Vice President and Chief Financial 
  Officer, Indiana University, on behalf of the National 
  Association of College and University Business Officers 
  (NACUBO).......................................................    32
Richard K. Vedder, Ph.D., Distinguished Professor of Economics, 
  Ohio University, and Director, Center for College Affordability 
  and Productivity...............................................    16

                   EXTENDED TESTIMONY FOR THE RECORD

Terry W. Hartle..................................................   107
Richard K. Vedder................................................   132

                       SUBMISSIONS FOR THE RECORD

Business Coalition for Fair Competition, BCFC....................   142
NEXUS Research & Policy Center...................................   150

 
                  THE RISING COSTS OF HIGHER EDUCATION
                             AND TAX POLICY

                              ----------                              


                       WEDNESDAY, OCTOBER 7, 2015

             U.S. House of Representatives,
                       Committee on Ways and Means,
                                 Subcommittee on Oversight,
                                                    Washington, DC.

    The Subcommittee met, pursuant to notice, at 10:00 a.m., in 
Room 1100, Longworth House Office Building, Hon. Peter J. 
Roskam [Chairman of the Subcommittee] presiding.

    [The advisory announcing the hearing follows:]

ADVISORY

FROM THE 
COMMITTEE
 ON WAYS 
AND 
MEANS

                       SUBCOMMITTEE ON OVERSIGHT

                                                CONTACT: (202) 225-3625
FOR IMMEDIATE RELEASE
Wednesday, September 30, 2015
No. OS-08

                  Chairman Roskam Announces Hearing on

                  The Rising Costs of Higher Education

                             and Tax Policy

    House Committee on Ways and Means Subcommittee on Oversight 
Chairman Peter J. Roskam (R-IL), today announced that the Committee on 
Ways and Means Subcommittee on Oversight will hold a hearing on the 
rising costs of higher education and tax policy. The hearing will take 
place on Wednesday, October 7, 2015, in Room 1100 of the Longworth 
House Office Building, beginning at 10:00 a.m.
      
    Oral testimony at the hearing will be from the invited witnesses 
only. However, any individual or organization may submit a written 
statement for consideration by the Committee and for inclusion in the 
printed record of the hearing.
      

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:

      
    Please Note: Any person(s) and/or organization(s) wishing to submit 
written comments for the hearing record must follow the appropriate 
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which you would like to make a submission, and click on the link 
entitled, ``Click here to provide a submission for the record.'' Once 
you have followed the online instructions, submit all requested 
information. ATTACH your submission as a Word document, in compliance 
with the formatting requirements listed below, by the close of business 
on Wednesday, October 7, 2015. For questions, or if you encounter 
technical problems, please call (202) 225-3625 or (202) 225-2610.
      

FORMATTING REQUIREMENTS:

      
    The Committee relies on electronic submissions for printing the 
official hearing record. As always, submissions will be included in the 
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not alter the content of your submission, but we reserve the right to 
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maintained in the Committee files for review and use by the Committee.
      
    1. All submissions and supplementary materials must be submitted in 
a single document via email, provided in Word format and must not 
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the Committee relies on electronic submissions for printing the 
official hearing record.
      
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or organizations on whose behalf the witness appears. The name, 
company, address, telephone, and fax numbers of each witness must be 
included in the body of the email. Please exclude any personal 
identifiable information in the attached submission.

    3. Failure to follow the formatting requirements may result in the 
exclusion of a submission. All submissions for the record are final.
      
    The Committee seeks to make its facilities accessible to persons 
with disabilities. If you are in need of special accommodations, please 
call 202-225-1721 or 202-226-3411 TDD/TTY in advance of the event (four 
business days notice is requested). Questions with regard to special 
accommodation needs in general (including availability of Committee 
materials in alternative formats) may be directed to the Committee as 
noted above.
      
    Note: All Committee advisories and news releases are available 
online at 
http://www.waysandmeans.house.gov/.

                                 

    Chairman ROSKAM. The Subcommittee will come to order.
    Welcome to the Ways and Means Oversight Subcommittee 
hearing on ``The Rising Costs of Higher Education and Tax 
Policy.''
    Right now college students are preparing for a great 
tradition in this country, homecoming. However, as they head to 
the tailgates and the football teams are taking the field, 
parents and some students themselves are facing a harsh 
reality.
    The first tuition checks of the year are clearing the bank, 
and families are figuring out how to make ends meet, during one 
of the biggest financial challenges in modern life, that is, 
figuring out how to pay for the cost of college.
    Let us talk about some numbers. The current median income 
in the United States is about $55,000 a year. If you look at 
private, nonprofit, 4-year schools, the average sticker price, 
meaning the advertised price before financial assistance, is 
more than $31,000. For a public 4-year college, it is just 
under $10,000, and on top of that, students obviously need to 
buy food and books and pay rent. The College Board estimates 
that students spend between $15,000 and $23,000 each year to 
cover those costs.
    So without financial aid, college would cost somewhere 
between $24,000 and $54,000 a year, and students are graduating 
with, on average, $33,000 a year in student loan debt.
    I have a chart I would like to put up.
    We talk a lot about the increasing cost of health care in 
this Committee. Tuition makes those numbers look tame. Medical 
costs have increased over 600 percent over the last 40 years, 
but tuition and fees have doubled that, increasing over 1,200 
percent and show no signs of slowing down.
    So just marinade in that for a second. We have had a huge 
national debate about healthcare costs, very different 
opinions, and so forth, but what brought all Americans together 
was the notion of the acceleration of healthcare costs that was 
outpacing inflation to a breathtaking point, and yet tuition 
and fees have doubled the pace of health care.
    Today we are here to look at what is behind the rising cost 
of college tuition and to consider whether this Nation's tax 
policies are partly to blame.
    We will come at the problem from a number of different 
angles. First, we are going to look at Federal student aid. In 
1987, Secretary of Education Bill Bennett argued in a ``New 
York Times'' editorial that increases in financial aid allow 
colleges to raise their tuition rates because schools think the 
students can afford it.
    The New York Federal Reserve recently published a study 
that bears this out. The Federal Reserve study finds that at 
private schools a $1 increase in the subsidized loan cap could 
increase tuition by as much as 65 cents. To be clear about what 
this means, the data shows that when the Federal Government 
makes more loan money available, schools generally respond by 
raising tuition, and one of the studies' authors, economist 
David Lucca is here today to discuss those findings.
    Next, we're going to consider how schools are spending 
their money. Over the last 30 years schools have significantly 
increased their administrative staff and engaged in an ``arms 
race'' with each other to build things like movie theaters and 
luxury gyms. Are these expenses necessary? Are they really 
helping students secure a better education?
    We will also look at how private schools are setting their 
executive compensation rates. For nonprofit institutions, it 
seems like a lot of university presidents are making very good 
money. For example, in 2013, 42 private college presidents made 
more than a million dollars.
    One way schools can justify their compensation as 
reasonable to the IRS for the purpose of favorable tax 
consideration is to show that similarly situated institutions 
pay comparable salaries to their executives. Well, that method 
points in one direction: up. It allows executives to increase 
their compensation year after year simply because others are 
doing it, too.
    I am not against people succeeding, but this is another 
area that is important for our Subcommittee to consider. Are 
the highest paid college and university presidents the ones 
providing the best education for students? If not, why not? 
Further, how does tax policy fit into that math?
    Finally, we will look at endowments. Currently, endowments 
and their investment earnings are tax exempt. Congress provides 
that exemption to further a charitable purpose: better 
educating our Nation's students, preparing them for successful 
careers, and increasing the store of human knowledge through 
research.
    We understand that endowments can help assure financial 
stability to schools, but about 90 schools have endowments of 
more than a billion dollars, and some of those schools have 
made great strides in providing exceptional financial aid to 
their students, but others have not. So we will look at those 
issues as well.
    We look forward to hearing from our witnesses who can shed 
light on these important challenges as we examine whether 
Federal tax policies for colleges and universities are best 
serving students and families.
    At this time, I recognize Mr. Lewis for the purpose of his 
opening statement.
    Mr. LEWIS. Good morning. Mr. Chairman, I want to thank you 
for holding today's hearing on ``The Rising Costs of Higher 
Education and Tax Policy.''
    I am proud to have many outstanding colleges and 
universities in my congressional district. Spellman, Morehouse, 
Georgia State, Clark Atlanta University, Georgia Tech, Agnes 
Scott, and Emory, all just a few of more than 80 institutions 
of higher learning in Metro Atlanta.
    These and other colleges and universities across the 
country play a critical role in our society. They educate our 
young people and create the skilled workforce that we need to 
compete with other countries around the world.
    These institutions train future doctors, nurses, teachers, 
engineers, and scientists. They build the technology and 
develop the business leaders that will create a better tomorrow 
for generations yet unborn. At academic research centers, 
students and professors seek solutions to the most difficult 
issues facing the global family. They lead the way in searching 
for cures to cancer, Alzheimer's, HIV-AIDS and other diseases.
    Perhaps most important, institutions of higher learning 
play a key role in expanding opportunity and reducing income 
inequality for those who have been left out and left behind for 
too long. A college degree creates a significant advantage for 
an individual's lifetime earnings.
    For example, in 2014, the average weekly earnings of a 
college graduate was over 60 percent higher than a worker with 
only a high school diploma. Every year higher education becomes 
more important to our Nation's economic needs. Federal student 
aid programs like Pell Grants and student loans are critical 
tools to ensure that a college education is affordable and 
accessible to all who aspire.
    In light of a decrease in State support for higher 
education, it is more important than ever for the Federal 
Government to do our part and play our role. As Members of 
Congress, we have a mission, an obligation, and a mandate to 
keep the dream of higher education within the reach of every 
student.
    I look forward to hearing from today's witnesses and thank 
you all for being here today.
    Thank you, again, Mr. Chairman, for holding this hearing.
    Chairman ROSKAM. Thank you, Mr. Lewis.
    Today we have a panel comprised of academics, industry 
experts, college and university representatives, and our panel 
is as follows:
    Dr. David Lucca, Research Officer at the Federal Reserve 
Bank of New York;
    Dr. Richard Vedder, Distinguished Professor of Economics at 
Ohio University and Director of the Center for College 
Affordability and Productivity;
    Dr. Brian Galle, Professor of Law at Georgetown University 
Law Center;
    MaryFrances McCourt, Senior Vice President and Chief 
Financial Officer at Indiana University, on behalf of the 
National Association of College and University Business 
Officers; and
    Terry Hartle, Senior Vice President of the American Council 
on Education.
    Thank you all for your time today.
    Mr. Lucca, you are recognized for 5 minutes.

      STATEMENT OF DAVID LUCCA, PH.D., RESEARCH OFFICER, 
                FEDERAL RESERVE BANK OF NEW YORK

    Mr. LUCCA. Chairman Roskam, Ranking Member Lewis, and 
Members of the Subcommittee, thank you for inviting me to 
testify today.
    My name is David Lucca. I am a Research Officer at the 
Federal Reserve Bank of New York. I was born in Switzerland and 
am happy to share with you that I am a naturalized U.S. citizen 
as of today.
    In July I coauthored, along with Taylor Nadauld of Brigham 
Young University and Karen Shen of Harvard University, a report 
entitled ``Credit Supply and the Rising College Tuition 
Evidenced from the Expansion in Federal Student Aid Programs.''
    My testimony today, which does not represent the official 
view of the Federal Reserve Bank of New York or any other parts 
of the Federal Reserve System, will focus on the research and 
conclusions in that report.
    First I would like to discuss the motivation for our 
research. The rapid growth in student debt in recent years is 
reminiscent of the expansion in mortgage credit in the first 
half of the 2000s, and understanding its consequences is a key 
economic research question.
    Federal aid programs are a key source of student credit 
with about 90 percent of all student loans in the United States 
originating under such programs. There are clear economic 
rationales for government support of student loan programs, but 
the implications of large credit expansions can be more subtle.
    Access to more borrowing increases the spending capacity of 
each borrower, which generally will boost demand. Our study 
aims to determine to what degree this increase in demand for 
higher education may in the short run be reflected in higher 
tuition prices at postsecondary education institutions.
    To that end we studied tuition setting following changes to 
the annual student aid limits that took place in recent years. 
Here is a summary of our conclusions.
    Our main finding is that changes in subsidized loan amounts 
have been associated with sizable increases in posted tuition. 
Our estimate suggests that an additional dollar of per-student 
credit led to about a 70-cent increase in posted tuition. We 
find smaller effects on tuition for additional Pell Grants and 
unsubsidized loans of about 55 cents and 30 cents on the 
dollar, respectively.
    Because of the many factors that went into account for our 
study, I am much more confident that the subsidized student 
loan availability has had an impact on tuition as opposed to 
other forms of aid like Pell Grants and unsubsidized loans.
    Our study sample includes a large number of public, for-
profit, private and not-for-profit institutions. We find it 
likely that tuition will rise in response to the greater 
availability of student loans, to be more pronounced among the 
more expensive private institutions offering 4-year degrees 
that are also among the more but not the most selective in 
terms of admission rates.
    We are currently revising the study to expand the sample of 
institutions and to address helpful comments and suggestions we 
have received, including some from a trade group represented on 
today's panel.
    Even with these revisions, we believe our findings on the 
effects of the availability of Federal student aid on tuition 
will not materially change. Nonetheless, it is important that 
our findings not be misinterpreted or blown out of proportion.
    I will now discuss some of the limits to our study 
findings, as well as other factors that you should bear in mind 
when considering the results of our research.
    Our results are not a comprehensive explanation of tuition 
over longer periods of time and are not informative about other 
possibly important factors in the rise of college tuition. 
These other factors could include the decline in State 
contribution to public universities and an increasing demand 
for higher education because, for example, of the rising wage 
gap between college educated workers and others.
    Next, the study speaks to posted tuition rather than 
tuition that the institution discounts and grants because 
comprehensive measures of these are generally unavailable to 
researchers. I do not believe that studying the actual tuition 
paid by students rather than posted tuition will have 
materially changed our findings, but it would have certainly 
been preferable.
    Finally, while our study suggests that tuition price 
increases may be lowering the impact of some Federal student 
aid, these are not the only factors that should be considered 
when evaluating the effectiveness of student aid. For one, 
these programs could be essential for students of lower-income 
families to access higher education.
    Also, long-term price effects may be smaller than what we 
estimate in the short run, as the institutions boost student 
enrollment capacity over time. This expansion in enrollment may 
constitute a public benefit as more students could access 
higher education in the long run.
    Thank you for your attention. I am happy to answer any 
questions you may have.
    [The prepared statement of Mr. Lucca follows:]
    
    
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    Chairman ROSKAM. Thank you, Dr. Lucca.
    Dr. Vedder.

STATEMENT OF RICHARD K. VEDDER, PH.D., DISTINGUISHED PROFESSOR 
            OF ECONOMICS, OHIO UNIVERSITY, AND DI- 
         RECTOR, CENTER FOR COLLEGE AFFORDABILITY AND 
                          PRODUCTIVITY

    Mr. VEDDER. It is widely agreed that the American tax 
system violates most of the basic principles of taxation 
relating to simplicity, efficiency and fairness, and that tax 
reform should lead to lower marginal rates, an expanded tax 
base with fewer exemptions, credits, and special loopholes.
    Higher education tax policies contribute somewhat to this 
problem. People can lower their tax liability by making gifts 
to non-academic aspects of university life, such as building 
fancy stadium skyboxes or luxurious resort-like housing 
facilities. Tax treatments of some collegiate compensation 
arrangements deserve scrutiny.
    But today I want to talk mainly about university 
endowments. Almost a half trillion dollars is invested in 
university endowment funds. The distribution is extremely 
unequal. The top 1 percent of measured endowments has nearly 30 
percent of all the funds.
    There are several schools with over 1 million dollars in 
funds for every student, enough to provide $50,000 per student 
in annual investment income, using a 5 percent payout rate. The 
average institution, however, has about $25,000 of endowment 
per student, while endowments are particularly critical for 
private institutions. Four of the 15 largest ones are held by 
State universities.
    My student associate Justin Strehle and I have used 
econometric techniques to examine the relationship between 
endowment spending and several key variables, looking at a 
sample of nearly 500 schools, including most of the largest and 
most prestigious American colleges and universities.
    The basic question asked is: Are endowments used for useful 
public purposes? Let me share four conclusions.
    First, endowments are not generally used to lower the 
stated tuition fees of colleges. There is no statistically 
significant relationship between endowment size and tuition 
fees.
    There are exceptions. Berea College in Kentucky, the 
College of the Ozarks in Missouri, and historically Cooper 
Union in New York City have used endowments to essentially 
eliminate student fees, but that is rare.
    Second, endowments are used some to provide scholarships, 
effectively lowering the actual or net tuition fee paid by 
students. However, assuming a 4 or 5 percent payout rate, the 
evidence suggests that typically less than 20 cents out of 
every dollar of endowment income goes for this purpose. Making 
college more affordable is not the dominant use of endowed 
resources.
    Third, because of inherent measurement issues, it is 
difficult 
to assess the relationship between endowments and institutional 
quality.
    Fourth, magazines rank schools mainly on how they satisfy 
student needs. Do students like the professors, excel after 
graduation, avoid much debt, graduate in a timely manner, and 
so on?
    Controlling for other factors, there is no statistically 
significant relationship between the quality of an institution 
and an endowment size.
    Fifth, there is some indication that some endowment funds 
go to increase faculty compensation at institutions. In some 
cases, this might lead to higher quality teachers and 
researchers, but it might also lead to excessive bureaucracies 
or unjustified pay increases rather than meeting student needs. 
The evidence is somewhat murky but raises real questions about 
whether endowment funds mainly serve social objectives 
justifying special tax treatment.
    The quality gap between the public and private school has 
widened over time partly because of Federal student loan 
policies and increasingly parents believe success depends on 
their children getting into highly endowed academic, gated 
communities, such as Ivy League schools. This trend is arguably 
inconsistent with basic American egalitarian ideals, and 
special tax preferences of endowments, especially for extremely 
wealthy schools, may be of questionable social value.
    Thank you.
    [The prepared statement of Mr. Vedder follows:]
    
    
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    Chairman ROSKAM. Thank you, Dr. Vedder.
    Mr. Galle.

          STATEMENT OF BRIAN GALLE, PROFESSOR OF LAW, 
                GEORGETOWN UNIVERSITY LAW CENTER

    Mr. GALLE. Thank you, Mr. Chairman, Ranking Member Lewis, 
Members of the Subcommittee.
    My name is Brian Galle. I am a professor at Georgetown 
University Law Center.
    American colleges and universities are the best in the 
world, but for reasons that are in part out of their control, 
and probably Congress', costs in the education sector have 
risen faster than inflation, a lot faster, and likely will in 
the future. Costs are rising because of structural factors in 
the economy and the nature of nonprofit organization. These are 
things that are hard to change in the short term.
    But our tax policy has also, in my view, contributed in a 
couple of ways to cost growth. Tax policy has encouraged 
universities to save money instead of spending it on students, 
and has helped to drive up administrators' salaries.
    Let me talk first about endowment funds and then executive 
compensation.
    To be clear, universities should have endowments. They 
should have a pool of money that is set aside for future needs 
in case times get tight. But modern universities are taking 
their rainy-day savings to possibly absurd extremes. You could 
read Harvard's 2013 tax return. Harvard could put all of its 
investments in a money market fund tomorrow, make its tuition 
free for all, and then keep spending at 2013 levels for another 
12 years. That is quite a rainy day.
    Most colleges and universities have spending policies that 
are designed to keep the school's endowment growing in real 
terms after inflation terms forever. According to the National 
Association of College and University Business Officers, the 
average private school spends less than 5 percent of its net 
investment assets every year.
    So if you make a gift to your alma mater and you restrict 
that gift to a particular purpose, most schools have a rule 
that will prohibit them from spending more than 5 percent of 
the gift in any year. That way the school is only spending 
investment earnings and is never spending that gift principal.
    This growth plan is working. Education costs have gone up, 
but college investment assets have grown a little faster, and 
the bigger each school's investment account grows, the more 
money they have to pay their fund managers in order to invest.
    Now, that is all money that could be going to need-based 
financial aid. It could be going to outreach to underserved 
communities, to new teaching technologies, cutting-edge 
research. It is a lost opportunity, in other words. You can 
understand why colleges' alumni would like the idea that their 
alma mater is going to keep getting richer forever, but it is 
not necessarily a good idea for America. We should be investing 
in kids' futures, not bond futures.
    I do not necessarily get behind the idea of government 
telling market actors how to run their businesses, but it turns 
out in this case we already are. Federal tax policy is 
contributing to the culture of big college wealth accumulation. 
We give a bigger tax break to donors who restrict their gifts 
so that the gifts cannot be spent right now, and the longer it 
takes to spend the money, the bigger the tax break.
    Keep in mind that if the 5 percent spending plan works as 
colleges intend, the school will never spend the donated 
principal that the donor took a deduction on when given.
    There are a few ways to fix the problem. I am not a fan of 
taxing endowments or endowment returns because I think taxing 
investments has unwanted distortive effects on investments and 
other choices. Also, as I am sure you know, this body in the 
past has considered extending the minimum payout rule that 
applies to private foundations, to educational organizations.
    I support minimum payouts for private foundations and donor 
advice funds, and actually think the current level of minimum 
spending should be higher, but a floor might not be flexible 
enough admittedly for a charity that, unlike a foundation, has 
a huge workforce and consumer base. So my recommendation would 
be to consider reducing or eliminating the tax advantage that 
comes with giving to organizations that restrict their 
endowment spending.
    We could calculate how long it will take to spend out a 
gift at current spending levels, compute the extra tax benefit 
the donor is getting as a result, and reduce the current 
contributions by some fraction of that amount. Then at least we 
would just be neutral toward instead of encouraging saving over 
spending on students.
    Let me also now talk about administrator compensation. 
Without oversight, administrators can make decisions for their 
school that make it easier for them to be more highly 
compensated. For instance, my research suggests that schools 
with more tuition and more endowment savings tend to pay their 
administrators more.
    The existing oversight comes mostly from Section 4942 of 
the Tax Code, the so-called intermediate sanctions regime. 
These are the rules that say a school has to pay a penalty for 
overpaying its top administrators. Under the regulations, 
schools get the benefit of the doubt if they can show that 
their compensation is comparable to others, and, of course, no 
one wants to say that their president is below average, so you 
get a ratcheting up effect.
    My research shows that pay started going up much faster in 
2002 after the IRS issued the comparable salary rule. This is 
an area where my research suggests that it is possible that 
market forces could work if we gave them a little bit of help.
    I find that when you make it easier for donors to know what 
executives at their alma maters or the other institutions they 
are supporting are getting paid, they will respond fairly 
quickly if they think those administrators are getting too 
much. So instead of asking the IRS to guess what a comparable 
salary is, we might instead just require a more complete and 
honest disclosure of presidents' pay packages, including items 
that right now are usually pretty opaque, like housing, travel 
in summertime, and benefits.
    Thank you again for inviting me to testify today. I am 
happy to answer any questions you may have.
    [The prepared statement of Mr. Galle follows:]
    
    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    
       

                                 
    Chairman ROSKAM. Thank you, Mr. Galle.
    Ms. McCourt.

  STATEMENT OF MARYFRANCES MCCOURT, SENIOR VICE PRESIDENT AND 
 CHIEF FINANCIAL OFFICER, INDIANA UNIVERSITY, ON BEHALF OF THE 
    NATIONAL ASSOCIATION OF COLLEGE AND UNIVERSITY BUSINESS 
                       OFFICERS (NACUBO)

    Ms. MCCOURT. Thank you for this opportunity.
    I am speaking on behalf of the National Association of 
College and University Business Officers, representing 
financial officers at 2,100 colleges and universities.
    I came to higher education 10 years ago after 20 years as a 
corporate finance executive. At Indiana University, I managed 
one of the largest and most complex institutions of higher 
education in the country, with an annual operating budget of 
over $3.3 billion, over 105,000 students across seven campuses.
    I take very seriously the responsibility to deliver on the 
purpose of higher education, to enhance intergenerational 
mobility, and drive the knowledge creation and innovation that 
supports economic growth.
    As demographic, geographic, financial and cultural forces 
reshape our economy, we are using sophisticated business 
analytics tools to implement our mission and optimize our 
operations to meet the expectations of all of our stakeholders, 
from parents and students to our donors, to the U.S. economy at 
large.
    I am held accountable by IU's governing board of trustees 
who hold the university's financial, physical and human assets 
in trust for today's students and future generations.
    The dramatic erosion of State support has been our most 
challenging financial pressure. In the mid-1980s, State 
operating appropriations made up 58 percent of the general 
education fund budget, and tuition and fees just 26 percent. 
That ratio has now completely flipped. Just since 1990, had 
State appropriations kept up with CPI, we would have received 
$125 million more in our fiscal year 2014 budget, and had it 
kept up with the higher education price index, we would have 
received $225 million more just that year.
    However, we have managed to thrive through our focused 
attention on running efficient operations, to reallocate 
resources for strategic investment. Historically low tuition 
increases are our new normal.
    Just as an aside, at Indiana University, tuition increased 
this past fiscal year from zero dollars a week to $4.46 a week. 
Despite this, we have invested heavily in student success in 
affordability with significant attention to the reduction of 
student debt. Our institutional aid budget of $287 million has 
increased $139 million, or 106 percent, over the past 8 years.
    The national focus on sticker price rather than net price 
is missing this important fact. The majority of students are 
not paying sticker price, and student debt at Indiana 
University had decreased over $82 million, or 16 percent, in 
the past 3 years.
    We also balance short-term needs with long-term financial 
viability. We have comprehensive long-term financial models to 
proactively manage our several billion dollar operation 
commensurate with corporate business practice.
    Our strategic financial planning also includes prudent 
management of our endowment. Endowed funds established 
contractually with donors represent IU's promise to use income 
and investment gains generated by their gifts to support a 
donor directed initiative tied to our mission into perpetuity.
    Legally our endowment cannot be used as a rainy day fund. 
Donors must consent to a change in use. Endowment 
distributions, be they for financial aid or other operational 
areas, relieve tuition pressure and have served as a critical 
contributor to student access.
    Private donors are transferring wealth for the public good, 
and access to higher education has never been greater.
    In a recent report Child Care Aware of America found that 
in 2013, the average annual cost for an infant in center-based 
care was higher than a year's tuition and fees at a 4-year 
public college in 31 States and the District of Columbia. Our 
faculty and staff are highly educated and are often experts or 
leaders in their field. Our academic programs and operations 
require state-of-the-art information technology. A standard of 
care demanded by the employers of our students. The cost of 
providing infant and childcare simply does not compare to the 
cost of running our center for applied cyber research, cyber 
security research, or our national center for genome analysis 
support.
    I raise the comparison to day care because while there is a 
public outcry that the cost of college is too high, we have not 
had a fundamental conversation about what a college education 
should cost to ensure America's educational institutions remain 
the finest in the world.
    Are higher education institutions concerned about student 
affordability? All day long, yes.
    As I examined the issue, I asked myself what has happened 
since the financial crisis that moved this conversation front 
and center. The crisis impacted families' ability to pay for 
college. Median household income has remained flat. Housing 
wealth and volatile stock markets limited parents' ability to 
draw on their savings and other forms of borrowing. Families 
turned to student loans.
    We will continue to maintain our focus on these issues and 
we will continually direct attention to the role we all play in 
the multitude of factors that are contributing to this national 
issue as we work to fulfill the dreams we would have for our 
own children: A bright future built on a strong educational 
foundation.
    Thank you for having me here today.
    [The prepared statement of Ms. McCourt follows:]
    
    
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    Chairman ROSKAM. Thank you, Ms. McCourt.
    Mr. Hartle.

 STATEMENT OF TERRY W. HARTLE, SENIOR VICE PRESIDENT, AMERICAN 
                      COUNCIL ON EDUCATION

    Mr. HARTLE. Thank you very much, Mr. Chairman. I appreciate 
the opportunity to be here with you today.
    The price of higher education is a huge issue, and there is 
no shortage of evidence that the public and policymakers are 
deeply worried. I talk to college and university presidents 
every day, and over the last 5 years this issue, the price of 
higher education and what can be done to minimize it, is by far 
the issue that has most frequently been on their mind.
    Every president I know wants to find ways to minimize 
tuition increases while offering the highest possible quality 
education to their students. American higher education is a 
very complex and diverse industry. There are roughly 4,700 2-
year and 4-year degree granting institutions in America, most 
of which are public and private, not-for-profit. There are 
about 17 million undergraduate students, more students than 
America currently has in high school.
    Colleges and universities differ considerably from 
community colleges to entirely online institutions, to liberal 
arts colleges, to great research universities.
    While it is risky to generalize about the rise in college 
prices given this institutional diversity, I think there are 
two central factors that are involved. The first is structural. 
Higher education is a labor intensive industry with high fixed 
costs, and it relies on a large number of well-educated staff. 
Productivity increases that might allow the same amount of 
product to be delivered at the same or lower cost have come 
slowly. There are some promising developments, but so far no 
panaceas.
    The second major factor behind research tuition increases 
is a rapid decline in State support to cover operating costs at 
public institutions. Since the widespread creation of public 
college following the 1862 Morrill Act, these schools have 
historically charged low tuition to ensure that all citizens of 
the State would be able to enroll.
    But for a variety of reasons over the last 30 years, State 
support has withered. According to one analysis, since 1988, 
State funding on a per-student basis has fallen by $2,500, 
almost one-third. Even the National Association of State 
Legislatures notes that higher education has become ``the 
fiscal balance wheel of State budgets.''
    So tuition in public colleges and universities, which is 
where 80 percent of American students are enrolled, has gone 
up. The posted price of tuition last year at community colleges 
was $3,400, and at 4-year colleges it was $9,100. For millions 
of students, financial aid reduced those numbers considerably. 
Still, this represents an increase in posted price of 150 
percent and 225 percent, respectively, over the last three 
decades.
    Other factors that help explain tuition increases include 
the exponential growth of scientific knowledge, the need to 
continually update and enhance campus technology, and the 
increasingly complex and expensive legal and regulatory 
environment institutions face.
    Despite the desire for a simple explanation and/or an easy 
solution to this problem, there really are not any. Some 
suggest the Federal student aid drives up tuition because 
institutions raise their prices to capture the money. The 
extensive research on the issue does not suggest this claim is 
valid.
    Another suggestion is that universities could reduce 
tuition if they just spent more from their endowments, but only 
a few schools have large endowments. Those that do spend a 
great deal of that money on financial aid, and even if they 
wanted to spend more money on financial aid, their ability to 
do so is significantly restricted by State law and legally 
binding donor restrictions.
    Many institutions are taking aggressive steps to lower 
their cost. Purdue University, for example, President Mitch 
Daniels has committed the institution to maintain tuition by 
finding internal efficiencies, and they have not increased 
tuition for the last 4 years.
    The ``Washington Post'' recently reported that Catholic, 
George Washington, and Howard Universities had all reduced the 
number of staff in an effort to lower their cost structure.
    In another important development, tuition at public 
colleges in Washington State will fall 15 to 20 percent in the 
next 2 years, thanks to increases in State support.
    I will conclude by underscoring the point that I began 
with. College presidents understand the importance of this 
issue and the extraordinarily high levels of public concern. 
Most presidents firmly believe that higher tuition depresses 
enrollment, and the vast majority of colleges and universities 
in the country are always anxious to increase enrollment.
    But addressing the challenge posed by the high price of 
higher education is a complicated matter. We appreciate the 
willingness of this Committee to examine this issue in hopes of 
shedding light on the challenges facing families, institutions, 
States and the Federal Government.
    Thank you.
    [The prepared statement of Mr. Hartle follows:]
    
    
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    Chairman ROSKAM. Thank you, Mr. Hartle. And thank you all.
    You know, you have framed out some of these issues in ways 
that I think are very, very helpful. I think on this panel what 
we are interested in doing is trying to essentially pursue the 
Wisdom of Solomon on this. So, in other words, how do we create 
an environment where resources are made available to students 
who without those resources would not be able to have access to 
higher education? How do we do that in a way that does not just 
chase a price, basically Mr. Lucca's argument, forcing 
something to become more and more expensive?
    Because here is what I am sensing at home, I think we are 
in the midst of a bubble. My wife and I have four children, and 
if you see Peter and Elizabeth Roskam out with a metal detector 
picking up loose change to pay the tuition for our children, 
the explanation is these incredible expenses in doing so, and 
writing these checks just takes your breath away.
    I know I am not unique in this. I know that there are other 
folks on this panel and so forth, and I think that we are in 
the midst of something that is really, really significant.
    In short, institutions by definition do not reform 
themselves, by and large. Congress does not reform itself. 
Congress reforms itself based on pressure from other 
institutions, and so forth.
    I would submit that higher education is not likely to 
reform itself without pressure from other points, and this 
Committee has an interest particularly from a tax policy point 
of view. So, in other words, the question is: Does the Tax Code 
help create more access to higher education, or does the Tax 
Code hinder that? Does the Tax Code create absurdities and 
distortions and so forth?
    So there is a lot to talk about. Before we began, I told 
the panel we want to flip the game board a little bit today, 
just to ask some of these provocative questions not for the 
sake of being provocative, but for provoking some reflection 
all the way around.
    So, with that, I recognize the gentleman from Pennsylvania, 
Mr. Kelly.
    Mr. KELLY. I thank the Chairman, and I thank the panel for 
being here.
    I come from the private sector, and our whole model is 
based on some assumptions. Specifically, it is based upon 
predictions and projections of historical data. However, when 
it comes to personnel, one of the things that we have always 
tried to do is to hire the best people we could and then make 
sure that we put programs in place that set benchmarks for them 
to achieve because I do not know of any other way to determine 
if this is working or not working, and whether these are the 
best people to have in these jobs.
    So having said that, I often wonder because I look at what 
is going on, and I think the Chairman was very articulate about 
this. This is not so much about who is making what and trying 
to make them look bad. This is about are we getting the best 
return on the investment for hard-working American taxpayers.
    So it should not be an ``us versus you'' or a ``you worried 
about us coming knocking at your door and trying to upend your 
economic model,'' but in my life everything has been about 
sustainability. Can you continue on the path that you are on 
and think that somehow it bodes well going into the future?
    So, Ms. McCourt, having a little bit of an idea of what I 
do for a living, whenever we are hiring these folks, the boards 
are bringing people in, what are the measures? I mean, how do 
we look at these folks that are in these upper positions and 
say these are the metrics we expect you to perform to?
    There is a great incentive for doing that, and it is called 
compensation, but how do we measure it and what do we look at?
    Do we look at student graduation rates? What do we look at?
    Ms. MCCOURT. Well, it is interesting you would ask that 
question today because our board of trustee meetings are 
tomorrow and the next day, and I happen to have in front of me 
the financial models and benchmarks that happen to be on our 
agenda, 8 o'clock Friday morning.
    We are very benchmark driven. Our trustees are very high 
achieving businessmen. We have the CFO of Eli Lilly, for 
instance, who is on our board right now.
    And when we benchmark, you know, one of the things we are 
very conscious about is we are not benchmarking against higher 
education on the business side of the institution. They want to 
see benchmarks against corporate gold standards. So we will go 
out and have benchmarking analyses done on our business 
operations and compare them to that, but we also set very 
stringent benchmarks. In fact, none of these are industry 
averages. They are all at a higher level than an industry 
average.
    We also have just approved a bicentennial strategic plan, 
and every item in that strategic plan will have associated 
benchmarks, and I think you are going to see that across the 
industry.
    The industry has shifted, and people that are being hired 
in on the business side are corporate.
    Mr. KELLY. Is the benchmark based on the success, the 
graduation rate?
    Ms. MCCOURT. Oh, we have many, but we do have completion, 
graduation, all kinds of benchmarks, but there are many based 
on student success, and we have fared extremely well on those.
    Mr. KELLY. Mr. Galle, what Ms. McCourt has just said, is 
that something that makes sense to you and do you agree?
    Mr. GALLE. That is consistent with some of what I have 
seen, yes, sir.
    Mr. KELLY. Okay. I think the big question is, and Mr. 
Vedder, I am going to come to you also, and I think this is 
where we are really trying to come to, the best return on 
investment, because we all know the way out of poverty is 
education, but education for something that actually gets you 
to where you need to go and not just a degree that is 
accompanied with a lot of debt, but actually a destination that 
you can reach that is going to lift you out of it.
    So what is your take on all of this? Because I know it is a 
highly competitive field. When you are looking at the people to 
come in and run this business now, forget about being a 
university, but as a business, because you are competing for 
the same talent that everybody else is competing for to come to 
something that is a real sound economic model.
    So how does that figure in and how do you think that weighs 
when it comes out?
    How do we recruit the best of the best?
    Well, certainly compensation has to have something to do 
with it. Mr. Vedder, that is for you. Is there a different way 
to go about it?
    Mr. VEDDER. To get better people in higher education? Is 
that what you are asking?
    Mr. KELLY. Yes, my question is: What is the incentive to 
get them in?
    Mr. VEDDER. Well, you mentioned two good words, 
Congressman. One is incentives, and another was by inference, 
information. How do you measure what is good in higher 
education? How do you know what is good?
    Did Harvard have a good year last year? Who the heck would 
know? How would you know?
    Do the seniors know more than the freshmen? We do not know 
that.
    What happens to kids 5 years after graduation? We are 
starting to get that information. Finally, the Department of 
Education is finally grudgingly publishing data on that.
    What is the rate of return on faculty research? If you 
write an article for the ``Journal of Last Resort'' that three 
people read and get a lower teaching load to do that, is that 
serving the broader issue, interest of society?
    And, by the way, I have been ripping off taxpayers for 51 
years. I am in my 51st year of teaching.
    Chairman ROSKAM. You have the right to remain silent.
    [Laughter.]
    Mr. VEDDER. Yes. I will drink to that.
    But I think, and I am being a little facetious here. I 
think it is a noble profession, and I think what we are doing 
is important, before Mr. Hartle has a heart attack, but we do 
not really know a lot.
    We are in the information business, and we do not even know 
basic things. Students study 30 hours a week or less. That is 
what the Department of Labor tells us. Thirty hours a week, 
that is 900 hours a year. The parents work twice as many hours.
    Eighth graders study 40 percent more than 13th graders. 
Now, does that make any sense at all? Why are we not doing 
anything about it?
    We are not measuring all of this. I do not know if I 
answered your question.
    Mr. KELLY. Well, the thing is the benchmarks that we use to 
hire the really good people, because you are in a very 
competitive environment, and if you are going to get the best 
of the best, it is not just what is in their heart and their 
passion for what they are doing. It is also dollars that have a 
little bit of influence, too. So I want to make sure we keep it 
in perspective because the return on taxpayer investment is 
what we are concerned about, and that it is fair.
    Thank you.
    Chairman ROSKAM. Mr. Lewis.
    Mr. LEWIS. Thank you very much, Mr. Chairman.
    I thank each and every one of you for being here today.
    Now, Mr. Chairman, I am concerned that we are here today 
focusing on side issues rather than the main driver of tuition 
increases for most college students.
    Dr. Hartle, what is the biggest factor driving the rise in 
tuition for most students?
    Mr. HARTLE. Thank you for the question, Mr. Lewis.
    As I mentioned, I think there are two fundamental issues 
here. One is the structural nature of higher education as a 
labor intensive industry.
    The second and more pronounced--higher education has always 
been a labor intensive industry--the second and more pronounced 
is that States recently have begun to reduce spending 
substantially for public colleges and universities. Forty 
percent of American college students are in community colleges, 
public institutions. About the same percentage are in public 4-
year institutions, and we have seen States cut spending now for 
over a generation.
    We have to have some sympathy with the States. They have to 
balance their budgets. When State legislators look at budgets, 
they see four big buckets: elementary-secondary education, 
prisons, Medicaid, and higher education. When they have to 
balance the budget, higher education looks like something that 
has paying customers.
    And the trend over the last 30 years has been down. It is a 
wavy line, but the line is going down.
    I happened to just discover the other day that a 
significant number of States now spend more money on prisons 
than they spend on public colleges and universities. Last year 
for the first time in the Nation's history, public colleges and 
universities got more money from tuition than they received in 
State support.
    Just the other day my colleagues and I were looking at a 
list prepared by the Department of Education of the 50 most 
expensive public universities in the country, and we happened 
to notice that four of them were in the Chairman's home State, 
Illinois. This struck us as a surprise because Illinois 
historically has had pretty moderately priced public colleges 
and universities.
    So we did a little investigation, and discovered that 
between 2001-2002 and the present, Illinois, which has 
obviously had some well publicized State budget problems, has 
cut more than $100 million from the budget of the University of 
Illinois, Urbana; more than $100 million from the budget of the 
University of Illinois at Chicago and let tuition go up to make 
up the difference.
    I can assure you that was not what presidents and managers 
at either of those institutions wanted, but it was a decision 
made by the States as part of the necessity to balance their 
budget.
    We are seeing that to a similar degree in State after State 
across the country.
    Mr. LEWIS. Well, thank you very much.
    Ms. McCourt, do you agree with Dr. Hartle?
    As a matter of fact, I visited your university a few weeks 
ago, had a great visit there, wonderful faculty and staff and 
students. Do you agree with Dr. Hartle?
    Ms. MCCOURT. Yes, I do.
    Mr. LEWIS. Do you have anything to add?
    Ms. MCCOURT. No, I think he has articulated it very well. 
We are grateful for what we get from the State. There are very 
many competing priorities. I actually was not aware of the 
statistic on spending on prisons, but the decrease in State 
operating appropriations has had probably the single biggest 
factor, and I want to say on the price of higher education, not 
the cost.
    The cost has actually not increased that much.
    Mr. LEWIS. Well, thank you very much.
    Now, I believe that access to affordable higher education 
is a right that all Americans should have regardless of their 
income level. The Federal Government must play a role in making 
college affordable and must expand, not decrease Federal 
student programs. Pell Grants and student loans are vital to 
low- and middle-income Americans.
    Dr. Hartle, do Federal financial aid programs drive up the 
cost of tuition?
    Mr. HARTLE. No, sir, I do not believe the Federal student 
aid programs drive up the cost of higher education. This is not 
a new debate. This issue has been around for more than 30 
years. It has been exhaustively researched.
    As I noted in my written testimony, independent studies 
like the congressionally-mandated study of this issue by the 
Department of Education were unambiguous in their conclusion 
that there was not a relationship between Federal student aid 
and tuition.
    They were equally unambiguous that the single biggest 
driver was State budget cuts. Harvard Professor Bridget Terry 
Long in testimony before the Senate Finance Committee on the 
impact of tax credits on college tuition said, ``Concerns about 
a relation- 
ship between Federal student aid and tuition were largely 
unwarranted.''
    I would like to submit a paper for the record written by 
Don Heller, the Dean of the School of Education at the Michigan 
State University, an education economist, which addresses this 
issue.
    And I would also like to suggest that the Members of the 
Committee do two things in this regard. Do not take my word for 
it. Look at the report on this issue prepared by the 
Congressional Research Service. The Congressional Research 
Service evaluated the nine most methodologically sophisticated 
studies on this issue that they could find, and they concluded 
that there was not a clear or even a consistent set of findings 
about the relationship between Federal student aid and college 
and university tuition. CRS works for you.
    The second thing I would ask you to do is ask the 
presidents and ask the trustees and ask the people like 
MaryFrances McCourt at the universities in your district. Ask 
them if Federal student aid ever comes up in discussions about 
tuition setting.
    What you will find is that they are surprised you would 
even ask the question because it never comes up in the 
discussions.
    Mr. LEWIS. Thank you very much.
    I yield back, Mr. Chairman.
    Chairman ROSKAM. In terms of the paper that you have 
requested, without objection, we will enter it into the record.
    Let me just plant a seed and maybe some of the discussion 
as I turn to my colleagues, but, Mr. Hartle, you made a point 
that higher education costs are going up because of the 
intensity of the labor. So I am planting seeds about things 
maybe to talk about further, but think about this.
    So it does not seem to me that is new. So it has been 
intense for a long, long time.
    The other thing, the lack of public support from the State 
legislative point of view does not explain the increase in 
tuition at private institutions, and it does not explain the 
longer term trend in my opening when I showed a 40-year trend 
and 2X over healthcare costs.
    So maybe during my time I will come back, but that is an 
area that I would like to inquire about.
    Mr. Holding.
    Mr. HOLDING. Thank you, Mr. Chairman.
    Dr. Lucca, let me ask you a hypothetical. If the government 
handed out $50 credit cards that could only be used to buy 
milk, what do you think would happen to the price of milk?
    Mr. LUCCA. It depends on the elasticity of supply, but 
generally you would imagine that the price of milk, unless 
supply can immediately adjust, would rise.
    Mr. HOLDING. Right. Do you think that this $50 credit card, 
this subsidy, would improve the quality of the milk?
    Mr. LUCCA. Obviously not in the short run. The long run is 
a different question.
    Mr. HOLDING. So I think what you are saying is that when 
the grocery store knows that buyers have the means to buy a 
product at an inflated cost, the seller will raise the price. 
Is that a correct assumption?
    Mr. LUCCA. Yes, that is what basic economic theory would 
suggest.
    Mr. HOLDING. So this makes sense when the seller is a for-
profit entity and charges prices based on what the market will 
bear, but from listening to you and some of the other 
witnesses, I think this is exactly what nonprofit colleges and 
universities are doing.
    So as soon as the Federal Government increases grants or 
student loan caps, colleges and universities react by raising 
tuition and absorbing that taxpayer money.
    Now, I know you are familiar with Ronald Reagan's former 
Education Secretary William Bennett, who back in 1987 
hypothesized that increases in financial aid have enabled 
colleges and universities blithely to raise their tuitions, 
confident that the Federal loan subsidies would help cushion 
the increase, and this has come to be known as the Bennett 
hypothesis, and you have done some work in this area.
    So could you expand a little bit on the work that you have 
done in this area and talk a little bit more about the Bennett 
hypothesis?
    Mr. LUCCA. Yes. So the Bennett hypothesis that many have 
discussed in the past is essentially the idea that financial 
aid, the availability of financial aid allows colleges to raise 
their tuition.
    From the perspective of an economist, going back to your 
points, it is fairly standard to imagine that any sort of 
subsidy that will boost demand will have a price effect. It is 
fairly natural. It is not that, you know, colleges are evil in 
any way. You know, it is just essentially supply needs to meet 
demand.
    What is really important, I think, is to some extent 
distinguish short-run versus long-run effects. What our study 
is doing is to try to focus on the changes in Federal aid 
policy of the past few years. These changes have been very 
significant, and from the point of view of researchers, they 
are, you know, very useful to try to assess these potential 
price impacts.
    And we do seem to find significant responses when we 
compare institutions where students are heavily dependent on 
Federal aid versus those that are not.
    Now, Mr. Hartle has cited a number of other studies that 
have found results against our own findings. I think the way to 
reconcile these studies is to some extent the availability of 
data in the past versus today.
    Today over the past few years, we have seen, you know, 
significant and discrete changes in Federal aid, and I think 
this is what has allowed me as a researcher to find, you know, 
price effects or, you know, responses of tuition as opposed to 
other studies that have looked at this issue in the past.
    Mr. HOLDING. My undergraduate degree is in classical 
studies, and I think they teach classical studies today exactly 
the same way that they taught it 30 years ago when I was in 
college, and they probably teach it exactly the way that they 
taught it 150 years ago when a great-great-great-grandfather of 
mine was a classics professor.
    So with the rise in increased tuition cost, do you think 
that students are getting a higher quality education?
    Mr. LUCCA. This is an excellent and important question. 
Where does the money go?
    In theory our study is unfortunately silent on that. You 
would hope that, you know, in the long run, you know, much of 
this additional revenue coming into colleges will be re-spent 
on investment for students, but there is nothing in my study 
that really can tell one story versus another.
    Mr. HOLDING. Thank you, Dr. Lucca.
    Thank you, Mr. Chairman.
    Chairman ROSKAM. Mr. Rangel.
    Mr. RANGEL. Mr. Chairman, I have been here in the Congress 
since 1971, and I cannot think of any issue more important to 
my country than the issue that you have raised. This is 
especially true in view of the fact that questions of war and 
peace, Presidents, Republicans, Democrats have not seen fit to 
bring those questions to the Congress.
    I do not understand the language that they are talking 
about. It is my understanding that most people believe that 
since the Constitution did not raise the question of education, 
that it is a State issue. I am fortunate that I can look at 
this from an entirely different perspective.
    I was raised in a community where I did not know anybody of 
my color that went to college, and the only people I knew were 
the recipients of the GI Bill. So I come at this with a strong, 
emotional bias that out of the pits of a high school dropout 
with absolutely no incentive to go to school, that I can sit in 
this body and the question of education now becomes whether the 
States are not going to fulfill their responsibility and what 
can we do as a tax committee to provide incentives.
    Health is not a national responsibility. The pursuit of 
happiness is not. Homelessness is not. How can we sit here and 
say that the cost of labor and the disparity that we have in 
income is going to make it possible for a guy with our salary, 
that you are concerned about your kids getting an education?
    The numbers are actually going to show that tuition is 
going up, and there will not be enough savings for people that 
have incomes to even consider their kids going to school. Well, 
forget the poor and forget all of that. As a patriot, are any 
of you going to tell me that education is a local issue and 
that the States are not being responsible when we are talking 
about technology, science, cyber space?
    Are we checking what they are doing in China and India to 
find out whether the local communities are supporting this?
    The cost of labor, do you know how much it costs for a dumb 
GI to get an education to kill people? Over $1 million. So let 
us not talk about the cost of labor.
    And how can we even discuss this when nobody can justify 
why college presidents can make $2 and $3 million? I am not 
knocking if they are raising money, or coaches that make $1 
million or $2 or $3, $8 million. If it is raising money, that 
is the private sector. Whatever they do is okay.
    But who is going to tell me sitting here, just put up your 
hand to say that the education of Americans' ability to make a 
contribution to our national defense is a State issue?
    Who believes that? Put up your hands. And if you don't 
believe it, why are we talking about tuition? Could you tell me 
whether or not you take an individual, an average American, and 
see what happens to him without an education, the costs of it? 
Forgetting all the emotional prison costs, I am just talking 
about a guy that tries to make it and he can't make it in a 
competitive society. Do you need a social scientist to say how 
much you have given to America by educating this bum and making 
him productive?
    So I don't--I am not talking about endowments. Those that 
have money, you put it in the money market. It makes money, but 
what the heck has that got to do with education?
    So I want to thank you for raising this issue. It shouldn't 
be before our Committee. It's a national security issue. If any 
of the panelists want to bring this into reality rather than 
talking about decreases in State contributions to education, 
like I'm supposed to depend on Mississippi's contribution--
strike that out.
    I am supposed to depend on a State Governor's contribution 
to make my country strong against international people that 
we're involved in trade with? I don't think so.
    And who is talking about the costs? I am not even going to 
ask you what the cost of labor is in our universities. I know 
the cost of police, of doctors, of developers, and we have a 
Congressman/Chairman of the Committee, he is talking about he's 
concerned about his kids going to college.
    So I'm going to act like you didn't testify to what we are 
asking you about and ask what does anybody think about the 
future of education under the system that we have and where 
does America stand up to our competitors?
    Chairman ROSKAM. Why doesn't one person take a stab at 
responding to that?
    Mr. Vedder.
    Mr. VEDDER. Congressman Rangel, I was struck by your very 
first sentence. In your very first sentence you said, ``I 
didn't know any of my friends or anyone around me who went to 
college unless they went on the GI Bill.'' I think the most 
interesting tragedy in higher education that might be 
interesting to you given your remarks was that in the year you 
started in Congress, which was 1971, right?
    Mr. RANGEL. Yes, sir.
    Mr. VEDDER. In 1971, when you started in Congress, 12 
percent of poor people in America, which I will define as the 
bottom quarter of the income distribution, 12 percent of recent 
college graduates were poor, came from poor backgrounds, 12 
percent. Today, it is 10 percent. It is lower.
    We have all of these programs, financial aid programs, all 
of this stuff going on, everything supposedly to help increase 
access and we do have more people going to college and we do 
have more college graduates, but in terms of bringing about 
equal opportunity among people, education is serving as a way 
to get up the ladder, to move up the ladder. I think we failed 
and I think part of the reason relates to the kinds of things 
that my colleague here was talking about. The financial aid 
programs haven't worked the way they were intended to work. 
There were unintended consequences, but that may be going too 
far afield.
    Chairman ROSKAM. Mr. Renacci.
    Mr. RENACCI. Thank you, Mr. Chairman.
    I kind of want to pull this boat back to where I thought 
the hearing was going, which is examining whether the favorable 
tax treatment given the college and university is fully 
justified and I know we have kind of talked about a lot of good 
points, but that is where we're really at, the favorable tax 
treatment, and in the real world, where I spent 30 years before 
I came here, I actually operated healthcare facilities, where I 
had to compete against facilities that were not-for-profit. 
They had favorable tax consequences I didn't have access to.
    There was a big advantage there that I always remember. 
Number one, they didn't pay taxes, and number two, they 
received donations/endowments. So if you think about it, they 
were able to receive additional revenues, which helped their 
cause, and they were able not to pay taxes, which also helped 
their revenue side. On the other side, as a for-profit 
businessowner, I had to make sure that I could compete against 
that person who had favorable tax treatment and I think that is 
where we want to talk. We want to get back to that.
    So now we talked about universities, the private schools, 
and I want to talk a little bit about executive compensation 
because I think that is important. We are talking about costs 
and the costs of these universities and what is reasonable and 
how do we determine what is reasonable.
    In my world, I had to make sure there were metrics that 
said this is what is reasonable and here is how we are going to 
get there. If you met this, you made this amount of money, and 
ultimately, you can make a lot of money, but you had to meet 
certain metrics.
    In colleges, how do we determine what is reasonable? I mean 
we saw a slide or there was something here about executive 
compensation, how quickly it has grown. I think it was you, Mr. 
Galle, in your testimony. It has grown rapidly over the years.
    So how do we justify, especially in a situation where some 
of these private universities are getting favorable tax 
treatment, how do we justify compensation? We heard that labor 
is a big number, but how do we justify compensation?
    I will start with you, Mr. Galle. What does it take for 
compensation to be determined reasonable or unreasonable?
    Mr. GALLE. Well, I think it is a difficult question to 
answer because being a university president is a difficult job 
that takes a talented person and I don't think that anyone in 
this room wants to say what someone else's labor is worth, but 
we do have a group of people who are pretty attached to their 
university and are relatively well-informed about it and that 
group of people are the university's alumni and its supporters.
    And so the focus of my work has been in making sure that 
that community of people, the community of people who have 
reasons to care, have the information that they need to make a 
decision about whether the president is getting paid the right 
amount, and by and large, today it is pretty difficult for 
people to get that information. For example, it is true that 
presidents are often judged on a set of performance metrics, 
but it is very hard for someone other than on the board of 
trustees to know what those performance metrics are or whether 
the president hit them or not. And so, for me, the issue is 
more about transparency and less about second-guessing by folks 
who aren't part of the university community.
    Mr. RENACCI. What is interesting is you talked about being 
the president of a university is a very tough job. A president 
of an automobile company, like Mr. Kelly talked about, or a 
president--all positions are tough, but you still have to have 
metrics to determine what they are worth and how these costs 
are being passed on to the students. It is part of the cost of 
higher education.
    We keep talking about labor. You know, how many kids are 
graduating? Where are they going after they graduate? These 
should be some of the metrics. What are the universities doing? 
These are expenses that should be part of it, and the problem I 
have, and I think this is part of this hearing, is that many of 
these universities are getting favorable tax treatment. They 
are getting all these extra dollars in. So we have to consider 
that.
    Ms. McCourt, do you----
    Ms. MCCOURT. Yes, I have a couple of points.
    Number one, there are many, many, many metrics that senior 
leadership and down are judged on in public institutions of 
higher education. You can peruse certain websites out there. 
They are very public and they are growing and business analytic 
tools are growing and compensation is being linked----
    Mr. RENACCI. I need to--I apologize. I do have to interrupt 
you. I am running out of time, but isn't one of the most 
important comparables? So if one university raises theirs up, I 
have to make sure----
    Ms. MCCOURT. Let me use one statistic. We are talking 
about--I want to make sure we are not talking about the .001 
percent of a couple of very large private institutions that I 
don't think the compensation is even that high, but when you 
look at several billion dollar organizations and when you look 
at the highest paid CEOs on the corporate side earning 
compensation packages north of $12 million, for instance, the 
Indiana University president makes $600,000 to manage a several 
billion dollar organization of multiple businesses with 
performance metrics.
    So I think we need to be careful to stay--stick to the 
data. That information--most institutions of higher education 
are public and that information is public.
    Mr. RENACCI. One thing I would add, and I know I have run 
out of time, Mitch Daniels demanded that a portion of his 
salary be contingent on meeting certain goals. I think that is 
important.
    Ms. MCCOURT. Absolutely. We do the same.
    Mr. RENACCI. Thank you. I yield back.
    Chairman ROSKAM. Mr. Doggett.
    Mr. DOGGETT. Thank you, Mr. Chairman.
    Excessive, exorbitant corporate CEO salaries and soaring 
prices for consumers are certainly problems and they rarely get 
any attention in this Committee. I have offered legislation to 
eliminate or reduce the tax subsidy for excessive corporate 
salaries. The Committee's not interested. We see price 
increases in the pharmaceutical industry of 5,000 percent 
overnight, bankrupting families. The Committee has been 
uninterested in dealing with this problem of soaring prices, 
but we have today's hearing and it does address an important 
problem.
    There are families across America that are encountering 
major economic obstacles to helping their child get all of the 
education that that child is willing to work for. Many colleges 
and universities with spiked--increases in tuition are part of 
the problem and I think we need to look at our Federal aid 
policies and consider that aspect of the problem, but I think 
much of the focus of today's hearing is misdirected.
    The basic reason that tuition is going up is not because 
the Federal Government is doing too much to help students, but 
because the States have been doing too little. We have seen a 
steady decline in State support for the 80 percent of college 
students that attend a public or State university. Some States, 
like Texas, have cut their support for public education, for 
higher education, even again this past year, and a report out 
in the last week identifies 11 States--that is the American 
Academy of Arts and Sciences--11 States that are spending more 
on their prisons than they are spending on their higher 
education institutions.
    Within the last week, the University of Texas System Board 
of Regents gave approval for another increase in tuition for 
the next school year and the chancellor, William McRaven, said 
that the school needed the increase because of the decline in 
per-student State appropriations by the legislature over the 
last decade.
    So that has us to where we are today and because they 
misdiagnosed what ails higher education and the families that 
want to get it, they are also applying the wrong remedies and 
the Republican remedy is reflected in the Republican budget 
agreement this year. They proposed to solve this problem by 
cutting about $200 billion from higher education support and 
while the final agreement is silent on how they would do that, 
many of their Members have been very vocal about how they would 
implement that $200 billion cut. They would reduce or eliminate 
Public Service Loan Forgiveness that allows students to have 
the choice of serving their communities in underserved areas in 
health care and a variety of other areas, shrink income focused 
repayment plans, and freeze Pell Grants for 10 years while 
cutting $90 billion in funds for those grants alone.
    Those are the kind of remedies that the Republicans have 
been offering, the kind of remedy they have offered in the 
Senate is to block our efforts to reduce the cost--to let 
people who are overwhelmed with student debt do something about 
it by reducing interest rates. The change that was proposed 
there would save $2,000 per loan for an estimated 25 billion 
borrowers nationwide. That is the kind of solution that we 
need.
    My efforts to make the American Opportunity Tax Credit 
permanent so our families could get at least $2,500 off their 
taxes, blocked in this Committee.
    If we want to focus on where Federal dollars are being 
misdirected, we might focus more specifically on what are 
little more, in some cases, than mail-order diploma mills and 
the attempts of the Department of Education to do something 
about it. The President's general employment rule requires that 
these schools demonstrate that they are getting their students 
into some gainful employment, and yet, some of the same people 
who want to cut student financial assistance are the folks that 
support siphoning off as much money as possible to these for-
profit schools without looking to see whether they are actually 
producing results for the families and especially for many of 
our veterans who sign up for these programs.
    So I believe we need to do more to afford opportunity, the 
very kind of opportunity President Johnson had in mind when 50 
years ago in San Marcos, Texas, he signed the Higher Education 
Authorization Act that is about to expire, but we need to do it 
in a more constructive way than is being done in today's 
hearing.
    And I yield back.
    Chairman ROSKAM. Thank you.
    Mrs. Noem.
    Mrs. NOEM. Thank you, Mr. Chairman.
    You know, a lot of colleges' and universities' endowments, 
we have made very clear at today's hearing, receive specific 
tax advantages and when a donor gives money that money is not 
subject to taxes. The institution doesn't have to pay taxes on 
the gift and if it is invested, the institution doesn't have to 
pay taxes on the returns from that investment.
    Currently, I was surprised to learn, over 90 different 
institutions have more than $1 billion in endowment funds and 
we are talking about very substantial tax benefits then to 
those institutions and so I wanted to visit this topic a little 
bit more.
    With tuition costs going up and such high endowments, Dr. 
Vedder, you have talked a lot about research that you have 
done, but I want to find out if you specifically think that 
institutions are using these endowment funds to benefit 
students specifically?
    Mr. VEDDER. I suspect most institutions feel that they are 
using the endowments to serve students and it is a little--I am 
still in the middle of research in this and I don't feel I have 
all the answers.
    Mrs. NOEM. Well, do you have some statistics on how they 
are spending endowment funds?
    Mr. VEDDER. Well, we know, for example, that some endowment 
monies do go to support student financial aid, which is 
directly, you might say, student friendly, aimed to lower 
costs, and so forth.
    Mrs. NOEM. Is some 10 percent or----
    Mr. VEDDER. No, I----
    Mrs. NOEM [continuing]. Fifteen percent?
    Mr. VEDDER [continuing]. In my estimations that I have 
done, we estimate between 15 and 20 cents out of each endowment 
generated dollar of income goes for that purpose. Now, that is 
not trivial, but it is not the major ``aww'' factor. We are 
finding a lot of money going to support things like student 
services. I mean at least we see an association between 
endowment size and spending on student services.
    Now, that is a--that may be student oriented, but it may 
not be too academically oriented. For example, some of that 
money might be going to help support sort of luxury living on 
the parts of the students in some fashion.
    Mrs. NOEM. Why do you think school rankings give so much 
weight to the size of endowment funds?
    Mr. VEDDER. Rankings do not. By the way, I do the rankings 
for Forbes magazine, so I----
    Mrs. NOEM. Okay.
    Mr. VEDDER [continuing]. Should be--full disclosure here.
    Mrs. NOEM. Okay.
    Mr. VEDDER. I actually do--I am a ranker----
    [Laughter.]
    Mrs. NOEM. Okay. Thank you.
    Mr. VEDDER [continuing]. Which is better than being a 
rapist or something, but not much in the eyes of the higher 
education community.
    I don't know of a single ranking that uses endowment size 
as a direct variable in the analysis, but it is true that 
spending on whatever can influence rankings. The U.S. News 
rankings, for example, give--you get a higher ranking if you 
pay your professors more, if you have more faculty in relation 
to student size, and so forth, all of which, you know, improve 
your rankings. So----
    Mrs. NOEM. Have you seen a correlation between student 
outcomes and the size of endowment funds a university raises?
    Mr. VEDDER. I have not. That is the point I was making. I 
have done--using the imperfect rankings that I do, and they are 
imperfect in large part because of data limitations, as I say, 
we don't know whether seniors know more than freshman.
    Mrs. NOEM. Uh-huh.
    Mr. VEDDER. I mean until you know basic things, like are 
kids learning in college, it is very hard to come up with a 
full assessment of the quality of an institution, but given 
what we know and looking at what students think are important, 
I can say that there seems to be very little relationship 
between what students think are important in their learning and 
endowments.
    Mrs. NOEM. Okay. Thank you.
    Ms. McCourt, can you tell me why universities and schools 
don't spend down their endowment funds?
    Ms. MCCOURT. There are contractual obligations with donors 
putting money into these long-term investments, you know, and I 
would say that the picture we are missing is sustainability. 
Donors want to make sure that there is sustainability and there 
is a term called intergenerational equity. They want tomorrow's 
students to have the same benefits as today's students and most 
donors are very, very interested in that. They don't want to 
see us--you know, they wouldn't be giving the dollars today to 
just have it spent.
    Mrs. NOEM. Is there a standard? Is there a specific level 
of endowment funds that should be in place to guarantee that 
its intergenerational benefits will be there?
    Ms. MCCOURT. Well, that--and that is how that--distribution 
rate it is called--when we are referencing this 5 percent 
number, that is how that is determined. They will look at long-
term investment returns with a lot of sophisticated modeling 
and then they will say, all right, what is that return to keep 
a level of funding that will go into perpetuity and they back 
into what that spending rate is.
    Mrs. NOEM. And some endowment funds are restricted on what 
they can be spent on, correct?
    Ms. MCCOURT. Most are. Most are restricted. At Indiana 
University, I think 98 percent are restricted.
    Mrs. NOEM. Do you feel that is appropriate? I mean----
    Ms. MCCOURT. I----
    Mrs. NOEM [continuing]. A lot of times, I will argue for 
more local control because they best know what their needs are 
to 
meet the students where they are at and help them be success- 
ful. So to have restricted funds, I think ties the hands of 
some of 
these----
    Ms. MCCOURT. Well, but these are--we are carrying out the 
will of donors and donors feel very passionate about what they 
are giving money toward and so--and I will say most of it goes 
to the scholar--you know, when I--I am looking at ours right 
now. I mean data is behind every single thing I am saying 
today.
    Mrs. NOEM. So you believe restricted funds may be just as 
beneficial as unrestricted funds?
    Ms. MCCOURT. Absolutely. Absolutely. Yes.
    Mrs. NOEM. All right.
    Mr. Chairman, I will yield back.
    Chairman ROSKAM. Thank you.
    Mr. Crowley.
    Mr. CROWLEY. Thank you, Mr. Chairman, and I thank all the 
witnesses. Thank you, Mr. Chairman, for holding this hearing 
today and thank you to all the witnesses for providing your 
testimony before us.
    I am glad that my colleagues on the other side of the aisle 
are finally taking note of how important it is to address the 
issue of higher education affordability, although I do take 
some interest in noting the suggestion that maybe eliminating 
Pell Grants will somehow force private higher education in the 
country to actually reduce the amount of tuition is very 
interesting.
    It is an issue that my Democratic colleagues feel has not 
received the due attention it really has deserved, but I must 
say there is so much more this Committee, the most powerful 
Committee in Congress, could focus on with--as crucial an issue 
as this. Instead of getting bogged down in picking at taxes and 
status or the use of endowments, we could discuss how to 
strengthen the Pell Grant program as opposed to weakening it or 
eliminating it or how to build up the progress that Democrats 
have made years ago in making student loans work better for 
students and families alike.
    Surely this hearing can't be my colleagues' only response 
to calls from millions of struggling, middle-class, hard-
working Americans who are concerned about how they will put 
their children through college. If anyone turned on C-SPAN 
today hoping to find out more about the other side's plan to 
actually make higher education more affordable, I think they 
are all going to be, if not already, very, very disappointed. 
There is no plan.
    Mr. Hartle, in your testimony, you discussed the various 
restrictions on endowments and you clarify that the vast 
majority of institutions of higher education do not have large 
endowments to rely upon. Would you agree that even if we could 
require schools to use more of their endowments for tuition 
reduction than they already do, it would become nowhere--it 
would come nowhere close to eliminating the need for important 
Federal student aid, aid programs like the Pell Grants, like 
Supplemental Education Opportunity Grants, and subsidized 
student loans?
    Mr. HARTLE. Thank you for the question, sir.
    You are absolutely right. The vast majority--as MaryFrancis 
McCourt has indicated, the vast majority of college and 
university funds are restricted. They are given to institutions 
by donors for purposes that the donors specify. Many times, the 
donors will want to give the money to something--to the 
institution and the institution will say, ``We might rather 
have it for this,'' and the donor will say, ``I will give it to 
you for what I want''----
    Mr. CROWLEY. Only for this.
    Mr. HARTLE [continuing]. ``Or nothing.''
    Mr. CROWLEY. Right.
    Mr. HARTLE. Institutions cannot simply decide to take money 
that is given to them for one purpose and to spend it for 
another purpose without violating the law. We have counted in 
the last 10 years--excuse me--6 legal cases where donors later 
sued institutions because the donors felt the institutions had 
not been honoring donor intent.
    Mr. CROWLEY. Very interesting.
    Mr. HARTLE. Most universities do not have large endowments. 
The average endowment--sorry--the median endowment for a public 
university is $26 million. For a private university, it is 
about the same level. Obviously, there are a small number of 
universities that have very large endowments.
    And I would actually respectfully disagree with my friend 
Dr. Vedder about the value of endowments and institutional 
quality. The Times of London, an independent news organization, 
ranks the world's best universities. Seventeen of the world's 
top 25 universities are American. All of them have significant 
endowments. These endowments enable them to hire the faculty 
and staff they need. It allows them to conduct the research 
that they believe is in the Nation's interest. They can get the 
equipment and facilities they want and they can allow any 
student to enroll without having to worry about the financial 
consequences.
    Money helps build great universities and delivers 
opportunities and I think that the ranking of The Times of 
London and the fact that the American universities that are on 
that list overwhelmingly have large endowments tells us 
something, which is that if you have a large endowment, you can 
build a great university. It is not automatic, but it certainly 
helps.
    Mr. CROWLEY. Thank you.
    I was intrigued by Mr. Rangel's questioning. Really, it was 
right to the point. If we think that this is not a national 
issue, this is a State's rights issue; we really have to 
reexamine what we are doing here. The reality is we can't 
expect that States like--and he mentioned Mississippi, there 
are others, can invest in the State system in the way in which 
New York and California maybe can or without the assistance 
from the Federal Government is really not going in the right 
direction.
    And, again, I hope my colleagues on the other side will 
take 
a look at proposals that can truly make college more affordable 
rather than seeking to cut back on Federal student aid, as we 
have seen in numerous other Republican proposals.
    And, Mr. Chairman, I look forward to working with you on 
finding ways not only to make college more affordable to you 
and your family, but to all Americans who want to see their 
children succeed. I think that is important. It is not just 
about us. It is about what we can do for the American people 
and I think it is critical.
    Right now is--I mentioned--one last point I'll mention to 
you if, Mr. Chairman, you will forgive.
    Before the Pope came, I had the opportunity to sit down 
with some of my colleagues with the Conference of Catholic 
Bishops. I noticed that some of the sharpest tuition increases 
we have been seeing are at what are known as traditional 
Catholic colleges. I think there is more responsibility, not 
only to the Catholic Church but on all of us, to have 
opportunity for our children to attend private or public 
schools and to have the assistance in help they need to make it 
affordable to everyone and not everyone because the economic 
situation is cast aside or put out of the system because of 
what their parents did or didn't do for a living.
    And with that, Mr. Chairman, I will yield back.
    Chairman ROSKAM. Thank you.
    I think, just for the record, it is important to note 
nobody is talking about eliminating Pell Grants. The notion 
that this is just a State's rights issue is something that is 
just not persuasive. We have a national Tax Code, national tax 
implications. So the reason that we are talking about this----
    Mr. CROWLEY. Mr. Chairman, would you yield briefly just for 
a moment----
    Chairman ROSKAM. Yes.
    Mr. CROWLEY [continuing]. On that?
    On that point, there was a question to Mr. Lucca about the 
impact of Federal subsidies and what impact that has on the 
increase of tuition at private institutions----
    Chairman ROSKAM. Fair enough.
    Mr. CROWLEY [continuing]. And that is the point I was 
making, but I----
    Chairman ROSKAM. Yes.
    Mr. CROWLEY [continuing]. Think the opposite--you have to 
suggest the opposite. What impact would cutting it have and 
that was the point I was suggesting.
    Chairman ROSKAM. Fair enough.
    So nobody is talking about eliminating Pell Grants. That 
was your word earlier, but I take your point. If by hosting 
this hearing somebody is going to pull out the ``Peter Roskam 
three-point plan to save higher education,'' it is that it is 
going to be a slow train coming. We have a lot of work to do.
    So getting toward that work, I recognize the gentleman from 
Missouri, Mr. Smith.
    Mr. SMITH. Thank you, Mr. Chairman. Thank you for holding 
this hearing on a quite important issue.
    Being the youngest Member of the House Ways and Means 
Committee and one of the youngest Members of Congress, the 
rising cost of tuition isn't foreign to me. I get it. In fact, 
I am still paying my student loans as a Member of Congress. The 
cost of tuition is rising faster than the cost of inflation. We 
all know that. It is increasing beyond the reach of lower 
income Americans and middle-class Americans. We know that. This 
is a huge problem.
    The real question is, how can we help stop the rising costs 
and make college affordable again? That is a true problem.
    When I started at the University of Missouri in Columbia 
not too many years ago, the required cost of tuition and fees 
was $4,280. Currently, it is $9,433. After adjusting for 
inflation, that still represents more than a 66 percent 
increase, 66 percent increase. I wish mutual funds did that 
well. Universities argue that fluctuating State funding is the 
biggest factor in tuition increases. But has State funding 
decreased by 66 percent in the State of Missouri? Being a 
former State legislator, I know it hasn't.
    That being said, the University of Missouri is an example 
of a good school that has decreased real cost per student. They 
have lowered actual operating expenses per degrees awarded and 
are beating the national trend, while increasing degrees 
awarded. Their tuition is less than the national average, but 
students still have an average debt of over $35,000 a year.
    We are here in the Ways and Means Committee because of our 
jurisdiction over tax policy. So I have to highlight the work 
of colleges across the Nation in a bill that I introduced in 
July, the Tax Relief for Working Students Act. Currently, 
students earning at work colleges, like College of the Ozarks 
in Branson, Missouri, are taxed as income, not as tax-free 
scholarships by the IRS. That is unacceptable.
    My bill would reward hard-working students by reducing 
taxes on those students in order to make it easier for them to 
earn the scholarships they need to pay for their college. It is 
just one small piece to encourage the hard work of students at 
these unique institutions, but other issues must be addressed. 
After all, taxpayers and students pay a lot of money to 
colleges and universities, but are we getting proportionate 
results? Colleges and universities have a tax exemption because 
we all agree that education is valuable and important, but, as 
the Federal Government, we need to be sure that this foregone 
tax revenue is delivering results.
    Ms. McCourt, what are some areas that you see where public 
institutions can be better stewards of taxpayer dollars while 
still fulfilling their mission of educating future generations?
    Ms. MCCOURT. Well, actually, the average debt at University 
of Missouri surprises me. It is quite high. So I am not sure 
what is going on at the university that is driving it that 
high, its undergraduate, graduate. At Indiana University, it is 
about $23,000.
    Mr. SMITH. I said the average debt----
    Ms. MCCOURT. Yes.
    Mr. SMITH [continuing]. Of all students is $35,000.
    Ms. MCCOURT. Yes. Okay. So graduate student debt----
    Mr. SMITH. And the University of Missouri is lower than 
that. So----
    Ms. MCCOURT. Oh, okay.
    Mr. SMITH [continuing]. I want to make sure you are----
    Ms. MCCOURT. Oh, okay.
    Mr. SMITH [continuing]. Correct on that.
    Ms. MCCOURT. I was going to say and all students--so 
graduate students, that is a different issue and that is where 
a lot of debt is.
    Indiana University is doing a lot--I want to make sure I 
have heard your question appropriately. We have done a heck of 
a lot with operational efficiencies driving costs down, 
everything we can do almost on the cost side of the equation. 
When you look below salaries and wages and benefits, financial 
aid is the next line down. So I am always being careful what 
you ask for because cutting budgets further, we have reduced 
administrative headcount over the last decade. We have kept 
salary increases at about 2 percent a year, some years none.
    So when we think about the compounding issue on the 
American economy, one thing we haven't talked about today that 
I think is a very important issue is the issue--and this goes 
back to the metrics and benchmarks that we should all be held 
accountable to--of completion. You know, we have seen 
completion moving from a 4-year completion rate--we talk about 
5- and 6-year completion. The fastest way to reduce debt is to 
graduate, and, you know, so I think there is accountability on 
all sides. There is accountability on the institutions of 
higher education and on the recipients of these grants and aid.
    I think there is something there to----
    Mr. SMITH. In regards to costs, to----
    Ms. MCCOURT. Yes?
    Mr. SMITH [continuing]. Help lower the cost, what has your 
university seen in regards to health care?
    Ms. MCCOURT. Our university--when I came--so I have been 
there 10 years. When I started modeling healthcare costs, we 
were going to see healthcare costs double in the next, like, 5 
or 6 years in that first model. We have now taken that down. We 
have a massive wellness initiative, but health care is a big 
cost underneath--after compensation, that is the next one down.
    As I have the opportunity, I also want to draw attention to 
the first slide that was up. When we talk about the rising cost 
of health care, we need to be careful because most of the--you 
know, when the Bureau of Labor Statistics looks at healthcare 
costs, they don't look at sticker price. They are looking at 
net price, but when we look at higher education price, we are 
looking at sticker. We have to focus on net price because net 
price tells you a very different story.
    Chairman ROSKAM. It tells you a different story, but it 
doesn't tell you a different trend and we can talk more about 
that.
    Ms. MCCOURT. Yes. Yes, I would love to circle back with you 
on that.
    Chairman ROSKAM. Okay. Thank you.
    Mr. Meehan.
    Mr. MEEHAN. Thank you, Mr. Chairman.
    Mr. Vedder, I hesitate to do this, but--and I know it was 
even a moment of rancor, but in the context of doing that, you 
made a comparison between rankers and rapists. As a former 
prosecutor, there is nothing in any context which is jovial 
about that issue and I hope that you will retract your 
statement.
    Notwithstanding that, and I am sorry that I raised the 
issue, but I thought I had to, Ms. McCourt, you just raised a 
very, very important issue which relates to the ability of 
students to graduate on time. What is the impact of students 
not graduating on time and despite all of the infusion of 
dollars, are we actually doing better at graduation rates?
    Ms. MCCOURT. The impact is more debt, if they are financing 
their education with debt, and lost earnings.
    Mr. MEEHAN. This is particularly troubling to me because 
when you really go through the statistics, when you start to 
see who is impacted the most, and oftentimes we hear about 
this, poor students are taking on more and greater burdens with 
loans, and as a result, they are paying--they are increasing 
debt for poor students and their families. The average working 
family in the blue collar districts that I represent has a 
$55,000 salary and, if they have two children in school, their 
after-tax income, virtually 100 percent of it would be paid 
toward college education.
    Ms. MCCOURT. If they are making $55,000, most institutions 
of higher education would be offering them significant aid.
    Mr. MEEHAN. You expect that they would be----
    Ms. MCCOURT. Absolutely.
    Mr. MEEHAN [continuing]. Offering them significant aid.
    Ms. MCCOURT. Absolutely.
    Mr. MEEHAN. If I might, and this is a question just of 
accountability, is public education a public service? Those 
who--is it a public service? If you are at a public college, is 
that a public service?
    Ms. MCCOURT. I think we owe it to our younger population to 
educate them. When we talk about the issue of the U.S. economy 
and our ability to compete, you know, on into the future, yes, 
I think we owe it to our----
    Mr. MEEHAN. Well, are we talking--let me ask it another 
way.
    We talk about accountability for institutions and I realize 
that these are difficult--and in some ways, it may even be 
symbolic, but should a president of a college, notwithstanding 
the complexities, be making more than the president of the 
United States?
    Ms. MCCOURT. I am going to go back to the issue of running 
a very large----
    Mr. MEEHAN. Yes or no?
    Ms. MCCOURT [continuing]. Complex--I am going to--the 
market of supply and demand and labor and getting good talent 
to run these institutions of higher education, I think the 
president----
    Mr. MEEHAN. But you don't think we get very good people to 
be superintendents of high schools and very good people to be 
school teachers in public school systems and you don't think 
with the prestige associated with being at a public institution 
of major--that we wouldn't be able still to attract the highest 
quality person as the president of a major university if they 
were being paid----
    Ms. MCCOURT. I think if----
    Mr. MEEHAN [continuing]. The same salary as the Governor?
    Ms. MCCOURT [continuing]. I think if we don't pay people 
appropriately, you will not be able to attract the talent you 
need at these very large, complex institutions.
    Mr. MEEHAN. Let me ask a question about accountability for 
anybody here.
    I hear two things when I go and talk to my students. One is 
their aspirations, and I ask this question very specifically, 
and the second is what concerns you the most and invariably 
they say, ``How are my parents going to pay for college 
education?'' So it is affecting every family across America, 
but one of the bigger concerns I get is when I go to employers 
and they say to me that they can't find people who are 
adequately trained to fill the jobs that they have.
    Where is there a measure of accountability and this is for 
anyone that looks at it and says if we cannot fill the 
available jobs here in the United States with college 
graduates--and I say this as a liberal arts graduate, a 
classics major like my colleague here, who finds great value in 
that kind of an education, but notwithstanding, we are not 
educating for the jobs of today and they are going unfilled at 
great cost to us?
    Where is the accountability there? Why should we not hold 
institutions responsible for their failure to meet that?
    And I open it to anybody who may have----
    Mr. VEDDER. Mr. Meehan, I apologize for my earlier remark.
    With respect to that question, we don't have a good match 
between what people do in college and what the labor market 
wants and some people have suggested that one way to sort of 
incentivize colleges to get a little better on this is to have 
colleges have skin in the game. Now, that can be--take 
different forms. One way is with respect to defaults on student 
loans and all, that maybe the colleges ought to pay back some 
of that rather than the students themselves. I think that is 
something that Congress maybe should start looking into.
    And it is interesting, by the way, that I have heard people 
on both sides of the aisle, I won't name names, but from highly 
progressive liberal Democrats to fairly conservative 
Republicans, saying the same thing. So this might be an area 
where there might be some bipartisan possibilities.
    Mr. MEEHAN. Thank you, Mr. Vedder.
    Mr. Chairman, I yield back.
    Chairman ROSKAM. Ms. Black.
    Ms. BLACK. Thank you, Mr. Chairman. I appreciate being a 
part of this Committee. I thank you for allowing me to be here 
and ask a question.
    This is an area that I have great concern about, having 
served on the Ways and Means Subcommittee on Education and 
coming out with some ideas of our own, but I want to follow the 
vein of my colleague, my colleague that was just questioning, 
Mr. Meehan, about outcomes and about how we get to know about 
those outcomes so that as we look at these costs, which has 
been established are really high costs, rising costs, that 
students and their families would be able to make those 
decisions that are necessary in order to be able to decide what 
can I afford and what can I expect as an outcome if I choose 
this particular university or this setting.
    Last month, the Department of Education and the IRS 
published a new college scorecard database to help students and 
their families make more informed decisions about higher 
education. The scorecard provides information about the student 
outcomes from individual schools, including information about 
post-college earnings and debt levels.
    Mr. Vedder, what are your thoughts about this scorecard? Is 
this a scorecard that is something that the students and their 
families can really count on in helping them to make that best 
decision?
    Mr. VEDDER. Well, I think the scorecard is a step forward. 
There is a huge information problem in higher education. I have 
been saying this all throughout this hearing. And the scorecard 
does provide some information that was previously not 
available, for example, earnings data on post-graduates.
    There are some deficiencies in that scorecard. We don't--
first of all, there are a few schools that are not even 
included in the scorecard. I can name--you know, Hillsdale 
College would be one. Grove City College would be two. 
Christian College would be three. I could name several 
universities.
    Ms. BLACK. Well, why are they not included in it?
    Mr. VEDDER. Well, you will have to ask them, but I think it 
relates to the fact that they do not participate in the--they 
don't participate in Federal student aid programs.
    Ms. BLACK. Oh, okay, the Federal student aid programs. 
Okay. That is----
    Mr. VEDDER. And, although Hillsdale also claims that they 
refuse to provide race information, they don't as a matter of 
principle. I read this in The Wall Street Journal. So there are 
deficiencies there.
    Ms. BLACK. Okay.
    Mr. VEDDER. It would be nice if we had more information on 
earnings by major, earnings by--in a variety of other contexts 
other than just one earnings measure. It is--as I say, it is a 
start, but we are way, way, way behind where we should be in 
this area.
    Ms. BLACK. So, in your opinion, and the opinion of others 
on the panel, what do we need to do to force this to occur 
because I believe there isn't enough information out there to 
be able to use good data to drive those decisions so that when 
you are spending $23,000 a year, which is a huge amount of 
money for education, that you could say at the end of the day, 
that money was well spent because I am going to get this job or 
I am going to be able to move up in whatever my job is?
    What else do we have to do? What else should we be looking 
to do? Mr. Vedder.
    Mr. VEDDER. Well, let me respond. I think----
    Ms. BLACK [continuing]. You want to start and then----
    Mr. VEDDER [continuing]. I see Mr. Hartle wants----
    Ms. BLACK [continuing]. Mr. Hartle, yes.
    Mr. VEDDER [continuing]. To respond as well. I think we 
could--one thing that has been suggested is that we actually 
have some sort of--something like the collegiate learning 
assessment tests that could be administered at the freshman and 
senior years nationwide or something so we can measure value-
added during college of what students learn. We do it certainly 
at the K through 12 level. We could do it on a--and I am not 
proposing a huge, highly intrusive amount of testing, but we 
could do a little bit at that national level.
    The Spellings Commission a decade ago, which I was a member 
of, made recommendations along--or in that direction. Nothing 
was done. Colleges don't want to be compared with one another. 
They don't like--it is sometimes embarrassing. Two comparable 
schools are different in some ways. They don't want the 
information out. I think we could force more information to be 
provided along those lines.
    We need better information on what happens to students 
after they graduate than we are getting now.
    Ms. BLACK. Mr. Hartle, I have exactly 27 seconds, so if you 
could just quickly tell us your thoughts.
    Mr. HARTLE. I would be happy to chat with you following the 
hearing if that would be helpful, but I think to answer your 
point about Hillsdale, one of the limitations of the Department 
of Education's scorecard data is it is only for students who 
received financial aid. So schools like Hillsdale who do not 
participate in the Federal student aid program don't have 
anybody in the database. Only a fair number of students are 
excluded, so some schools, the numbers are based on 10, 15, 20 
percent of the students rather than the entirety of the student 
body.
    The fundamental challenge you face at the Federal level is 
the Federal Government does not have good data to do what they 
want to do. The Department of Education can only rate schools 
on four pieces of information: retention, graduation, student 
loan defaults, and now student loan repayments. Not all of 
those are accurate.
    Fundamentally, the question for the Federal Government is 
whether they want to create a database that would enable them 
to very accurately compare information by tracking individual 
students.
    Ms. BLACK. Thank you. And I know my time has expired. I do 
think this is an area that we really do need to take a look at. 
Thank you very much.
    Chairman ROSKAM. Thank you.
    Mr. Reed.
    Mr. REED. Thank you, Mr. Chairman, and as a former Member 
of this Subcommittee, I so appreciate the Chairman holding this 
panel and having this testimony here today and I wanted to come 
here today because this is a priority issue to me.
    As the youngest of 12 siblings, who was raised by a single 
mother who firmly believed that education was the key to 
getting out of poverty, this is something I am very personally 
interested in taking care of because when I got out of school, 
my student loan debt was $110,000. So like my colleague from 
Missouri, Mr. Smith, it was a major load to carry, and when I 
go around my district and I talk to these students and I talk 
to these kids and they tell me they are coming out of undergrad 
with $100-200,000 worth of debt, we are doing a disservice to 
the next generation.
    So I come here today having taken a hard look, and many of 
you on the panel know that I am drafting legislation as we 
speak, to deal with what I believe is a crisis when it comes to 
higher educational costs in America and what we are doing to 
the next generation.
    One of our proposed reforms that I am very interested in 
and that the testimony here got into today is when I looked at 
the endowments of our largest universities and colleges, the 
top 90-91 universities and colleges, each having $1 billion or 
more of funds in endowments, I realized that those endowments 
are being held in a tax-free status. Then I realized that 
donors get a tax deduction for giving these gifts to these 
institutions. Then I realized when you do the simple math, for 
example, and to all the reporters out there, if we just change 
the rules and force this endowment to be a pot of money to be 
utilized to reduce tuition for our students, we could have a 
headline that says we propose in the crisis, for the immediate 
short-term future, that students at these institutions will pay 
zero dollars for tuition, zero dollars.
    Also, Mr. Galle, your testimony touches upon that a little 
bit in the Harvard Study and let me just do some math. Harvard, 
$5.5 billion in returns tax free last year, total tuition 
charged to its undergrad population, $360 million, $100 million 
is given to Harvard from Federal and State local sources. So 
when my colleague from New York talks about why is this an 
issue or why are we even discussing this, I would propose 
something to you.
    In order to keep that tax-free qualification that we are 
referring to here today, maybe we mandate that the endowments 
take their earnings, just their earnings, not their principal 
so we don't get into the sustainability issue that some of you 
expressed here today, and mandate it goes to tuition relief to 
the students that are going there, plus the $100 million that 
your institutions get in these high endowment level 
institutions, that goes to other institutions across America, 
to the other schools that don't have this size of endowment. 
That is $100 million that would be going from Harvard to a 
different institution to allow those costs to be lowered at 
those institutions.
    Take Yale, $3 billion return on their endowment, $291 
million of tuition charged to its undergrad population. If you 
just took 10 percent of that money and gave it to the kids that 
are going to school there, you wouldn't have to charge one kid 
a dime to go to that institution. That is addressing this 
crisis, in my opinion.
    Texas, which has the second largest endowment I believe, 
$339 million worth of tuition. It is getting a $3 billion 
return on its endowment each year tax free. And I am not even 
talking about what your endowment managers are making off of 
that return and some of these endowment managers are making 
$200-300 million just off of that return on an annual basis. 
Talk about going after the top 1 percent. This is an 
opportunity to address this crisis that our kids in America are 
facing and I would hope my colleagues on the other side would 
join me in these types of reforms and looking at this resource 
and saying maybe we can utilize this to address this crisis and 
go forward.
    Mr. Hartle and Ms. McCourt, you actually gave me some 
information today because the restriction on the gifts to 
these--from these donors and to your institutions, I think the 
benefit of being on this Committee--you say the law restricts 
you? We can change the law. We write the law. That is what we 
are here for because the donors, if they were then told that, 
hey, if I have to give money to an institution and I am going 
to lose my tax deductibility, maybe the conversation you could 
have with that donor is going to be a little bit different and 
say, ``Do you really want to give us that taxable gift as 
opposed to a non-taxable or a tax deductible gift that we could 
do,'' if we change the rules so these restrictions are out the 
door?
    So this is an opportunity. I want to work on reforms that 
are going to say in a headline we propose zero tuition to the 
kids of the next generation as we go through this crisis of 
getting college costs under control. To me, this is a great 
opportunity. This legislation is being finalized and I hope my 
colleagues on the other side of the aisle would join us in this 
reform and alleviate this debt burden that we are putting on 
this next generation of kids like myself when I came out of 
college with $110,000 worth of debt.
    It is not right. It is wrong. I care about these kids and 
we are going to make sure these kids get the education that 
gets them out of poverty to enjoy the opportunity of America.
    With that, I yield back.
    Chairman ROSKAM. Thank you, Mr. Reed.
    You know, I think it is interesting--I have a few 
questions, but it is interesting if you listen to the nature of 
the discussion today, there is really nobody that is defending 
the status quo. There is no voice up here on either side of the 
aisle that said it is great, just leave it alone. There is no 
panelist who said, oh, it is great, just leave it alone, which 
means I think that there is an opportunity for us to be 
rethinking these things.
    So I had some questions that popped up. Ms. McCourt, let us 
just follow up because we had a little bit of a dialogue that 
was just intermittent.
    Let me recharacterize your testimony as I heard it, 
particularly as it relates to sticker price. So the sticker 
price, you said, look, that is one figure that tells part of 
the story. Let me stipulate a couple of things.
    Let us say for the sake of argument that the sticker price 
tells one story and that the actual price is a different story. 
The trend, though, is significant. So in my opening statement, 
I referenced this relationship between healthcare costs--the 
rise of healthcare costs and the rise of higher education and I 
said that higher education was increasing twice as fast as 
health care. So for the sake of argument, let us say that it is 
just increasing at the rate of health care. Okay.
    The rise in health care, I would argue the public is 
getting a benefit at least. We are living longer. We are living 
healthier lives. You know, we have devices, we have this, we 
have that. We have all kinds of things that have changed the 
quality of life.
    And my question is: Can we really say that about higher 
education?
    Going back to Mr. Holding's admonition, is his classics 
education fundamentally different from his father's or 
grandfather's or grandmother's or great-grandparent's into 
perpetuity?
    You see the point that there is some value proposition that 
the healthcare enterprise at least can turn to, and really are 
students better, faster and smarter with the amount of money 
that is going into the front end of this?
    Ms. MCCOURT. There are several points I want to make. So 
let me just try to touch on them quickly. But the wage gap has 
never been wider for those with a college education and those 
who do not have it. There are many benefits.
    There are direct benefits, and then when you think about 
societal, health, there are all kinds of benefits when you 
study those with college educations and those without. So I 
would venture to say, yes, there are extreme benefits.
    I would also say that the classics education, maybe the 
book you are reading is the same, but there are many things 
that are happening in institutions of higher education that are 
wrapped around the classics education. There is technology in 
the classroom. There is technology in the books. There is 
technology across the campuses. There are career and advising 
services that have not been there before.
    So there are many additive costs, and I am in a classics; I 
am an economics degree as well so not classics, but liberal 
arts, and when you think about society and we have talked 
about, you know, other countries and advances they are making. 
If we do not think the advances in research and technology, 
innovation is the way of the future. A lot of that innovation 
is happening on college campuses.
    So, yes, there is a----
    Chairman ROSKAM. Okay. So you would make an argument there.
    Mr. Hartle.
    Mr. HARTLE. Just an observation. Your charge is actually 
net cost of attendance over time. So it would be tuition and 
fees, room and board, books and supplies for students who live 
in university housing, which is only about 15 percent of all 
students.
    Net tuition is $3,000 for students in public 4-year 
colleges, $12,000 for students in private colleges. Obviously, 
students who do not live in campus housing may well have 
limited expenses, but yours is showing a total cost of 
attendance for a specific type.
    Chairman ROSKAM. And so your argument is that universities 
can control part of that, that is, on-campus living, and they 
cannot control part of it; is that right?
    Mr. HARTLE. No, the argument is that for the 85 percent of 
students who do not live in university housing, they are not 
facing that as a net price. They are facing something different 
in many cases.
    Chairman ROSKAM. I understand your point.
    Let me switch gears a little bit. Ms. McCourt, getting back 
to you, first of all, I stipulate that Indiana University and 
Purdue University are doing remarkable things, and this is not 
false praise. It is really remarkable, and particularly leading 
the Nation in a lot of these things, and I know that you are 
inextricably linked to the success there.
    You are today here, however, on behalf of a larger 
organization.
    Ms. MCCOURT. Right.
    Chairman ROSKAM. And so, you know, they are all with you. 
So let me ask you this. You were implicitly defending high 
salaries for----
    Ms. MCCOURT. I----
    Chairman ROSKAM. You were explicitly defending high 
salaries--let me make a point--for university presidents, and 
your thesis was, look, these are big systems, and if you need 
big systems to be run, you need bright people to run them, and 
bright people are expensive. And that is not an irrational 
argument.
    Here is the plot trap though with that argument, I think. 
The comparison was made to the private sector, that is, the 
for-profit sector. The for-profit sector is only able to deduct 
$1 million in salary, you know, publicly traded C corporations. 
That is it.
    Now, what do you think about an excise tax, for example? If 
the university says this person is so special that we have 
looked across all the fruited plain, and we think that this is 
the absolute person that we need to bring in for this.
    Is it reasonable then to create a comparison with the 
private sector because you used the private sector as an 
analogy?
    Ms. MCCOURT. I think you would find so very few people who 
would meet that criteria it would almost----
    Chairman ROSKAM. Really?
    Ms. MCCOURT. Yes.
    Chairman ROSKAM. Wow, that is amazing to me.
    Ms. MCCOURT. Yes.
    Chairman ROSKAM. That people would say, ``I am unwilling to 
do it,'' and that the universities would be unwilling to pay an 
excise tax. That is interesting.
    Ms. MCCOURT. No, I did not say they would or they would 
not, but I am thinking right now of the institutions of higher 
education across the country, and anyone paid over $1 million. 
There are not that many.
    Chairman ROSKAM. Well, there are 42.
    Ms. MCCOURT. Okay. Forty-two out of all of the employees in 
institutions of higher----
    Chairman ROSKAM. So you would not object to them? You would 
not object to that?
    I mean, I am not trying to trap you. I am trying to 
understand.
    Ms. MCCOURT. Yes, I may not.
    Chairman ROSKAM. Okay. Mr. Vedder, what do you think of 
that, the idea and the comparison to C corporations and so 
forth?
    Mr. VEDDER. Well, I think there ought to be a level playing 
field. I think the tax treatment of employees working for the 
private sector and public sector should be the same. Whether 
the current million dollar rule is the appropriate rule, I have 
not really studied that or thought much about it.
    Chairman ROSKAM. In fairness, neither have I. I am just 
thinking through the comparison.
    Mr. VEDDER. But I cannot see why university presidents 
would be treated differently, and I have even read many cases 
where the IRS has gone and said, ``Oh, you have not paid taxes 
on your presidential mansion you are staying in and we are 
going to make you do that.''
    And then the boards of trustees say, ``Oh, we will pay that 
for you.'' You know, it is almost like only little people pay 
taxes.
    And I think economists generally favor level playing 
fields.
    Chairman ROSKAM. Let me ask you, Mr. Vedder. There has been 
some discussion around restricted contributions, you know, 
restricted gifts and so forth, and the inherent limitations. 
Listen. That makes sense. You can understand if you accept a 
gift that is a donor-directed gift you are bound to use it in 
the way that the donor would contemplate and direct.
    Is there any wisdom to giving it different tax treatment 
though? In other words, a donation that goes from a donor to a 
university that is unrestricted, should that be given more 
favorable tax treatment than a donation that says, ``I am 
restricting you to use it for this particular purpose?''
    Could you not make the argument that part of the benefit 
that the donor receives at the front end is the capacity for 
direction 
as opposed to an unrestricted gift which the law would view as 
a higher good, going back to Ms. Noem's point, and that is, you 
know, creating more flexibility and so forth?
    Does that make any sense?
    Mr. VEDDER. It makes sense. It is an intriguing idea. I 
think there are some administrative issues. I am trying to 
think of the practicalities of how you define, how you 
differentiate, but I think it is an interesting idea.
    Similarly, as I mentioned in my testimony, there are 
certain kinds of university donations that are clearly to non-
academic purposes. I mean stadium skyboxes, why should some who 
love their alma mater and want to sit in a fancy skybox get 
credit for it, why should they get a tax break for that?
    I am going to get in trouble. Princeton University built a 
dorm, particularly with your own staff that went to Princeton. 
Princeton University built a dorm that cost $120 million. Three 
hundred and fifty kids live in that dorm. That is $340,000 a 
bed.
    Meg Whitman made a big part of the gift, a major corporate 
donor. She probably received at least a $10 million deduction 
for that, to provide a facility that cost more than a typical 
resort built by a man who is running for President now, who 
will remain nameless.
    So it seems to me that there is a lot of reason to look 
into the nature of the gifts, and that may mean to do what you 
are suggesting. I have not really thought it out fully.
    Chairman ROSKAM. Okay. Ms. McCourt, I just want to get your 
insight, your insights in Indiana versus the experience of my 
home State in Illinois. So I am a graduate of the University of 
Illinois down in Champaign. This statistic I find just jarring.
    This is Illinois. At public universities in Illinois the 
number of full-time administrative staff increased 31 percent 
from 2004 to 2010, with only a 1.8 percent increase in full-
time faculty and a 2.3 percent increase in students.
    The University of Illinois has one administrative staff 
member for every 30 students. Does that seem absurd to you like 
it does to me? And I mean gratuitously absurd.
    Ms. MCCOURT. Well, I do not want to comment on that. I can 
tell you at the university----
    Chairman ROSKAM. I would not either.
    Ms. MCCOURT [continuing]. The trend is exactly the 
opposite. Over the past decade we have seen a 14 percent 
increase in academic staff and a 3 percent increase in 
administrative staff.
    When I take that back to fiscal years 2004 to 2011, and 
then the years 2011 to 2014, administrative staff has actually 
gone down 2 percent while academic staff has gone up 3 percent, 
for a net change of zero.
    Chairman ROSKAM. Is that in Indiana?
    Ms. MCCOURT. That is Indiana.
    Chairman ROSKAM. Okay.
    Ms. MCCOURT. I mean head count, but to your earlier point--
--
    Chairman ROSKAM. You have a good point because you can 
argue in the alternative. When you want to put on your Indiana 
cloak you do, and then when you have the whole crowd in the 
room----
    Ms. MCCOURT. But to your earlier point, this is why we 
need----
    Chairman ROSKAM. Hang on.
    Ms. MCCOURT [continuing]. This is why we need to bring 
business people to higher education, to focus on these metrics.
    Chairman ROSKAM. Is that true though. Are those statistics 
nationwide statistics or are those Indiana?
    Ms. MCCOURT. I think you are seeing a very large trend, and 
we are now approaching this bubble of people retiring out of 
higher education. There is just a lot of retirements.
    Chairman ROSKAM. Okay.
    Ms. MCCOURT. And so as they retire, they are not getting 
hired back on the administrative side.
    Chairman ROSKAM. Okay. Put on your cloak of the 
organization now.
    Ms. MCCOURT. Yes.
    Chairman ROSKAM. You are out of the safe zone of Indiana.
    Ms. MCCOURT. Yes.
    Chairman ROSKAM. Now you have the whole team.
    Ms. MCCOURT. Yes.
    Chairman ROSKAM. In 2012, Sterling Partners and Bain & 
Company wrote a report, which I would like to enter into the 
record with no objection.
    [The submission of The Honorable Peter Roskam follows:]
    
    
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    Chairman ROSKAM. Administrative costs ``have grown faster 
than the cost of instruction across most campuses. In no other 
industry would overhead costs be allowed to grow at this rate. 
Executives would lose their jobs.''
    The Department of Education data shows that administrative 
positions, that is, non-teaching, at colleges and universities 
grew by 60 percent between 1993 and 2009. That is indefensible, 
is it not?
    Ms. MCCOURT. Well, I think you need to get below how they 
are defining administration because outside of my cloak of----
    Chairman ROSKAM. Non-teaching.
    Ms. MCCOURT [continuing]. Indiana University, non-teaching 
there is much support staff being hired everywhere. There is 
also staff when we think about the Clery Act and student 
welfare and emergency preparedness. That is where the hires are 
going.
    I do not see a lot of hires in kind of business-type 
administration.
    Chairman ROSKAM. Okay. However, if that is true, how are 
you enjoying such success at Indiana University and the rest of 
the country is failing?
    Ms. MCCOURT. So back to the Indiana University side. We are 
putting a lot of emphasis on operational efficiency and where 
can we cut costs.
    And the other benefit----
    Chairman ROSKAM. So my point is it is possible, and you are 
showing and you are leading----
    Ms. MCCOURT. Yes, we are.
    Chairman ROSKAM [continuing]. And the rest of the group is 
like pressing up their nose against the glass looking in, and 
they are not delivering.
    Ms. MCCOURT. In everybody else's defense, another benefit 
we have at Indiana University is because it is a seven campus, 
we are not a system, but there are seven campuses we operate. 
We can leverage that size, and we can create efficiencies.
    Chairman ROSKAM. Come on. That is not a distinction.
    Ms. MCCOURT. It is. I mean, I would love to say it is all 
great and, you know, we have these novel ideas, but that does 
give us a benefit. You can leverage, you know, seven accounts 
payable organizations or seven student services.
    Chairman ROSKAM. There are many systems across the country. 
Nice try.
    Ms. MCCOURT. Everyone is focused on it.
    Chairman ROSKAM. I get it, but your presence here today and 
your ability to describe what is happening at Indiana 
University, to which I give you credit and I admire and what we 
know Governor Daniels is doing at Purdue is something, is the 
exact reason that there is an incongruity.
    What is happening in my home State is lagging compared to 
what you are doing. I appreciate your willingness to try to 
advocate on behalf of a larger entity that you are bound to try 
to do, and you are doing a good job. The challenge is it is a 
really hard case to make, and your presence here is the irony 
that it is possible.
    We have been joined by Mr. Dold, whom we will go to 
quickly, and then we will wind it up.
    Mr. DOLD. Thank you, Mr. Chairman.
    Again, I want to thank you for holding this hearing on what 
is an incredibly important topic.
    So the Chairman and I actually come from the same State, 
and I am alarmed at the rate at which the number of 
administrators is increasing; 31 percent over 6 years for 
administration to me as a small businessowner seems outrageous.
    I have to tell you when I am out talking to people each and 
every day that are having the kitchen table conversations with 
their family, the thing that they are concerned about most 
besides the rising cost of fuel, is the cost of higher 
education.
    We know it is the great equalizer. We know it is the 
building blocks for everything that we want to do. We want to 
make sure that people are able to reach their full potential, 
and frankly, we are going to rely upon you.
    Yet, when you look at the cost of higher education over the 
course of the last several decades, it so far outpaces 
inflation that one has to take a look and say, ``Are we getting 
better educated today than the folks that graduated before?''
    Really, what I want to try to focus on because this is such 
an important topic is: How do we enable or how do we start 
getting dual credit? How do we start enabling people to have 
that leg up when they are coming in so that they are not 
putting 5 years in instead of 4?
    Some of the community colleges, they are spending a lot of 
their Pell Grant money on remedial education, and we know if 
they are doing that on remedial education, the chance that they 
are going to actually graduate and get a certificate out of 
some of these community colleges diminishes greatly.
    I guess one of the questions that I am asking most from you 
here on the panel is: What would you think about having some of 
the universities that you represent actually engaged in the 
student loan process so that we are better aligning the 
students' outcome and their ability to pay back the 
universities?
    What would you think, Dr. Lucca, about something along 
those lines? Would that be a change that we might be able to 
try to better align so that these universities ensure that 
their college students are coming out and getting good, high-
paying jobs?
    Mr. LUCCA. My research does not directly speak to that 
issue, I mean, generally aligning the interests of colleges and 
students would probably not be a terrible idea, but I have not 
really researched this.
    Mr. DOLD. I would hope it would not be a terrible idea, but 
I mean, again, we want people aligned. We want people in the 
rowboat rowing in the same direction.
    Dr. Vedder.
    Mr. VEDDER. I think, picking up on Dr. Lucca's answer, I do 
think universities ought to be more aligned with the interests 
of their students. Their own interests and the students' should 
be more aligned.
    I have been intrigued in my own thinking about doing 
exactly that. Why are the universities themselves not in the 
loan business? Why do they not use some of their endowments to 
invest in their own students?
    If we are going to move to a new form of financing of 
higher education as some have suggested, income share 
agreements where people sell a share in themselves as it were, 
equity in themselves rather than debt in themselves so that the 
risk goes to the investor; why can at least some of the richer 
schools not be involved in that process?
    Why can colleges not have more skin in the game?
    Mr. DOLD. Well, I think they need to, to your point.
    Mr. VEDDER. So I am sympathetic to your idea.
    Mr. DOLD. Mr. Galle, you are over at Georgetown at the Law 
Center.
    Mr. GALLE. Yes.
    Mr. DOLD. Do you have great faith that these lawyers or 
soon to be lawyers coming out under you tutelage are going to 
do well?
    Mr. GALLE. I do. I think one reason to be cautious is 
essentially in that situation your educator is acting as an 
insurer, and we know from studying health care usually you want 
a pretty big pool if you are acting as an insurer. It is not 
clear that one university level is a big enough pool in order 
to make a system like that fiscally viable.
    I would be interested in Dr. Vedder's research on that 
front.
    You know, another thing to think about when you are 
thinking about having skin in the game is that as we heard, a 
lot of States are having less and less skin in the game of the 
future of people who are being educated in their State, and I 
think it would be interesting to think about creative ways to 
get the Federal Government to encourage States to spend more on 
their students.
    If you think about it, for the most part the Federal 
Government is in the position just of writing checks, and it is 
hard to get a lot of accountability when you are just the 
checkwriter. But if you are actually operating the institution, 
you can control a lot of these levers.
    So I think maybe State universities are a good answer for a 
lot of the affordability problems that people are facing. Maybe 
there are creative ways to encourage a better balance.
    Mr. DOLD. I can tell you it is at a fever pitch, and that 
most people are terrified about how they are going to be able 
to afford to send their children to college.
    Ms. MCCOURT. I would say colleges and universities have put 
hundreds of millions of dollars of skin in the game when we 
look at institutions like Harvard and Yale, which we have 
talked about several times today. Families that are making 
under $65,000 are virtually paying nothing; families that are 
making up to $150,000 are paying zero to 10 percent of their 
income.
    Mr. DOLD. Okay. When I go back to Grayslake and talk to a 
mother of three children, am I going to tell her she is going 
to pay nothing to send her kids to Harvard?
    Ms. MCCOURT. If her kids are going to get into Harvard?
    Mr. DOLD. Well, I am asking. That is my point.
    Ms. MCCOURT. Her kids are going to get into Harvard and 
they make----
    Mr. DOLD. I cannot go to a mother in Grayslake and say, 
``Do not worry about college. Harvard is going to pay for it.''
    Ms. MCCOURT. If the kid gets into Harvard and she makes 
less than $65,000, you probably can tell her she is not going 
to pay anything for her child to attend Harvard.
    Mr. DOLD. Okay. So if she's making less than $65,000 she is 
going to pay nothing or her children will pay nothing to go to 
Harvard. How about if we are going to the University of 
Illinois?
    Ms. MCCOURT. The University of Illinois, like all State 
flagship institutions--I am saying all; most--are putting big 
dollars on the table, much skin in the game to attract the best 
and brightest. So if she did not get into Harvard, but anyway--
or if you are making less than, I think at Indiana it is about 
$65,000 as well, there are hundreds of millions of dollars on 
the table that institutions are putting up.
    Mr. DOLD. I recognize that my time has expired, but let me 
just say please, in some of our low-income areas, they might 
not have those things, and if we are looking to try to level 
the playing field, give them the opportunity. I cannot go to 
them and say, ``By the way, if you just apply, college is going 
to be free.''
    They are looking at the sticker price, and frankly, the 
sticker price is becoming more and more out of reach where 
people are throwing up their hands saying, ``I do not know how 
I can.''
    Ms. MCCOURT. And that is some of the investments, and when 
we look at the investments, financial aid, there are a lot of 
investments in financial aid counselors so that families can 
come, get on websites and find that they will not be paying 
those sticker prices.
    Mr. DOLD. Thank you, Mr. Chairman.
    Chairman ROSKAM. Thank you to all of our witnesses. We are 
deeply appreciative of the time and energy that you gave us 
today, and it is not lost on us, your willingness to share your 
perspectives, and all five of you really added a great deal of 
insight and value, and I know I speak on behalf of all of my 
colleagues here, that we are deeply appreciative of your time
    The meeting is adjourned.
    [Whereupon, at 12:12 p.m., the Subcommittee was adjourned.]
    [Extended Testimony for the Record follows:]
    
    
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    [Submissions for the Record follow:]
    
    
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