[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.
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Note: All Committee advisories and news releases are available
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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:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
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:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
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:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
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:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
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:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
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.]
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