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




 
        HEARING ON TAX-EXEMPT COLLEGE AND UNIVERSITY ENDOWMENTS

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

                                HEARING

                               before the

                       SUBCOMMITTEE ON OVERSIGHT

                                 of the

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

                    ONE HUNDRED FOURTEENTH CONGRESS

                             SECOND SESSION

                               __________

                           SEPTEMBER 13, 2016

                               __________

                            SERIAL 114-OS14

                               __________

        Printed for the use of the Committee on Ways and Means
        
        
        
        
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                     COMMITTEE ON WAYS AND MEANS

                      KEVIN BRADY, Texas, Chairman

                       

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

                     David Stewart, Staff Director

                   Nick Gwyn, Minority Chief of Staff

                                 ______

                       Subcommittee on Oversight

                  PETER J. ROSKAM, Illinois, Chairman

                       

                                     
PAT MEEHAN, Pennsylvania             JOHN LEWIS, Georgia
GEORGE HOLDING, North Carolina       JOSEPH CROWLEY, New York
JASON SMITH, Missouri                CHARLES B. RANGEL, New York
TOM REED, New York                   DANNY DAVIS, Illinois
TOM RICE, South Carolina
KENNY MARCHANT, Texas


                            C O N T E N T S

                               __________
                                                                   Page

Advisory of September 13, 2016 announcing the hearing............     2

                               WITNESSES

Jeff Amburgey, Vice President for Finance, Berea College, Berea, 
  Kentucky.......................................................    17
Sheila Bair, President, Washington College, Chestertown, Maryland 
  (formerly chair of the Federal Deposit Insurance Corporation)..     8
Sandy Baum, Senior Fellow, Income and Benefits Policy Center, 
  Urban Institute................................................    38
Neal McCluskey, Director of the Center for Educational Freedom, 
  Cato Institute.................................................     5
Mark Schneider, Vice President and Institute Fellow, American 
  Institutes for Research (formerly Commissioner of the National 
  Center for Education Statistics)...............................    25


        HEARING ON TAX-EXEMPT COLLEGE AND UNIVERSITY ENDOWMENTS

                              ----------                              


                      TUESDAY, SEPTEMBER 13, 2016

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

    The subcommittee met, pursuant to call, at 10:04 a.m., in 
Room 1100, Longworth House Office Building, the Honorable Peter 
Roskam [chairman of the subcommittee] presiding.
    [The advisory announcing the hearing follows:]
    
    
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    Mr. ROSKAM. The hearing will come to order. Welcome to the 
Ways and Means Oversight Subcommittee hearing entitled ``Back 
to School: A Review of Tax Exempt College and University 
Endowments.''
    Mr. LEWIS. Mr. Chairman.
    Mr. ROSKAM. Mr. Lewis.
    Mr. LEWIS. Will you yield for a moment?
    Mr. ROSKAM. Be delighted.
    Mr. LEWIS. Mr. Chairman, I understand that today is your 
birthday. And before we go on, I think we should just wish you 
a wonderful and happy birthday. Now, I will not sing, because I 
cannot carry a tune, but happy birthday, Mr. Chairman.
    Mr. ROSKAM. Thank you very much. I appreciate that and look 
forward to us working together. And thank you very much for 
your kindness. I appreciate it.
    We have got some work to do today, and it is work that is 
good work. We know that a year ago, the subcommittee heard from 
a panel of witnesses about how tuition and student debt loads 
were spiraling out of control. From 1980 to 2014, the average 
college tuition increased 260 percent. I mean, that is a number 
that just takes your breath away.
    We on this subcommittee don't need a panel of experts to 
tell us that, because we hear that when we go home. Both sides 
of the aisle, we hear this with some frequency and with some 
regularity. And there is a level of anxiety that is being 
communicated to us by our constituents that is just palpable. 
That is, parents are feeling like this notion of sending 
children to school is becoming more and more and more 
difficult.
    And in addition to the tuition that they pay, those same 
parents, along with the rest of American taxpayers, are giving 
subsidies to colleges and universities via tax exemptions. Tax 
policy benefits these institutions in numerous ways. For 
starters, people who donate to colleges and universities can 
write off those donations. The schools don't have to pay tax on 
those gifts, and any investment earnings from those gifts are 
tax free as well.
    Given families' concerns and the big tax benefits colleges 
and universities get from taxpayers, the Ways and Means 
Committee believes it is important for us to keep learning 
about how these schools are working to fill their charitable 
and educational purposes.
    Today's hearing will be an educational experience for our 
members and for the public. Following on our hearing from last 
October, we will be learning more about what is driving tuition 
increases. We will also be hearing about what some institutions 
are doing to reduce costs for their students. Some of these 
ideas are really exciting, and they go to show that this 
entrenched idea, that is that tuition has to go up each and 
every year, is not gospel. It doesn't necessarily have to 
happen.
    Schools can do creative things to reduce their 
administrative overhead, to develop alternative funding 
arrangements so students don't have to borrow as much, and to 
reward middle-class families that save for the future instead 
of penalizing them with high tuition. Imagine this, some 
schools have actually frozen their tuition, and one college we 
will hear from doesn't even charge tuition.
    As we have engaged in dialogue with colleges and 
universities over the past few years, we have learned a lot. We 
have learned that institutions are differently situated from 
each other, and that one-size-all policy solutions may not be 
the answer. But we have also learned that when institutions 
prioritize helping their students in creating efficiencies on 
campus, they can find creative ways to make it happen.
    We look forward to hearing about some of those ideas today 
and hearing from experts who will provide us insight into ways 
that Congress can encourage universities and colleges in these 
endeavors.
    Before I introduce our panel of witnesses, I would like to 
recognize and yield to my friend from Georgia, the ranking 
member, Mr. Lewis, for his opening statement.
    Mr. LEWIS. Thank you, Mr. Chairman, for yielding.
    Good morning. I would like to thank the chairman for 
holding today's hearing on tax-exempt college and university 
endowments. As many of you know, my congressional district is 
metro Atlanta. It is home to many universities and colleges. 
Spelman, Moorehouse, Georgia State, Clark Atlanta, Georgia 
Tech, Agnes Scott, and Emory are just a few of the more than 80 
great institutions of higher learning in our community.
    Across the country, colleges and universities have trained 
and prepared the next generation of scientists, teachers, 
doctors, nurses, architects, and engineers. Graduates are the 
future business owners, thinkers, creators, and leaders of our 
Nation.
    In addition, many colleges and universities are research 
centers where experts and students search for cures to diseases 
like cancer, HIV-AIDS, and alternative energy sources and new 
technologies. Their work puts us on the path to greener, 
cleaner, and healthier possibilities for a generation yet 
unborn across the United States and around the globe.
    It is important to remember the real impact and benefit of 
higher education for real people. In 2015, the average weekly 
earning of a college graduate was over 60 percent higher than 
the worker with just a high school education. Simply said, 
education is the fastest path to the middle class. Education is 
the key. Education is the great equalizer.
    In light of the decreasing State support, it is more 
important than ever that the Federal Government helps to keep 
open the doors to higher education. Republicans and Democrats 
must fully support Pell Grants and student loan programs that 
make school affordable, and Federal student aid and tuition 
repayment program must be fully funded. We must do our part. We 
must play a role and play it well.
    We have a duty and obligation to help make higher education 
the real thing. We have a moral responsibility to make college 
accessible to all who aspire.
    I look forward to hearing from today's witnesses on what we 
can do to keep the dream of education within the reach of all 
of our citizens. It is the right thing to do. It is the fair 
thing to do. Thank you for being here.
    I yield back, Mr. Chairman.
    Mr. ROSKAM. Thank you, Mr. Lewis.
    And I think, following up on that theme that Mr. Lewis 
articulated, that education is the key, we have got five 
witnesses that are going to give us some insight and 
perspective to try and help us to play the role that we need to 
play the role in the Tax Code to make sure that we are part of 
that, because I think everybody agrees that education is the 
key. And as Mr. Lewis mentioned, education is a great 
equalizer.
    So today's witness panel includes Dr. Neal McCluskey, who 
is the director of the Cato Institute's Center For Educational 
Freedom; Sheila Bair, president of Washington College; Jeff 
Amburgey, vice president of finance for Berea College; Dr. Mark 
Schneider of the American Institutes for Research; and Dr. 
Sandy Baum, a senior fellow at the Urban Institute's Income and 
Benefits Policy Center.
    Each of you, we have received your written testimony, and 
that is part of the record. We have reviewed your written 
testimony as well. But each of you have 5 minutes to present to 
the committee, and then our inquiry will begin.
    So, Dr. McCluskey, you are recognized for 5 minutes.

    STATEMENT OF NEAL MCCLUSKEY, DIRECTOR OF THE CENTER FOR 
              EDUCATIONAL FREEDOM, CATO INSTITUTE

    Mr. MCCLUSKEY. Thank you, Chairman Roskam, Ranking Member 
Lewis, Members of the Committee. Thank you for inviting me to 
speak with you today. My name is Neal McCluskey. I am the 
director of the Center for Educational Freedom of the Cato 
Institute, a nonprofit, nonpartisan public policy research 
organization. My comments are my own and do not represent any 
position of the institute.
    I have been asked to provide something of an overview of 
the Nation's college price problem. Why do people believe we 
are in a college cost crisis, as the term often used? Well, as 
you know, as you have already said, the country has seen an 
unremitting increase in college prices for about the last 35 
years and with it, greatly increasing student debt.
    There are three common explanations for this problem. The 
first is ``cost disease.'' Industries relying on labor see 
their costs rise because they cannot replace labor with 
technology while their workers must get paid more, lest they 
move the job where more pay, enabled by greater productivity, 
is available. If you want to perform Beethoven, you need the 
same number of players as in Beethoven's day.
    There is a problem with this. While putting on a live 
performance may require the same inputs as in Beethoven's era, 
getting music to people has become much easier with records, 
tapes, Internet. Technology has massively increased 
productivity. Colleges, like orchestras, are heavily dependent 
on skilled labor, but like musicians, the reach of any given 
professor could be hugely expanded via the Internet especially.
    The second major explanation for the price problem is that 
schools must raise prices to make up for cuts to State support. 
Over the last 25 years there have been decreases in inflation-
adjusted, per-pupil State and local appropriations to public 
colleges. State and local governments have, however, actually 
increased total appropriations.
    What explains the per-pupil drop is big enrollment 
increases. When per-pupil appropriations are compared to per-
student revenue through tuition and fees, we can get an idea 
how much public schools might have raised prices to make up for 
lost appropriations. Smoothed trend lines suggest that for 
every 53 cents lost in appropriations, the average State 
schools brought in about a dollar through tuition and fees.
    Tuition and fee lines are also smoother than 
appropriations, suggesting that much of the pricing is on kind 
of automatic pilot. Further hurting the State-funding 
explanation is that private institutions have also seen major 
price increases.
    The last major explanation is that student aid, especially 
from D.C., lets colleges raise prices. Proving this is 
difficult, in part because it is hard to know to what extent 
necessary expenditures are driving prices or colleges are just 
maximizing revenue. At least 13 studies have indicated that 
student aid leads to various effects that reduce the value of 
aid to students.
    On the demand side, colleges supply costly amenities and 
programs because heavily subsidized students demand them. Of 
course, schools do not have to raise prices, but people in 
colleges always feel there is something useful they can do. 
This is the basis for what is called Bowen's Law, named after 
former Grinnell College and University of Iowa President Howard 
Bowen, which says essentially, that in pursuit of prestige and 
other goods, colleges will take every dollar they can get.
    The solution is, I think, actually to phase out Federal 
aid, making people pay with their own money or funds they get 
voluntarily from others. That said, there does not currently 
seem to be much appetite for this.
    So let's look at four proposals that appear to be feasible 
in the near term. The first is requiring greater endowment 
payouts. Why should colleges stockpile money and charge high 
prices? I think the first problem with this is that endowment 
funds are often restricted and may not be easily directed to 
financial aid. More important, few institutions have very large 
endowments. Among 4,627 degree-granting postsecondary 
institutions, only 95 have endowments exceeding $1 billion. 
Endowment earnings would also be an unpredictable source of 
funding, because they go up and down.
    Then there is free college proposals. Washington would 
essentially incentivize States with matching funds to increase 
their subsidies to public colleges. While such proposals might 
lower prices, it is likely that large Federal expenditures 
would be needed to goose large State expenditures. Free college 
would also likely exacerbate higher education's huge 
noncompletion problem.
    There are also income share agreements in which investors 
would fund students for a percent of their income over a set 
amount of time. Investees earning little would not be burdened 
with unaffordable payments, because they earn more, and they 
and their investors would make a lot. From a borrower's 
perspective, it is like an income-based loan repayment, but an 
investor can earn more than a traditional lender.
    Where ISA is a government program open to anyone to cover 
any price, as essentially the case with Federal loans, they 
would have no price-dampening effect, moving third-party money 
to students. And as long as Federal loans with generous terms 
existed, ISAs would struggle for students who expect 
substantial earnings.
    Finally, we have skin-in-the-game proposals. Many people 
propose that colleges pay a percentage of their graduate's debt 
if their default rates exceed a certain level. There are big 
challenges to this. First, institutions that take the highest-
performing students would be in no jeopardy, while schools 
taking students on the margins may do yeomen's work, but would 
be open to serious penalties.
    And schools going out of business could cost students on 
the margins to go to the schools where there are enough high-
earning students and high-achieving students to hide them, but 
those students may do no matter.
    Rational pricing requires consumers paying with their own 
money or funds received voluntarily from others. Requiring 
greater endowment payments or other proposals do little to 
address this.
    Thank you, and I look forward to your questioning.
    [The prepared statement of Mr. McCluskey follows:]
    
    
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    Mr. ROSKAM. Thank you.
    Ms. BAIR.

   STATEMENT OF SHEILA BAIR, PRESIDENT, WASHINGTON COLLEGE, 
 CHESTERTOWN, MARYLAND (FORMERLY CHAIR OF THE FEDERAL DEPOSIT 
                     INSURANCE CORPORATION)

    Ms. BAIR. Chairman Roskam, Ranking Member Lewis, Members of 
the Committee, it is a pleasure to be here.
    About a year ago, I became the president of Washington 
College, a private, nonprofit liberal arts college in 
Chestertown, Maryland. Of our 1,481 undergraduates, 90 percent 
of them receive some form of scholarship assistance. But like 
college students nationwide, it is never enough to cover the 
cost of their college education.
    For those who must borrow, the national average debt load 
upon a 4-year graduation is $28,950. Though this level of 
borrowing can be justified based on the increased earnings 
potential that comes with a 4-year degree, it is still too 
high. I am very proud that we were able to reduce our 2016 
seniors' average Federal debt level by 10 percent through 
increased scholarship funding during the first year of my 
presidency.
    This hearing on college endowments and their relationship 
to the affordability issue is timely as students around the 
country are returning to campus and we are in the middle of 
College Savings Month. To any new parents in the chamber, I say 
start saving now.
    The cost of higher education has increased more rapidly 
than that of food, shelter, and medical care for the current 
generation of college students. Tuition at private 4-year 
colleges has increased an average of 4.7 percent a year since 
2000, far outpacing the average inflation rate of 2.2 percent.
    One recent analysis showed that real wages for the typical 
college graduate have risen only 1.6 percent over the past 25 
years while their average student debt over a 4-year graduation 
has grown by a whopping 163.8 percent.
    The committee invited me to appear today to talk about what 
we are doing at Washington College about affordability. We have 
adopted a multipronged approach.
    First, we are increasing philanthropy. Earlier this summer, 
we celebrated a record year for fundraising, bringing in almost 
$23 million dollars. With our encouragement, most of our major 
gifts last year were for scholarship, and all of our 
unrestricted smaller gifts went to financial aid.
    I like to say that giving to endow a scholarship is more 
endearing than giving to bricks and mortar. We need both, but 
we always need more scholarships.
    Financial aid is especially vital for first-generation 
college students, whose families often require the most 
assistance in paying for their education. That is why our 
second initiative is George's Brigade. This is a full 
scholarship program for high-performing first-generation 
students whose families would otherwise not have the resources 
to pay for a private liberal arts education. Members of 
George's Brigade have their full financial needs met, including 
tuition, room and board, and fees. If students wish to borrow 
for incidental expenses, the program requires that they limit 
their loans to $2,500 per year.
    Dam the Debt, another program in our arsenal, reduces the 
debt of all Washington College graduating seniors holding 
federally subsidized loans in their final semester. As a result 
of Dam the Debt, 119 qualifying seniors from 15 States received 
enough money to erase the federally subsidized loans they had 
taken out in the spring of 2016. This average reduction was 
$2,630.
    Our Savers' Scholarship, which was recently announced, will 
match the amount that families withdraw and use from a 529 
college savings plan or an educational savings account up to 
$2,500 per year to pay for their student's tuition. We 
recognize that not all parents have the capacity to save, which 
is why we have initiated other programs like George's Brigade. 
But for those who can save, we think that type of advance 
financial management and planning should be rewarded with a 
Savers' Scholarship.
    Finally, we froze tuition, which is a rare trend, 
unfortunately, among liberal arts colleges. We are among a very 
small fraction of colleges that did so, and we are product to 
have frozen our tuition, which helped all of our students.
    In addition, we are looking at income share agreements. I 
am really inspired by the president of Purdue, Mitch Daniels, 
who has been a leader in college affordability for public 
universities. He has compiled an amazing record, and including 
launching recently an income share agreement arrangement.
    I think if we want to access college financing to be 
broadly accessible, we need to move away from a debt financing 
model to an equity financing model. And I would disagree, ISAs 
are not debt, they are equity. It is very different. And 
perhaps we can get more into that discussion when we get to the 
Q&A.
    And finally, last but not least, certainly, I think the 
committee is very right to be looking at college endowments. I 
can think of no better purpose for endowment income than 
scholarships. I would love to have a billion-dollar endowment, 
I am jealous here, but we don't. A 5 percent draw would be $50 
million, that would be 80 percent of our budget, and I would 
slash tuition accordingly.
    Regrettably, we only have about $200 million. But we do 
adhere to a 5 percent spend rate. Actually, our policy has been 
a 5.5 percent over the last few years. And I am proud to say 
that 60 percent of our endowment draw is dedicated to 
scholarships, and I hope that percentage will increase even 
more during my presidency.
    Thank you very much.
    [The prepared statement of Ms. Bair follows:]
    
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    Mr. ROSKAM. Mr. Amburgey.

 STATEMENT OF JEFF AMBURGEY, VICE PRESIDENT FOR FINANCE, BEREA 
                    COLLEGE, BEREA, KENTUCKY

    Mr. AMBURGEY. Thank you very much for giving Berea College 
the opportunity to participate in the hearing this morning.
    Berea College is an independent college located in Kentucky 
that does not collect tuition from any of its students. And its 
financial model, accordingly, is completely unlike that of 
other the schools. The college serves approximately 1,600 
students of limited financial means, and it replaces tuition 
revenue with a combination of investment income, annual 
fundraising, and other sources.
    One of the main aspects of Berea College is the board of 
trustees in 1920 developed a policy for all unrestricted 
bequests to become a part of the endowment. Berea continues to 
follow that today.
    Berea's tuition model would not be possible without this 
endowment, overseen by its trustees. About 45 percent of 
Berea's endowment is actually board designated or quasi-
endowment that Berea conceives as its ``Tuition Replacement 
Fund'' thanks to the bequest policy.
    More importantly, about 75 percent of Berea's unrestricted 
educational and general operating budget is funded by the 
spendable return, the income from the endowment.
    Founded in 1855, the college admitted female and male, 
Black and White students, making it the first non-segregated, 
coeducational college in the south. Because the college chose 
to focus on interracial education in the Appalachian region, it 
soon became apparent that its funding would have to be 
different from other schools as the students served could not 
afford to pay tuition.
    In 1892, the college stopped charging tuition and required 
each student to work for the college. Berea College emphasized 
learning, labor, and service as the foundation for educating 
the whole person. This is still Berea's policy.
    Berea provides from its endowment and other sources a 
Tuition Promise Scholarship for every admitted student each 
year, meaning that no student ever pays tuition. In addition to 
academic requirements for admission, there are also financial 
eligibility requirements for admission since the college seeks 
to serve academically promising students who cannot afford the 
cost of higher education.
    The average Berea student comes from a family income of 
$27,600 for a family of four. Nearly 70 percent of the annual 
endowment spendable return is used to fund these Tuition 
Promise Scholarships and other direct financial aid to the 
students. Students attending the college receive on average 
scholarships and grant aid adding up to more than 92 percent of 
the $34,000 of the annual cost of attendance.
    The college's heavy endowment dependence requires it to 
take special measures to protect its ability to carry out the 
educational mission. During the 1990s, when the equity markets 
were driving up gains in college and universities endowments, 
Berea made decisions about endowment spending that will have 
long-lasting impacts on the quality and the future viability of 
its institutional mission. Berea restricted the growth in its 
operating budget intentionally in order to create two reserve 
funds to help fund the physical plant needs of the school and 
to help the college operate through tough financial times.
    Such a time came in 2008-2010, when Berea's endowment 
declined significantly. Berea was able to continue funding its 
programs by reducing its operating budget. In other words, we 
reduced our internally paid tuition, and further, by moving 
reserve endowment income into its operating budget.
    Like other institutions, one goal of Berea's endowment is 
to maintain intergenerational equity to students of multiple 
generations so they will have the likelihood of receiving the 
same inflation-adjusted educational experience. In other words, 
Berea's spending rate must not exceed its real after-inflation 
rate of compound return over long periods of time.
    There are always embedded tensions in this goal. The 
college must provide reasonable increases in its annual 
operating budget for competitive salaries and other expenses, 
fund the bricks and mortar needs of the campus, while 
maintaining the purchasing power of the endowment. Over the 
last 23 years, Berea has experienced real growth, net growth, 
above the rate of inflation in its endowment. However, over the 
last 16-year period, the endowment has not kept up with the 
growth in the Consumer Price Index.
    In conclusion, the college's endowment is the financial 
lifeblood that funds the extraordinary mission of access and 
affordability that Berea College provides to the lowest 
economic tier of students attending postsecondary education in 
the United States.
    Berea's uncommon educational mission has become more and 
more reliant upon endowment income while it strengthened its 
overall physical plant in times of endowment plenty and also 
has been able to provide the high-quality educational program 
in times of endowment income shortages.
    Berea's administrative leadership hopes no actions will 
ever be taken to reduce the dollars available to fund Tuition 
Promise Scholarships for its students.
    Thank you.
    [The prepared statement of Mr. Amburgey follows:]
    
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    Mr. ROSKAM. Dr. Schneider.

   STATEMENT OF MARK SCHNEIDER, VICE PRESIDENT AND INSTITUTE 
FELLOW, AMERICAN INSTITUTES FOR RESEARCH (FORMERLY COMMISSIONER 
        OF THE NATIONAL CENTER FOR EDUCATION STATISTICS)

    Mr. SCHNEIDER. Chairman Roskam, Ranking Member Lewis, 
Members of the Committee, thank you for inviting me to testify 
today. My name is Mark Schneider. I am a vice president at the 
American Institutes for Research here in Washington, D.C. Along 
with my colleague Jorge Klor de Alva, who is the president of 
the Nexus Research and Policy Center, we have been exploring 
the size of public subsidies to students who attend the best-
endowed private universities in the Nation.
    We know America's universities are held up worldwide as 
models of excellence and are heavily represented in any list of 
the world's best universities. However, this high esteem rests 
on a highly unequal distribution of wealth, dominated by some 
first-class public flagship universities and a group of private 
schools, not-for-profit universities, with very large 
endowments.
    Topping the list of the latter are schools with endowments 
over $20 billion, Harvard, Yale, Princeton, and Stanford, and 
this elite group are joined by another 50 universities with 
endowments over $1 billion.
    Because gifts to endowments are tax free and endowment 
earnings are not taxed, public subsidies to the students who 
attend these universities are hidden but can be quite large. 
And the way this works, of course, is that the size of the 
public subsidy increases with the size of the endowment, so 
that students at Harvard and Princeton and Yale are subsidized 
to a far greater extent than students at public universities 
and colleges.
    Congress has granted tax-exempt status to these endowments 
to serve the public interest, but because so much wealth is now 
concentrated in so few hands, there are questions about the 
extent to which the public interest is, in fact, being served 
by the distribution of these endowments.
    In our research, Jorge Klor de Alva and I have shown the 
extent to which taxpayers are subsidizing rich students in rich 
universities, and we suggest ways in our testimony in which the 
incentives governing the use of tax-free university endowments 
can be made more compatible with the public interest.
    In our research, we show that private universities are not 
necessarily private. In fact, they are getting huge amounts of 
public money. So we looked in-depth at the extent of public 
subsidies through the Tax Code to a set of 10 rich private 
universities compared to the appropriation for flagship 
universities, regional campuses, and community colleges near 
those schools. Students in the rich private schools received 
twice as much public money as students attending public 
flagship universities, four times as much as students attending 
public regional campuses, and around five times as much as 
students attending community college.
    We also showed that these high endowment concentrations are 
inversely related to the concentration of Pell students. So in 
the richest universities in the Nation only about 15 percent of 
students have Pell Grants compared to 45 percent of students 
with Pell Grants in public institutions, 4-year institutions, 
and almost 60 percent of students in community colleges.
    In short, the unequal distribution of endowment wealth and 
the unequal enrollment of low-income Pell Grant recipients 
leads to a pattern where more affluent students attending 
richer universities get far more money from the taxpayer than 
students attending public institutions.
    So what should be done about this?
    One, we should shine a bright light on this pattern, which 
is part of what this hearing is about. We should know the size 
of public money and public investments in these institutions. 
We suggest ways in which the 990 could be changed and clarified 
in order to make that kind of information more available.
    Second, encourage local governments to understand the tax 
exemptions and how much money property tax exemptions are 
contributing to this maldistribution of wealth. Granted, local 
taxation is not an issue for the Federal Government, but the 
lack of information is something that the Federal Government 
should be concerned about, and we suggest that the committee 
ask the NCES, National Center for Education Statistics, to do a 
study on the tax wealth and the PILOTs.
    Third, and certainly the most controversial, is that we 
believe that the endowments should be taxed. In our proposal in 
our testimony, we describe a system of taxation that would 
apply only to the very richest universities using a low tax 
rate to which private foundations are already subject, and we 
discuss a means by which this money could be transferred to 
community colleges to help support the students that this 
Nation needs.
    Thank you very much.
    [The prepared statement of Mr. Schneider follows:]
    
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    Mr. ROSKAM. Thank you.
    Dr. BAUM.

  STATEMENT OF SANDY BAUM, SENIOR FELLOW, INCOME AND BENEFITS 
                 POLICY CENTER, URBAN INSTITUTE

    Ms. BAUM. Thank you, Chairman Roskam, Ranking Member Lewis, 
Members of the Committee. Thank you for the opportunity to 
testify today. My name is Sandy Baum. I am a higher education 
economist at the Urban Institute. I was formerly a professor of 
economics at Skidmore College in Saratoga Springs, New York, 
and I coauthored the College Board's annual reports ``Trends in 
College Pricing and Trends in Student Aid.'' The views that I 
will express in this testimony are my own and not those of any 
organization with which I am affiliated, its trustees, or its 
funders.
    We have heard already a lot of comments about endowments. I 
want to reiterate how highly concentrated endowment assets are. 
Five private nonprofit research universities hold one-third, 
approximately, of the endowment assets in the private sector 
institutions and about a quarter of all of the endowment assets 
in public and private institutions combined.
    In other words, when we talk about endowments, there are 
few institutions that have a lot of resources and a fair amount 
of opportunity to do a lot, constructively, with those 
resources, but the vast majority of higher education 
institutions, including private nonprofit institutions, do not 
have those resources.
    The median private institution has about $33,000 in 
endowment wealth per student, which could add, meaningfully, 
but only about $2,000 a year to their budgets, and at public 
colleges, of course, it is much less.
    There are a few things to think about when comparing the 
endowments of institutions. One is that looking at total 
endowment can be misleading. You have to really look at 
endowment per student. So Harvard has almost two times as much 
endowment as Princeton, but Princeton has a much smaller 
student body and, therefore, has the highest endowment per 
student. So that is a really important distinction.
    Also, endowments are not just there for undergraduate 
students. These are universities that educate graduate 
students, that have a research function and other public 
service functions. They operate hospitals. So thinking about 
the endowment in terms of the number of undergraduate students 
can be misleading.
    And it is very important these endowments are there, both 
to subsidize the education of existing students and to provide 
long-term stability for the future. And, therefore, all 
institutions have spending rules limiting how much of their 
endowments they spend so that they preserve the value of those 
endowments.
    A big part of the concern about endowments has to do with 
what is happening to college prices. We have already noted that 
college prices are going up rapidly. They have been going up 
faster than the rate of inflation for a long time.
    But it is very important to note that in public 
institutions, where most of our students, particularly 
undergraduate students are educated, an important driving force 
that we have already heard about is that State appropriations 
per student have fallen dramatically in inflation-adjusted 
terms over the past decade, and it is not that public 
institutions are rapidly increasing their expenditures, it is 
that more of those expenditures are being met by tuition 
revenues rather than by State appropriations.
    Also, it is terrifically important not just to look at the 
sticker price that institutions charge, but to look at the net 
price that they charge. And we talk frequently about the net 
price that students pay with the help of institutional grant 
aid as well as Federal and State grant aid, but also just 
institutional revenues are much less than you would think if 
you just look at the sticker price.
    So public research universities now give institutional 
grants to more than half of their students, private research 
universities to over 70 percent of their students. Private 
colleges discount about half of their tuition and fees back to 
students. So you hear the sticker price, it is not the amount 
that the institution is actually charging students.
    And many institutions, when they lowered their sticker 
prices actually also decreased their student aid, and therefore 
students, particularly low-income students, may not be paying 
less. So we have to be careful about focusing on what is 
happening to sticker prices in terms of thinking about how to 
make college affordable for students.
    Institutions and the Federal Government give about the same 
amount in grant aid each year. A lot of the Federal 
Government's aid, by the way, is now through aid to veterans in 
the Post-9/11 GI Bill. It is certainly not just Pell Grants.
    So those have different impacts on sticker prices. We can 
discuss at greater length the research on whether or not 
Federal grant aid really explains much about rising prices. I 
wouldn't say zero, but I certainly wouldn't say that is the 
most significant factor.
    I commend the committee for investigating factors 
contributing to increases in college prices, their impact on 
students and potential students, and looking for solutions. The 
system is complicated. It is diverse. Solutions are not that 
simple.
    We need to think about private colleges relative to other 
organizations that are tax exempt in this society, which also 
do various things that may or may not always be in the public 
interest. We need to not focus on the small number of 
institutions that are so visible, but on how to provide a 
quality education to the students who need it most in this 
Nation.
    Thank you.
    [The prepared statement of Ms. Baum follows:]
    
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    Mr. ROSKAM. Thank you.
    All five of you are very impressive with your background 
and your study and your personal experience. And my sense is 
that if we put a microphone in front of any one of you, you 
could go for about 2 hours giving us this incredible insight.
    We will transition now in terms of the hearing and allow 
our members to make some inquiries. And I will recognize Mr. 
Meehan.
    Mr. MEEHAN. Well, thank you, Mr. Chairman.
    And thank you, panelists, not only for your presence here 
today, but your collective efforts at looking at this complex 
issue.
    As a parent who is educating three children simultaneously 
in college today, but I know I speak for so many of my 
colleagues and friends and others, this problem is 
overwhelmingly more impactful than anybody appreciates. Whole 
generations of parents are just taking their entire 
requirements and turning them over to universities. This bubble 
has yet to hit. And children are borrowing at a rate that 
dramatically exceeds the ability for them, in many cases, to 
anticipate how they are going to pay it back. Parents are on 
the hook for that as well.
    So I appreciate your efforts at looking at this challenge 
and how we come up with some answers.
    One thing, Ms. Baum, you just testified, Mr. McCluskey, I 
thought you testified as well, just about the State issue. And 
you suggested that there were increases that are growing by 
virtue of a lack of State investment, the cutback.
    Mr. McCluskey, you seem to indicate that for every 53 cents 
lost, they actually increased tuitions and generated $1 for 
every 53 cents they have lost. Can you explain that?
    Mr. MCCLUSKEY. Sure. I think one of the differences is Dr. 
Baum was talking about a 10-year span. I was talking about a 
25-year span. And I essentially smooth the rates on a per-pupil 
basis. And that is very important. There have been significant 
cuts on a per-pupil basis in State and local appropriations to 
public colleges.
    In the aggregate, it is actually over the last 25 years, 
from the start to the end, it has gone up about $10 billion 
adjusted for inflation. So at the per-pupil level, it is 
certainly the case that it has gone down, but not in the 
aggregate.
    And then what we have seen is, if you look at revenue per 
pupil that public institutions have brought in through tuition 
and fees, they have gone up faster than you have seen a 
decrease in appropriations.
    Now, it is also important to note that varies greatly from 
State to State. So some States have seen bigger drops on a per-
pupil basis in appropriations than they have seen increases in 
tuition and fee revenue. But if you average out the States, you 
get that 53-cent drop in appropriations and $1 increase in 
tuition and fees.
    I think it is also important to note, there is some 
evidence that State legislators may not appropriate as much to 
their schools if they think student aid, and particularly 
Federal aid, will cover that.
    Mr. MEEHAN. Thank you.
    Ms. Bair, I was struck by an op-ed you wrote in The 
Washington Post talking about price discipline and actually 
paralleling the mortgage crisis to the education crisis. Could 
you explain to me what the essence of that was?
    Ms. BAIR. Well, yes. I think it is not the exclusive 
driver, but I think the ability to freely borrow has made it 
easy for schools to raise tuition, because students are going 
to just keep borrowing more to pay for it. So your usual supply 
and demand is out of whack. You are increasing the price, but 
you are not necessarily reducing demand and getting that price 
discipline because of the easy availability for credit.
    That is what feeds an asset bubble. That is the same 
dynamic we saw during the subprime crisis. It was very easy to 
get credit, virtually no underwriting on subprime mortgages. 
And it fed a housing bubble, because you greatly expanded the 
ability of borrowers to buy houses, multiple houses in that 
case.
    Mr. MEEHAN. But we also had at that point in time an 
inability for many of those homeowners to pay back that 
borrowing, and the same dynamic is very much at play now in the 
educational field. Is it not?
    Ms. BAIR. Well, that is right. I would say in terms of 
default rates, the problem is much worse--well, nonpayment 
rates. I think with all the various different repayment plans, 
it is very difficult to get good data about just how student 
loans are actual performing. But, yes, I think that the 
percentage of students in distress on their student loans is 
significantly higher than we saw during the subprime crisis and 
subprime borrowers, yes.
    Mr. MEEHAN. Thank you.
    Mr. Schneider, a closing question for you. I have put a lot 
of work into the idea of transparency in college expenditures 
and how they actually use the money that they obtain through 
tuitions and otherwise. I tried going through Form 990, just in 
colleges, and they are overwhelmingly complex documents. So 
that the average person trying to make decisions will not be 
able to, in my mind, read that.
    What can we do to improve the 990 so that a consumer would 
have a better idea of how universities are not only generating 
money, because I think your point about the tax benefits 
associated with large endowments are different from small 
colleges, but also how they are spending it?
    Mr. SCHNEIDER. So I believe that this is a fundamental 
problem, because the 990 is unbelievably complicated already. 
And we are talking about a very difficult--I worked in a 
university. The president of the university often complained 
about not even being able to understand exactly what was going 
on in her own university.
    I think there are a couple of things. So the first thing, 
we have some proposals about getting better information onto 
the 990s so that, in fact, the flow of money into the 
universities and the calculation of the public subsidy can, in 
fact, be better.
    I think, quite frankly, at that point we are going to have 
to do an education campaign using the media, using newspapers, 
using advocacy groups to help the people understand exactly 
what is going on.
    Some of the numbers are quite simple, right? I mean, the 
size of the public subsidy for students at Princeton University 
is infinitely larger than what we are giving to students in 
community colleges. I think that is a simple message that needs 
to be broadcast.
    Mr. MEEHAN. Thank you, Mr. Chairman. I yield back.
    Mr. ROSKAM. Mr. Lewis.
    Mr. LEWIS. Thank you very much, Mr. Chairman.
    I spend a great deal of time when I am not here in the 
Congress traveling around America, speaking at colleges, 
universities, meeting a lot of wonderful, smart, gifted young 
people, college graduates. But they all complain about debt, 
paying back student loans. And two of you are college 
presidents. And I agree with Mr. Meehan that parents, 
grandparents are investing in their children, their 
grandchildren.
    What can we do to keep people, when they leave college, 
leaving a university, they are saddled down with debt? I even 
hear some of my colleagues in the Congress that are still 
paying off their student loans. What can we do? The two college 
presidents maybe.
    Ms. BAIR. So, Congressman, I do think, as I get into more 
detail in my written testimony, that we should get away from a 
debt model to what I call an equity model. They are generally 
called income share agreements. There is private sector 
interest in this. I am really talking more of a government 
program.
    If we want to make financing broadly available to students 
up to some sensible level, I think there needs to be some 
sensible overall cap, you are, by definition, going to be 
making loans to people that won't necessarily repay, because 
there is no underwriting. In a way, you kind of have reverse 
underwriting now, because the eligibility is based on need, 
which makes sense from a policy perspective, but there is no 
connection between that and whether the student is going to be 
able to repay the loan.
    So shift to an equity model, just put everybody into an 
income share based on a very, very small percentage of what 
they actually make when they graduate, paid off over a very 
long period of time, so that they can benefit over the years 
from increased earning potential as they advance in their 
career.
    I think if you built it into the tax system, you would 
eliminate defaults. Just make it easy, put it in withholding, 
make it part of a payroll tax or what have you. You would make 
it easier for students. You would get rid of all these 
servicing problems. I mean, I am sorry, as a former bank 
regulator, I see some of the things going on with servicing of 
student loans, and it makes the hair stand up on the back of my 
neck.
    So have an automatic payment system that is built into the 
tax system, make it a very small percentage of income, make it 
over a long period of time. I think that is really the way, if 
we want to make financing generally available to everyone, 
again, up to some commonsense cap, it is better to use that 
equity model as opposed to a debt model.
    And that way, if they don't get a job, or if they make very 
low incomes, they don't have to pay anything. They are always 
guaranteed a very low payment. If they go work for a hedge fund 
or a tech company, make a lot, they are going to pay back more, 
they are going to pay it back faster. But everybody will have 
an affordable payment, everybody will have a protection against 
student loan distress, which is what we have now, which is 
rampant.
    Ms. BAUM. Could I just add that I agree with much of those 
comments in terms of the importance of making payments depend 
on people's incomes and of having the collection be automatic. 
But calling debt something other than debt isn't going to 
change the fact that students owe money and they have to give a 
portion of their future incomes to repay debt.
    So the question of whether the Federal Government should be 
doing this or the private market should be doing this, I think 
there would be severe disagreement about. I mean, it is most 
important to provide liquidity to those students to whom the 
private market would not be kind in terms of the terms on the 
loans, because they are the students who are most at risk.
    So these solutions are important, but it is also very 
important to note that we have some very real student debt 
problems in this country, some students who are borrowing for 
programs and institutions that will not serve them well. But 
the typical student who goes to college and earns a bachelor's 
degree is not drowning in debt. They are borrowing money as 
part of an investment in their futures, and that investment 
pays off very well.
    Mr. LEWIS. Mr. President, do you care to? I have visited 
your college, a great school, Berea.
    Mr. AMBURGEY. Let me give you a little information about 
the debt load at Berea. Our initial financial aid package does 
not include any loans. So a student can go there and never have 
to take out a loan. However, if they choose to do so, they can 
international study abroad, they will borrow money for that.
    So our average student that graduates that does have debt, 
many of them graduate with zero debt, is about $7,100 on 
average. So it is manageable.
    I think it is very important for us in higher education to 
educate the student's on debt and the obligations that go with 
that when they do leave the institution. It is not a grant. If 
it is a loan, it needs to be paid back.
    I would like to add also that 98 percent of Berea's 
students receive some form of Pell money. So the very needy 
students financially. Expected family contribution of our 
entering class, about 60 percent of our entering class this 
fall has an expected family contribution of zero. So if the 
expected contribution is zero, that means the family cannot pay 
any expected towards that.
    If the expected family contribution is $1,000, and the 
family does not contribute, obviously the student, we cannot 
over-award, and they may need to borrow to finish it out.
    So from Berea's perspective, our students graduate, 
luckily, because of the endowment, with very little debt to 
take with them into the workplace.
    Mr. LEWIS. Thank you.
    I yield back, Mr. Chairman.
    Mr. ROSKAM. Mr. Smith.
    Mr. SMITH. Thank you, Mr. Chairman. And happy birthday, Mr. 
Chairman.
    Mr. ROSKAM. Thank you, sir.
    Mr. SMITH. Mr. Amburgey, very impressed with work colleges. 
We have a work college in southwest Missouri, College of the 
Ozarks, Point Lookout, and impressed with how many students 
graduate owing very little.
    As maybe the only member of this panel that is still 
currently paying student loans, I understand. Okay, well, I 
have a partner over here with Mr. Reed. But it is extremely 
important that we get to the bottom of this.
    You said that at Berea 98 percent of students use Pell 
Grants. Is that correct?
    Mr. AMBURGEY. 98 percent of our domestic students receive 
some level of Pell. That is correct.
    Mr. SMITH. Okay. What does the rest of the model at Berea 
consist of?
    Mr. AMBURGEY. The financial model, like I said before, the 
unrestricted educational and general operating budget, 75 
percent of that is funded by the endowment. Ten percent comes 
from the annual fund, annual fundraising. Another 10 percent 
comes from part of the Pell money we receive, Federal, State 
grant aid. A lot of that money goes directly to help pay the 
students for room and board, books and supplies. And then other 
income is the other component of that.
    So when, for example, in 2008-2010 timeframe there was some 
serious discussion around the leadership table when our 
endowment was declining significantly in market value, but we 
did not have that tuition lever to pull, it was very difficult 
to get through those times, but we had mechanisms in place to 
help us get through that.
    So, in summary, the endowment is the main component, annual 
fundraising is about 10 percent, and other resources make up 
the other.
    Mr. SMITH. How large is the endowment at Berea?
    Mr. AMBURGEY. A little over $1 billion. About $1.1 billion 
currently.
    Mr. SMITH. Okay. And it has been since 1892 that you 
basically haven't been charging students. Is that correct?
    Mr. AMBURGEY. That is correct.
    Mr. SMITH. All right. Impressive.
    President Bair, at your university, you mentioned that you 
recently have frozen tuition. What is the tuition per credit 
hour?
    Ms. BAIR. So per credit hour, the sticker price--and as we 
have discussed before the discount, we discount about 50 
percent of the sticker price--is around $44,000.
    Mr. SMITH. We have a lot of the universities that say that 
when they have an endowment, some of these universities have an 
endowment of $1 billion, that they find it as a victory to only 
increase tuition by 5 percent a year.
    Ms. BAIR. Yeah, I know.
    Mr. SMITH. And you have frozen it. Can you tell you us how 
you have done that whenever so many others say it is 
impossible?
    Ms. BAIR. Right. Well, we tightened our belts a bit. We had 
a surplus last year, and I think the board, in our discussion, 
sensibly asked: Well, why are we raising tuition if we are 
running a surplus? So we did freeze for 1 year. I don't know if 
we can freeze forever. I would like to. But we are certainly 
looking very hard about how we can hold the line on future 
tuition increases.
    And it is, again, I think Washington College, again, I have 
only been there a year, I think they have done probably as good 
a job as any of trying to hold the line on tuition increases. 
But it has been typical throughout both the public and private 
sector, and I think everybody needs to just get smarter about 
how you spend your money, try to focus resources on the faculty 
side, hold the line on nonfaculty spending, administrative 
spending. The government can help a bit. Some of the regulatory 
costs have gone out significantly as well.
    Mr. SMITH. Something that has always been implanted in my 
mind, whenever I was a State lawmaker in the State of Missouri, 
I had a constituent who was a former professor at one of our 
universities that came to my office with some research that he 
had provided over several years. And just by cutting the 
faculty salary as nonteaching faculty and above, deans, 
presidents, and above, by half, it would have meant that every 
student at that university would have a reduction by more than 
half of their tuition. And that has always stuck with me, and I 
just think that is something to look at.
    Thank you, Mr. Chairman. I yield back.
    Mr. ROSKAM. Mr. Davis.
    Mr. DAVIS. Thank you very much, Mr. Chairman.
    I am pleased to note that Illinois has a wonderful work 
college, Blackburn College. I have worked closely with 
Blackburn, Berea, and other work colleges over the last decade 
on education and tax issues. So I am pleased that our 
subcommittee could hear about the wonderful things Berea and 
the work colleges are doing to help low-income students.
    I feel very strongly that our laws should incentivize 
colleges and universities to do more for their low-income 
students. It gives me pause that many of the institutions with 
the largest endowments have small percentages of low-income 
students and also restrict access to AP credits that help 
students graduate more quickly.
    Further, the revenue foregone from the top endowments 
exceeds the endowments at a vast number of other schools 
combined. For example, at the Historically Black Colleges and 
Universities, over 70 percent of students are low income, yet, 
only seven HBCUs have endowments that exceed $400 million, and 
many have endowments that are less than $2 million, like my 
alma mater, the University of Arkansas at Pine Bluff.
    Yet, I am not certain that the Tax Code is the most direct 
route to incent institutional investments in low-income 
students. Endowments are a tremendously useful resource to 
institutions, and I believe strongly that institutions deserve 
their tax exemptions.
    Endowments are complex by themselves and within the Tax 
Code. Trying to adjust the endowment benefit for educational 
institutions could unintentionally harm other endowments, such 
as those of private foundations.
    For this hearing, my staff asked two wonderful private 
schools in my district, DePaul and Loyola Universities, about 
their endowments. These universities do amazing things for low-
income students, amazing in both content and number. Yet, the 
vast majority of their endowments are restricted, with one 
school having 95 percent of its endowment restricted.
    I think there are other elements of the Tax Code that can 
more directly help students. For example, my bill with 
Representative Black last session included two critical pieces 
to help low-income students afford college by better 
coordinating the AOTC and Pell Grants and by making Pell Grants 
nontaxable.
    Due to poor coordination between the Pell Grants and the 
Tax Code, an estimated 1 million low-income college students do 
not receive any benefits from the AOTC.
    Ms. Baum and Mr. Schneider, are there other elements of the 
Tax Code that could more directly help low-income students 
afford college?
    Mr. SCHNEIDER. In our testimony, we outlined a very 
particular kind of system, that resembles other work that has 
been built into the Tax Code in terms of tax credit bonds, that 
could, in fact, generate about $5 billion a year that could be 
sequestered--not quite the right word--but it could be targeted 
at students in community colleges.
    We always have to be cognizant of the fact that there could 
be unintended consequences that follow from tax laws, 
obviously, but the private foundations already pay between 0.5 
and 2 percent of a tax on their endowment.
    And what we are suggesting is that we could use that same 
kind of tax rate, that same kind of model, on extremely high 
concentrations of wealth and set up a system in which the money 
is used to support students in community colleges for practices 
that are proven effective in improving students' success. And 
this is, for us, a very direct way of supporting low-income 
students using the Tax Code.
    Ms. BAUM. I support the idea of providing incentives to the 
Tax Code for community colleges, for low-income students, but I 
think your point about the tax credits and Pell grants is very 
important. The tax credits, even with the refundability of 
those tax credits, don't help many low-income students because 
the Pell grant is paying their tuition. But it is also very 
important to note that for low-income students, they need the 
money in their pockets to pay the bills, and getting a tax 
credit a year later doesn't actually serve the same purpose as 
Pell grants for low-income students.
    Mr. RANGEL. Thank you very much. Mr. Chairman, I yield 
back.
    Chairman ROSKAM. Mr. Reed.
    Mr. REED. Thank you, Mr. Chairman. And thank you to our 
panelists. This is something I care deeply about. I have spent 
some time on here, and I have obviously got some attention on 
some proposals we put out there. And I come at this issue from 
somebody who cares, from a parent whose first child went to 
school this year, and we had to send her to not her first 
choice because of cost. Sixty-five thousand dollars was the 
annual tuition cost she was facing versus a school she ended up 
at at $23,000 a year. I come at this from a personal 
perspective, $110,000 worth of student loan debt when I 
completed my studies. I know firsthand the adverse consequences 
and life impacts that has in making choices available to 
somebody who wanted to pursue potentially other course of 
careers.
    And I also come at it from across the district hearing time 
and time again from parents who are just saying this has to 
stop, especially for working parents who are over that 
threshold where that cliff kicks in, and they are told by the 
institution there really isn't anything here for you. We 
haven't set up our programs to benefit the working families, in 
my opinion.
    So I am going to ask you, the panelists, can you define, I 
want to put a spotlight on some of the spending that is going 
on in this arena. Mr. Schneider, to your point about the 990s. 
We spent a lot of time combing through 990s, and they are very 
difficult IRS forms to get information from. But we have seen 
things like the University of Illinois has paid its fired coach 
Ron Zook $1.3 million. University of California paid its fired 
coach, Jeff Tedford, $1.8 million for a year's worth of non--
for no service. Ralph Friedgen up at the University of 
Maryland, $2 million while he fished and golfed. Steve 
Spurrier, well-known football coach, said this is a phenomenon 
that is like hitting that lottery ticket for these individuals.
    We have also seen things like this for, in the University 
of Missouri, for expenses in regards to infrastructure. The 
University of Missouri charges $41,000 for out-of-state 
residents per year. They have constructed an indoor beach club 
complete with palm trees, lazy river, water slide, and a 
grotto, modeled after the Playboy Mansion.
    We have seen the stories about college coaches. We have 
also seen the stories about college presidents and 
administrators. Columbia University, compensation in 2013 for 
its president was $4.6 million. But when you dig deeper, the 
investment manager was paid $6 million for his services. The 
vice president of investment management was paid $5.4 million a 
year. Are those reasonable costs in a not-for-profit world to 
be incurred by the institution? Anyone want to defend those 
costs on this panel?
    I didn't think so. So I think a spotlight is part of the 
reform that we need to put on here.
    But I also want to target some of the positive things that 
are going on. Berea College has been able to be put in a 
position where its students aren't being charged tuition. And 
from your testimony, I think you said one thing that was 
interesting to me, unrestricted gifts was a big step, I think, 
in order to get to where you need to be. What makes you capable 
of utilizing your endowment to have a zero tuition cost 
environment for your students?
    Mr. AMBURGEY. Excellent question. I think there is several 
factors that help there. The unrestricted bequests, and we 
started that in the 1920s, putting that into the endowment. It 
is a very disciplined approach. Believe me, in the 2008, 2010 
timeframe, when we saw the really financial crunch on us, very 
tempting to say let's peel off 5 percent of that new money 
coming in and use it for the operating budget, but we stuck to 
our guns, so to speak, and had the discipline to stick to that. 
So that very rigorous--there have been exceptions, and it takes 
board approval to make exceptions to that policy--by putting 
that money in the endowment. That is one thing.
    The other aspect of it is our great commitments. I think 
Berea, we have eight great commitments that are guiding 
principles. That is part of my written testimony that you have 
in front of you. One of those, No. 7, includes the language 
plain living. So we do not have high-paid coaches. As a matter 
of fact, we are struggling to pay some of the coaches, okay, 
but many of our sports are free to come to. We would like for 
you to be there if you can, is the approach.
    So I think our core mission is staying true to that 
mission, and the people that work there, both staff and 
faculty, knowing that this is our guiding principles and it is 
our core. That is what we do. So all being committed to that, 
helps also.
    Mr. REED. And in closing, I recognize endowments are a 
bridge to getting the college costs issues under control. I 
don't see it as a single magic bullet and a panacea for it. And 
any ideas you have--and my time is expired--that the panelists 
have for how we can get college costs containment policies put 
in place that universities have to adhere to, I am very 
interested in finding out what platform you would recommend for 
us to pursue on that front.
    With that I yield back.
    Chairman ROSKAM. Mr. Rice.
    Mr. RICE. Thank you, Mr. Chairman, and thank you for this 
interesting hearing. I have certainly learned a lot today, 
although as a former Gamecock, I don't appreciate the reference 
to Steve Spurrier.
    A couple things that just give me pause and make me wonder 
about this. Ms. Bair, in your testimony you have a reference to 
the average loan by student graduating, I think it is $32,000 
roughly. Ms. Baum, in your testimony, I think you said that 
only 10 percent of students have loans over $40,000. Is that 
right?
    Ms. BAUM. That is correct for----
    Mr. RICE. There is a disconnect there somewhere. If the 
average loan is $32,000, and only 10 percent have over $40,000, 
I am just curious about where the disconnect is?
    Ms. BAUM [continuing]. For students who borrowed for 
undergraduate education, that is correct. It is very rare to 
graduate with more than $40,000 in debt. Many people who go to 
graduate school accumulate much more debt than that. And you 
also need to look at all of the students who are going to 
college and going to a private, nonprofit four-year college, 
you are likely to accumulate more debt then if you go to a 
public college or to a two-year college.
    Mr. RICE. Ms. Bair, you may not have looked at the 
statistic, but do you agree that only 10 percent of students 
graduate, undergraduate students, with more than $40,000 in 
debt?
    Ms. BAIR. I take at face value what she said. I haven't 
seen her research. But I do think the distribution is 
troubling, and you are right; graduate schools can drive up 
that debt. But sometimes low-income students will borrow far 
more than they should. I think you also need to look at debt 
levels and in aggregate and as they have grown, which I 
mentioned in my testimony, and the percentage of students who 
are actually, I believe over 50 percent of students now are not 
in the standard 10-year amortized loan, which is the repayment, 
the basic repayment they default into.
    So they have actually had to proactively go to the 
Department of Education and get some kind of relief to get into 
a different type of repayment plan. So I think that in and of 
itself suggests that students are struggling. I think you also 
need to put this in context of what their wages will be when 
they graduate. So a $30,000 loan, amortized over 10 years, you 
are probably looking at $350, $400 a month, which can be a 
pretty significant chunk of take-home pay.
    Mr. RICE. Do you provide counseling to students on their 
career paths and the debt load?
    Ms. BAIR. We do, and I would like to do more of that and--
--
    Mr. RICE. Do you steer people toward an area where they may 
get a job?
    Ms. BAIR [continuing]. Yes. We put a very high priority on 
job placement. Some of our students want to go to graduate 
school. We make sure that is the right choice for them and help 
them if that is what they want to do.
    Mr. RICE. I am sorry, Ms. Bair. Ms. Baum, also in your 
testimony you said that the highest levels of debt have the 
lowest defaults and vice versa?
    Ms. BAUM. Yes, that is correct. The highest levels of debt 
are generally people who went to graduate school, people who at 
least got a Bachelor's degree. The people defaulting on their 
student loans tend to be many people who did not complete what 
they began. They may have gone to college for a year. They may 
have $5- to $10,000 in debt, and those people are much more 
likely to default. And if you are working at the minimum wage 
because you went to college for a few months, then paying back 
any amount of student debt can be a problem.
    Mr. RICE. I am a numbers guy, and your statistics are just 
interesting to me. Do you know the national average default 
rate on student loans by any chance?
    Ms. BAUM. It changes dramatically and it ranges--recently 
about 24 percent of the people who did not complete a 
credential defaulted, and about 9 percent of people who did 
complete a credential defaulted.
    Mr. RICE. Well, I have three sons. I have a 31-year-old, a 
29-year-old, and a 27-year-old, so I felt the pain, and I was 
glad when my youngest graduated. And we absolutely need to do 
something about it.
    It appears to me the tuition costs have just spiraled 
completely out of control, and I have seen where these 
endowments pay for these really lavish things off the normal 
college budget. I love your idea, Mr. Schneider, about more 
disclosure from universities about where this money is going, 
but I would love to hear from the panel about any other ideas 
that we have that we can shine more light on this problem, 
because I think one thing is people don't know about it.
    Yes, sir, Mr. Schneider.
    Mr. SCHNEIDER. Debt by itself is not the issue. It is debt 
in relationship to the earnings. And so, I work with many 
States in which we help States and universities calculate at 
the program level what the debt level is and what expected 
earnings are.
    Mr. RICE. You had suggested as one of your solutions that 
endowments should be taxed?
    Mr. SCHNEIDER. Yes.
    Mr. RICE. From zero up.
    Mr. SCHNEIDER. Only large endowments.
    Mr. RICE. Please explain.
    Mr. SCHNEIDER. So what I am concerned about is how much 
money--Harvard has $36 billion in endowment, and it attracts 
huge donations; so there is a cumulative inequality here. I 
think someone else noted that it is only a very small number of 
campuses that have----
    Mr. RICE. Sir, would you recommend that the amount that is 
tax free be capped at a per student basis or something like 
that?
    Mr. SCHNEIDER [continuing]. I believe that large endowments 
themselves should be taxed at between a zero and a 2 percent 
rate, but it is what we do with that money that is also of 
concern.
    Mr. RICE. But what about the Berea colleges of the world 
who are giving free tuition to their students?
    Mr. SCHNEIDER. Yes. In our program, in our plan, we have 
deductions for support to students and financial aid so that 
schools are not penalized for doing exactly what Berea is 
doing, but if they are spending their money on lazy rivers, 
then, in fact, they should be taxed.
    Mr. RICE. Thank you.
    Chairman ROSKAM. Mr. Holding.
    Mr. HOLDING. Thank you, Mr. Chairman. Mr. Chairman, I would 
like to add to the accolades that are being given to Berea. 
Although I did not attend Berea, I would give Berea credit in a 
large degree for my opportunity to sit here today because my 
favorite and most influential professor in law school went to 
Berea, and I think if I hadn't run across her in my law school 
career, I probably wouldn't be here. So thank you Berea.
    I am concerned about the rising administrative spending at 
colleges and universities and the effect of increased 
government regulation as it ties into that administrative 
spending. So, Mr. Amburgey, how do you manage to pay for all 
the administrators necessary to run a college? I imagine Berea 
pays more attention to costs than other colleges, and how do 
you address the administrative overhead?
    Mr. AMBURGEY. Excellent question. Go back to 2008 and 2009. 
We actually made a 15 percent reduction in our budget, so we 
actually had some reserves to go through those times, and we 
actually, if you want to call it a tuition cut, because since 
we are paying most of our tuition internally, we actually had 
to reduce our costs. We have no incentive whatsoever to 
increase tuition. To manage those costs, we are just a very 
good, prudent, very active board. We stay on top of cost 
increases. We do modeling, looking forward, and this investment 
return that seems a low investment return environment today, we 
do realize that our budget is going to be restricted somewhat, 
but we have to live within our means. If we are going to trace 
true to our model and carry out our mission, we will make it 
happen.
    Berea's model, having said that is very, very fragile. It 
is a financial model that is based on a lot of external forces, 
mostly the capitalism of the United States and the world. So we 
are impacted by things that are beyond our control, but we have 
put in place safeguards, so to speak, to help us get through 
those times.
    So we manage our costs knowing that we are the ones, the 
school of endowment is going to have to carry the biggest load, 
and can it afford to do that.
    Mr. HOLDING. So the Department of Education has said that 
administrative positions at colleges and universities grew 60 
percent between 1993 and 2009, so I am assuming that Berea does 
not reflect that average?
    Mr. AMBURGEY. I do not think we are near close to that.
    Mr. HOLDING. President Bair, could you address how 
administrative costs are affecting Washington College, and have 
you seen a similar increase in the number of administrative 
positions during the period of time that the Department of 
Education referenced?
    Ms. BAIR. Well, I have only been there a year, so I am 
sorry I can't give you a very good historical perspective. But 
I do think we see it certainly in the compliance area, as well 
as in the financial aid area. The Wall Street Journal op-ed 
that was referenced earlier also made an issue about the 
complexity of FAFSA. To the Obama administration's credit, they 
have tried to simplify it, but it is still over 100 questions. 
Especially for low-income students, it is extremely 
challenging. It really requires interpersonal sitting down, 
helping them. It just seems to me it could be dramatically 
simplified.
    So I think financially in particular it is more complex 
than it needs to be, and that would be a potential area for 
administrative savings.
    Mr. HOLDING. Mr. McCluskey, could you speak to the effect 
of government regulation on the rise in tuition?
    Mr. MCCLUSKEY. Well, I think it is difficult actually to 
pinpoint the amount of regulation in particular as we learned 
the last few years. There is regulation that goes with running 
a college. There is a lot of regulations that colleges talked 
about that go with running research, and so it hasn't been my 
observation that regulation is what is driving the cost. Not to 
say there isn't overregulation. I hear from colleges and 
college presidents where they say they just can't keep track of 
all the regulations they are supposed to comply with, but I 
don't think that there is good research evidence that 
regulation is what is driving the prices.
    Often what seems to be driving the prices, including the 
water parks, is demand for a lot of things. Students will go to 
a college that gives them more programs, that gives them nicer 
dorms, you know, the water parks. And part of that is because 
so much of what they consume is paid for with third-party 
money.
    Mr. HOLDING. Thank you. Mr. Chairman, I yield back.
    Chairman ROSKAM. Mr. Rangel.
    Mr. RANGEL. Once again, Mr. Chairman, I thank you for your 
insight in using the Oversight Committee to help us wrestle 
with some serious national problems.
    I am so sorry I was torn away on a legislative issue, but 
as you know, we are wrapping up, and we all have conflicts. But 
for this panel, where my community where I was born and raised 
in Harlem, New York, I don't know any African Americans my age 
that went and graduated from college without the assistance of 
the GI bill. That would mean people older than me that were in 
the so-called great war, not just the Korean War, and of course 
that meant the stability of the family meant that they could, 
they had the knowledge to send their kids to school.
    As I look forward to the future of our great country, it 
seems to me that our workforce has to be competitive if we are 
going to succeed and that it is not just a question of 
intellectual ability, but it is a question of national 
security.
    Does anyone on this panel believe that the education of our 
workforce is not directly connected with the security of the 
United States of America? Because I am constantly reminded by 
our leadership that the founders of the Constitution did not 
include education to be one of the mandates, and it is a State 
responsibility. And I told our President in no uncertain terms 
there was nothing in there about health care either, being a 
State responsibility, and yet I don't really believe, as we 
talk here today, that our country is prepared to leave our 
national security to the States.
    I have universities that have campuses all over the world. 
Are you telling me, Mr. McCluskey, that my national security is 
going to be tied up because university presidents want to make 
an appeal to families that want their kids to go all over the 
world on trips and whatnot? I don't believe that.
    There has to be a basic minimum commitment that our young 
men and women are going to be productive no matter where they 
come from. Has anyone spoken to that? Because you can just 
refer me to the document that I can pick up and not take time. 
But I don't want to talk about education in terms of the will 
or the needs of private schools. This is my country, and 
uneducated people are not productive people, and they are 
sucking the lifeblood out of us in many communities, white and 
black, all over the country. Anybody want to make any short 
comment on that issue?
    Ms. BAUM. I would like to address it. I think you are 
absolutely right to be pointing to the need to provide 
education for many people in this country who can't afford to 
pay for it. When we talk about the demand side and we talk 
about third-party payment, the reality is that there are a 
significant number of families in this country who have enough 
money to pay the highest college prices on their own. Those are 
the people who are demanding the kinds of things that many of 
us question.
    Mr. RANGEL. Let me interrupt because I am for national 
health insurance, but that doesn't mean to me that wealthy 
people can't kick it up to any notch they want for any other 
type of medical attention that they can afford. I am saying you 
shouldn't have to be in the military to be evaluated as to what 
contributions you make to this great country with access to a 
proper education, and that doesn't mean going to Europe in 
order to get a degree.
    Ms. BAUM. No. And that is exactly right. And the fact is if 
we say people need to pay with their own money, then what do we 
do about all the people who don't have the money to pay, and 
those are the people you are talking about who are critical 
of----
    Mr. RANGEL. Mr. Chairman, you help me because I am 
dedicating my retired life to helping kids who have the dream 
but they don't have the access. And whatever work has been done 
on this subcommittee, I want to assume it as a part of my 
expertise. And I thank you for the opportunity.
    Mr. MCCLUSKEY. Can I respond since I was mentioned?
    Mr. RANGEL. Certainly.
    Mr. MCCLUSKEY. I think education is absolutely important. I 
don't disagree. But we have to look at what we have actually 
gotten as a result of huge subsidies, including through the 
Federal Government in terms of education. So we talk about 
education often, and we think, well, it is sending people to 
school, but we don't actually have good evidence that people 
have learned a whole lot, and in particular commensurate with 
what we have spent in higher education.
    In fact, in my written testimony, I talk about the 
evidences. Over the last several decades we have had decreases 
in the amount of time spent studying. We have had decreases in 
the literacy of people with college degrees. So I don't know 
that the subsidies actually lead to more education. And it is 
also I think important to note, also in my written testimony, 
in 1970, 6 percent of dependent members of the lowest quartile 
income families obtained a Bachelor's degree by 24. After all 
our subsidies, that has now risen to just 9 percent. Meanwhile, 
from the upper quartile, we have gone from 40 percent with a 
Bachelor's degree to 77 percent, so I am just not sure all 
these programs are actually doing what we want them to do in 
terms of providing more education.
    Mr. RANGEL. I never mentioned subsidies. That is a dirty 
word, and I know it.
    Chairman ROSKAM. Mrs. Black.
    Mrs. BLACK. Thank you, Mr. Chairman. I first want to 
knowledge my subcommittee chairman, Mr. Davis, for the working 
group that we chaired on the tax subcommittee in simplifying 
the Tax Code so that people would be able to use the Tax Code 
to their benefit on the educational tax credits.
    We actually did produce a bill, and it was passed here in 
the House. Unfortunately it did not get taken up by the Senate, 
but that doesn't mean that we don't continue to work on that, 
and I am very proud to have had him as my co-chair on that.
    Mr. McCluskey, you did help us out and came to our hearings 
and testified on at least one if not more of those hearings, so 
thank you.
    I want to turn to 529 plans, that haven't been talked about 
yet. Obviously they can be set up by educational institutions. 
They can be set up by States that allow family and friends or 
actually anyone to set aside money for a specific student's 
higher education. The investment returns on that money won't be 
taxed so long as the money is used to pay for the student's 
educational cost.
    President Bair, I want to give you the opportunity to talk 
a little bit more about this. I would like to ask you a few 
questions about how families are using these 529 plans, and as 
a matter of fact in your testimony, you talk about your Saver's 
Scholarship. We know that less than 3 percent of families in 
the United States are using this tax advantage college savings 
plan. Why don't you think more families are using this 
opportunity?
    Ms. BAIR. Well, I think a lot of it is education. That was 
one of our goals, and it is for ESAs as well as 529s to try to 
bring attention to this tremendous benefit and encourage 
parents to start saving--parents who do have the financial 
capacity to save, to do so. There are a lot of families who are 
cash strapped, and it is very difficult to put money away, but 
there are some that can and should. And you are right; this is 
a great way to do it given the tax benefits.
    I would say though on the back end, and there are again the 
synergies between the tax rules and the education rules about 
who qualifies for need-based aid. But 529s, you are still 
penalized a little bit for Federal aid. I think it is 4 and a 
half percent or something. But you are still penalized a bit. 
And then I think as a grandparent, it is a contribution of 
grandparents 529, it is taxable. There are some really complex 
rules that can trip people up and scare them off, and that 
might be something this committee would want to look at 
further.
    I had 529s. My son is here. Yes, we were full pay at 
Swarthmore, which only has a 3 and a half percent draw on its 
endowment by the way, but who is naming names? He got a great 
education. But I think there are some things you can do there 
as well.
    But, yeah, simplifying the rules, maybe that would be a 
good corroborative effort with the education oversight 
committee, so that 529s and ESAs are not penalized under 
Federal aid programs. It just doesn't make any sense.
    Mrs. BLACK. That was going to be my next subject, is that 
they are dis-incentivized by doing that and what your thoughts 
are about how we can get these 529 plans to be a better vehicle 
for families to actually save for their children or 
grandchildren?
    Ms. BAIR. Well, I would say, this may sound radical to 
some, but I would for loan programs, not grant programs, but 
for loan programs, Federal aid loan programs if we are going to 
stick with a loan model, why have all these rules about what 
you can contribute and what you can't? Why not just simplify 
it. I mean, we are building in such complexity to make sure 
somebody who has actually got some money isn't going to get 
more aid than they should need, and it really scares off the 
low-income kids and their families.
    We had this new program for first-generation program called 
George's Brigade. FAFSA is absolutely daunting for them. So I 
think you just need a little bit of cost benefit analysis, the 
complexity, and the elaborate nature of this application 
process to try to calibrate what need is against what are you 
really getting from that, and why not just let everybody borrow 
up to a certain amount, a commonsense cap of some sort, and 
dramatically simplify this and make it easier for everyone, and 
then you don't have to worry about disincentives.
    I mean, kids even a summer internship will penalize their 
ability for aid the next fall. It is just all the wrong signals 
and all the wrong incentives.
    Mrs. BLACK. Mr. McCluskey, do you have a follow-up on that 
when you see 529s and how we can do a better job with helping 
families to plan for their future for their children and 
grandchildren?
    Mr. MCCLUSKEY. Well, I pretty much just echo what you said, 
which was that for one thing, they are very complicated. But I 
will go a little farther than that. When the Obama 
administration proposed eliminating 529 plans, I actually 
thought it was a good idea. I think it is a good idea because 
that sort of skews toward wealthier people. I think if we are 
going to have aid programs, we should focus them as much on the 
low-income people who really need it as is necessary, so I look 
at 529 plans. I look at Parent Plus loans. I look at lots of 
aid that skews higher income, and it seems to me that we should 
begin to phase out that sort of aid so we can focus most on the 
people who need it the most.
    Mrs. BLACK. Well, I have run out of time, but I think this 
is an interesting subject, and going back to Mr. Reed's comment 
about his family and how his family will not get the same 
benefits that other families may get even though they have a 
desire to go to a certain school.
    It is a dis-incentivizing program to say I am going to save 
and do the kinds of things that need to be done, and the 
universities also, and how they may benefit from this. But I 
think this is one we may need to dig into a little deeper.
    Thank you. I yield back.
    Chairman ROSKAM. Mr. Renacci.
    Mr. RENACCI. Thank you, Mr. Chairman. I thank you for 
holding this hearing. I appreciate the witnesses being here.
    This has been a great learning experience for me, as all 
hearings are, because I really listen intently. I got to tell 
you, there are four things that I took out of this in listening 
to your testimony. Number one, student aid and loans increase 
college costs. Mr. McCluskey, you mentioned that. Ms. Baum, you 
mentioned that private universities hold one-third of the total 
endowments. That was a pretty shocking statistic.
    Mr. McCluskey, you talked about shining a bright light on 
endowment uses. I would love to figure out a way, how to shine 
a bright light on non-educational, non-uses for academics, on 
that form 990, so we have got to figure out a way to do that. 
And then I want to roll back to what was discussed a lot, which 
was student loans versus outcomes. It is kind of interesting, 
when I went to college, which just seems like just 3 years ago, 
which was 30 years ago, I still remember my parents didn't have 
very much money. In fact, they didn't have any, and I had to 
figure out a way to go to school.
    So I had to borrow and I had to work. And, Ms. Bair, you 
talked about equity. My equity was I worked 3 jobs. That was my 
equity contribution. And my debt. And I also remember looking 
at my debt. My cost of college was $2,500 a semester back then. 
So I said $20,000 a year. I cannot spend--I have to make sure 
my debt is in line to the job I was getting. And back then I 
still remember the day I was going to be a police officer and I 
knew the salary was 8- or 9- or $10,000, and I thought I can't 
let my debt get out of hand.
    Today I have people that I hear that their debt is they 
buy, one instance where a family's daughter has three brand new 
cars because she wrecked two of them, all on student debt. So 
currently the amount of outstanding student debt stands at $1.2 
trillion. My debt had to be for books and for tuition. It 
couldn't go to cars and everything else. I had to figure out 
ways. And, again, I look at my debt. I wanted to go to law 
school. I realize my debt was already too high. I couldn't go 
to law school. I had to get my job first, and then I attempted 
to go to law school, which ended up going in a different 
direction.
    But maybe if we can touch on, Mr. Amburgey, and President 
Bair, what responsibilities do colleges and universities have 
to avoid saddling students with debt they can't pay back?
    Ms. BAIR. Well, I think they should. I think we do counsel 
our students. We do keep an eye on it. Our George's Brigade, we 
are capping it at $2,500 a year, and I think there again, the 
Department of Education in terms of giving, making it clear 
that schools have flexibility to say, no, you can't, even if 
you are entitled under the Federal programs, we don't want you 
to borrow that much. I think in certain areas it is not 
completely clear, so that might be an area where Washington 
could help. But, yeah, just capping it and certainly better 
disclosure, I think, and financial education and counseling up 
front.
    When we had our Dam the Debt Program, I got all of our 
seniors together announcing the program that we had some money 
to pay down their borrowing for the last semester. And I went 
through a little exercise with them. So I said, you know, we 
are paying down $2,700 of your principal. Who can show me why 
it is actually more than $2,700. And unfortunately nobody 
raised their hand, so we got into a talk about compounding 
interest and since we were reducing the principal, they 
wouldn't have to pay interest on that amount.
    But I look at every opportunity to do this, and I think it 
is incumbent on schools to do so. But, again, I think having 
clarity around the authority of a school to just say, no, even 
if these Federal programs allow you to do this, we don't think 
it makes sense for you to do so. I think that would be helpful. 
And you are right. It is not always--these Parent Plus loans 
are really something, and we have very little control over that 
and what they are used for.
    There again or maybe a more direct way, is to have some 
type of overarching cap on the total amount of federally backed 
borrowing anybody can do per student. Maybe it is $50,000, I 
don't know, but something to keep this within reason. If they 
want to go beyond that, then they have to work. They may have 
to go to the private market where there is going to be a lot 
more discipline. We need consumer protections there, too. But 
we don't have the proper controls in place to make sure the 
borrowing makes sense and that it is used for the right 
purposes.
    Mr. SCHNEIDER. I do a lot of work with State governments. 
The State of Texas in particular is very interested in this 
issue and has a strategic goal of making sure that student debt 
is at a level commensurate with the wages that are expected for 
any career or any program, and so we should look at some of the 
State work that is going on to help students understand the 
level of debt in relationship to earnings because that is 
really what really matters.
    And if you borrow $30,000 for a $75,000 a year job, that is 
great. If you borrow $75,000 for a $30,000 a year job, you are 
going to be in trouble. And States, especially the State of 
Texas, is working very hard to communicate that kind of 
information and shine a bright light on that particular 
problem.
    Mr. RENACCI. Thank you. I yield back.
    Chairman ROSKAM. So look at your watches. 11:30 a.m. You 
are before the most efficient subcommittee in Congress. All of 
our hats are off to you all. Give me a couple minutes because I 
want to sum up and raise a couple of points.
    First of all, thank you for your testimony. You get the 
sense from all of us that we are curious. We want to learn. We 
want to learn more. There is an incredible opportunity I sense 
for us to do a lot of good all the way around.
    I can't resist, you know, Mr. Rangel mentioned this idea of 
these really lush programs, and Mr. Reed mentioned a couple of 
them that just seem kind of indulgent and too luxurious. And I 
am reminded of a cross country trip that we took when I was a 
young boy, and we were disobedient in the car, and it was not 
going to end well. And my father pulled into a restaurant. He 
was completely disgusted with all of us. We thought we were 
going to order a great breakfast and have all this stuff. He 
turned to the waitress and he said they will take pancakes and 
water, and they will be happy.
    And, you know, my sense is that we could go to Rangel 
University. You would go in there, and there is the science 
building and there is the liberal arts building and there is 
the gym, and call it a day. I think that there is some counter-
pressure that can be put on higher education so that they are 
not indulging in this. And we are not going to get to that 
today, but there is an issue there that needs to be spoken 
about and needs to be dealt with.
    Another issue, a theme that I have heard today, is this 
increased level of transparency, whether it is 990s or the 
FAFSA form, I will tell you I would rather have dental work 
than fill out one of those FAFSA forms. It is the most 
unpleasant, difficult thing. You are schlepping for boxes here 
of records here. You are anticipating sort of, well, I think 
this is what is going to be happening because maybe the taxes 
aren't done at the time when the FAFSA form is due, and it is a 
very daunting enterprise for the most sophisticated among us, 
and I can't imagine what it is like for somebody that doesn't 
have much background in those things.
    I think it is an interesting thing, and I have not talked 
about this publicly, but it would be an interesting thing for 
us to be thinking through, well, what would it be like if we 
were to incentivize donors to contribute towards scholarships? 
What would that be like? And it is not unprecedented in the Tax 
Code. We have Section 170(e)3 of the Internal Revenue Code 
right now that creates an incentive for companies to contribute 
inventory donations that get an extra benefit--it is cost plus 
50--if the organization that is receiving it is benefitting the 
needy as that defined in the code. That is interesting.
    What would a donor look like--what would the disposition of 
a donor be if one gift were to go to a building, and that is 
treated as a normal whatever, but another gift says, no, no, 
no, we are going to create more of a value to you, donor, on 
this enterprise. I think we need to do some more exploring. I 
am not necessarily proposing it, but I am saying that it would 
be a level of inquiry that could be pretty interesting because 
it doesn't matter where you are on the political spectrum, 
everybody is agreeing that that sort of direct giving towards 
enhanced student aid and scholarships is a good thing.
    We also need to get a better, better feel for this bubble 
because it is here. It is going to burst, and it is really 
interesting. I think it is manifesting itself in my area where 
my kids, I have got three kids out of college, one in college 
right now. And so we have gotten a lot of the direct mail over 
the past few years, and there was a postcard that came in that 
got my attention, and it was a student and a picture on the 
front of the postcard that says I am going to the University of 
Illinois, dot, dot, dot, and then you turn it over, and it says 
and I am starting at the College of DuPage, which is our local 
community college. And I am hearing from a lot more folks at 
home who 10 years ago would have not really thought about that 
route, but now they are saying it just makes no sense for me to 
spend X amount, tens of thousands of dollars, for these 2 years 
of schools when I can go to the community college, which are 
doing a fabulous job in our area, go to the community college 
and so forth. So some of the market discipline is beginning to 
happen, and I am starting to see it.
    The other thing we have got to figure out is how do we make 
sure that kids don't get whipsawed in this process? So you are 
a student in Harlem. You are a student on the west side of 
Chicago. You are a student who you might think is in Harlem or 
you might think is the west side of Chicago, but you are in the 
6th District of Illinois; you are in my constituency, and you 
need some level of direct aid. You know what I mean? I mean, to 
your point, Dr. Baum, a tax credit doesn't do you any good. You 
need the capacity of having cash to pay the bills. So all these 
things that we are thinking about we can't put that student at 
risk or make sure that, you know, we need to protect them from 
being whipsawed.
    This other discussion that we didn't have today, but I 
think there was an allusion to it in Mr. Lewis' opening 
statement, and that is he was raising the point of what I am 
characterizing, and maybe there is some other term of art about 
this, but what I am characterizing as an indirect benefit as 
opposed to a direct benefit. So we have largely been talking 
about direct benefits for students, and that is a good thing 
for us to talk about.
    We also need to understand what are the indirect benefits 
that are coming from universities that help us all, the 
research side of things and so forth. So there is no level of 
anxiety about a contribution that is made to just a straight up 
research institution. We admire that, and we think endowing 
that is even a good thing. We need to be more sophisticated in 
our thinking to tease out and distinguish between a direct 
benefit, and maybe the direct benefit needs to have a higher 
incentive. Great. Let's look at that, but let's not lose sight 
of indirect benefits, particularly coming from higher 
educational institutions.
    And then finally, I want to echo what Mrs. Black was 
speaking about, and that is 529 plans, 529 contributions, that 
perversely dis-incentivize other grants and so forth. And that 
just makes no sense at all.
    Let me make one final pitch. It is a quick personal 
reflection, but I think it is worthy of people's attention, 
this idea of investing in people and how the investment in 
people can pay disproportionately forward. We know how 
important buildings are. You need buildings, and we need all 
these physical things. But just a quick 60-second story. My dad 
grew up in a very adverse situation. And there was an Iowa farm 
couple who lost their only son--his name was George Jenkins--in 
the Normandy Invasion. And Mr. and Mrs. Jenkins, through a wild 
set of circumstances decided that they were going to honor 
George's memory, and they paid my father's tuition, room, 
board, books, fees, spending money. They bought him this class 
ring. They put him through college. And they literally took him 
from a trajectory of this direction, and they put him on a 
pathway of this direction. They literally changed his life. One 
life. Fast forward 30 or 40 years. My dad ends up with other 
like-minded business people starting a not-for-profit 
organization, converting inventory donations into scholarships, 
interestingly enough, and they end up putting 10,000 kids 
through college. And that is just one life. That is the 
investment in one life.
    So maybe it is that what our committee can be doing is to 
be thinking through how do we make sure that we are putting a 
priority on that sort of direct investment in students, not 
taking away from indirect benefits, but recognizing that there 
is nothing more precious, nothing more significant, than 
investing in an individual.
    So I know I speak on behalf of our whole subcommittee that 
we are deeply appreciative of your time. You can count on us to 
continue to be in dialogue and discussion.
    And I want to thank my colleagues for actively 
participating and asking thoughtful and inquiring questions. 
Thank you. The meeting is adjourned.
    [Whereupon, at 11:44 a.m., the subcommittee was adjourned.]