[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.]