Posted on September 6, 2008

Universities Facing More Pressure to Use Endowment Funds

Measures to require U.S. colleges to spend more of their endowments on helping poor students gained momentum this week after two members of Congress announced that they will hold high-level discussions on the matter, the Financial Times reports.

Sen. Charles Grassley (R-IA), the ranking minority member on the Senate Finance Committee, and Rep. Peter Welch (D-VT) will convene a group of university administrators, education officials, and financial analysts to focus on the relationship between endowments and tuition costs. The announcement of the meeting comes nearly nine months after Grassley and Senate Finance Committee chair Max Baucus (D-MT) requested information from 136 colleges with endowments of more than $500 million about their admissions, financial aid, and endowment spending policies. At the time, Grassley proposed legislation to make universities pay out 5 percent of their capital a year, bringing them in line with the legally mandated payout rate for private foundations and perhaps compelling them to do more to help poor and low-income students in need of financial assistance.

Members of Congress have questioned why some universities have increased tuition fees faster than the rate of inflation, even as the value of their endowments has soared. According to a study conducted by the National Association of College and University Business Officers, the median one-year return among colleges with endowments greater than $1 billion was 21 percent in 2007. For all colleges, the median return was 17.2 percent, the highest since 1998.

Some universities, including Harvard and Yale, have sought to deflect congressional action by expanding their financial aid packages and waiving fees for lower and middle-income families. Other educators have condemned the proposed compulsory payout rate on the grounds that it would diminish the flexibility of their institutions to react to economic circumstance. "There’s no question that some universities have had very good returns," said John Lippincott, president of the Council for Advancement and Support of Education, "but I don’t think we’re going to see numbers on endowments like that in this fiscal year."