The House Committee on Ways and Means Subcommittee on Oversight on Wednesday held a hearing to examine the rising cost of higher education and whether the nation’s tax policies are contributing to that trend.
The subcommittee focused on four factors thought to contribute to rising tuition prices, including increases in federal student aid, college and university spending, executive compensation rates at private institutions, and college and university endowments.
“Right about now, college students are preparing for a great tradition in this country – homecoming. But as they head to tailgates and football teams take the field, parents, and some students themselves, are facing a harsher reality,” said Rep. Peter Roskam (R-IL), in his opening remarks. “The first tuition checks of the year are clearing the bank, and families are figuring out how to make ends meet during one of the biggest financial challenges in modern life, and that is, figuring out how to pay for the cost of college.”
The subcommittee heard the testimony of four witnesses: David Luca, a research officer at the Federal Reserve Bank of New York; Richard Vedder, a distinguished professor of economics at Ohio University and director of the Center for College Affordability; Brian Galle, a professor of law at Georgetown University; MaryFrances McCourt, the senior vice president and chief financial officer at Indiana University, who testified on behalf of the National Association of College and University Business Officers; and Terry Hartle, senior vice president of the American Council on Education.
Much of the discussion centered on whether increases in and changes to federal financial aid programs have contributed to the rise in tuition, by causing colleges and universities to think their students can afford to pay more for their education. The idea – also known as the Bennett Hypothesis, after former Education Secretary William Bennett – gained some strength when a recent report from the NY Fed appeared to draw conclusions that supported the hypothesis.
While other witnesses, including ACE’s Hartle, argued that several previous studies have been unable to support the Bennett Hypothesis, NY Fed’s Luca (a co-author of the report) said during the hearing that the recent study was able to come to such a conclusion because changes to federal student aid in recent years (between the 2007-08 and 2010-11 school years) have been more significant.
Luca said, however, that while the NY Fed’s study did show a causal link between tuition and federal financial aid, the link doesn’t entirely explain the rise in tuition over a longer period of time. He added that there are other “possibly more important factors” in the rise in tuition, such as a decline in state funding, and an increase in demand for higher education. He also noted that the study examines sticker prices, rather than net prices.
The subcommittee members also extensively questioned the witnesses about how colleges and universities spend their money, and whether endowment revenues could be better targeted to directly help students.
Although a small portion of colleges have substantial endowments over $1 billion, they are frequently under attack for their tax-free status. Several subcommittee members questioned whether college and university endowments should be taxed, or whether certain types of donations should not be tax deductible, as a way to encourage institutions to use revenues to rein in the cost of college.
ACE’s Hartle noted in his testimony, though, that the few number of institutions that do have substantial endowments already use those funds to support student aid.
Several of the witnesses also pointed out that colleges and universities are often restricted in how they can use their endowment funds.
“Endowed funds represent an institution’s promise to donors to use income and investment gains generated by their gifts to support an aspect of the university’s mission into perpetuity,” McCourt said in her testimony. “Donors who direct their gifts to endowments expect institutions to strike a balance between supporting current needs and ensuring the funds meet the needs of future generations, meeting the mission and needs of students and the campus community here and now as well as long into the future.”
Publication Date: 10/8/2015