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What to do with the Endowment?

So, what is one to do with the fantastic earnings on the endowment? Last week, PRINCO released its annual report, sparking debate in the Princeton City Council about larger returns to the community, according to the Princeton Packet. But I actually agree with the University that the amount it contributes to the town is already enough. An analysis by Princeton Future, a local public policy planning group, found that the University’s voluntary contributions to the town of Princeton constitute 7 percent of the municipal budget, as reported in the Princeton Packet.

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Yet, four residents of Princeton are still attempting to sue the University in New Jersey’s tax court in order to challenge the University’s status as a nonprofit. Part of their case is that the University’s endowment is earning returns higher than that of an ordinary nonprofit; therefore, the University is making risky enough investments and generating enough profit that they could pay property taxes. They argue that the University needs to pay its “fair share.” The University could probably pay its property tax burden, but far more important are the overall principles of the tax code.

Although Princeton generates massive returns, the tax-exempt status of nonprofits are based on the fact that they further an educational, scientific, literary or otherwise publicly beneficial purpose, rather than the amount of returns they generate, based on the IRS definition of a 501c(3) organization. Therefore, stripping the University of its nonprofit status would then imply that the University does not further an educational, scientific, literary or otherwise publicly beneficial purpose. And the University very clearly furthers those purposes as one of the world’s leading research universities.

The argument advanced by the aforementioned plaintiffs would be valid if the University were an evil institution that had a pure money-making motive, but it clearly does not. Asking the University for its “fair share” would be morally equivalent to asking a church or an animal shelter to pay taxes. Are tax exemptions a debatable subject? Yes. But if we want reform, we need to change the whole system, not just Princeton’s tax status. Such a change to the tax code would have huge repercussions for nonprofits all over the state. While Princeton might be able to afford the extra overhead of a property tax burden, a smaller nonprofit, say a soup kitchen, would be forced to close under that tax load.

Yet, rather than belabor the point about the University’s tax status, I think we should draw attention to the state of financial aid at the University and the potential to further a greater public good than direct contributions to the town of Princeton, which is certainly not in dire financial straits.

Let’s work under the assumption that the University does in fact need to contribute its “fair share” to the community. Consequently, as a university, that community would consist of the students. Princeton always touts the fact that its financial aid program is loan-free; the admissions website states that about 60 percent of students receive some form of financial aid. Yet, there are many who do not qualify substantially, and are forced to take on massive loans to afford a Princeton education. This comes in the wake of increased scrutiny of the student loan industry by the Consumer Financial Protection Bureau, who alleges that the debt load accrued by students restricts economic opportunity.

The University has the opportunity to fulfill an even larger social good by expanding its financial aid to fill this hole in the financial aid system. Only 83 percent of Princeton’s seniors graduate entirely debt-free according to the financial aid website, and the average level of indebtedness is $6,600. For reference, one of the so-called “egg chairs” in Lewis Library costs about $5,000. The amount of interest earned on the endowment this past year was $1.7 billion. Surely the University should be spending that money by filling in the financial aid gap instead.

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Along similar logic, the average grant for a family whose household income is $100,000-$120,000 is about $47,400, based on the statistics on the financial aid website. That’s a generous amount of money, and we should all be grateful that the University is able to provide that much. However, at the same time, the expected contribution is still a significant portion of that family’s annual income, and the student might still have to take on the burden of loans.

The statistic that the University doesn’t provide online is how many students are admitted and then decide not to matriculate because of the size of the expected contribution from the family. For the cost of two of the “egg chairs,” a person in that income bracket could have been fully, instead of only partially, funded.

There’s an opportunity here for the University to truly fulfill its mission “in the nation’s service and the service of all nations.” By expanding financial aid to fully fund more students, rather than forcing students to take on student loans, the University could attract an even more diverse student body. Allowing students to graduate debt-free would allow them to strike out into the world unfettered by student loans. This is a relatively modest proposal. I could do without fancier chairs if it means that more of my classmates could graduate without any debt load at all.

Nicholas Wu is a sophomore from Grosse Pointe Shores, Mich. He can be reached at nmwu@princeton.edu.

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