Congressman to propose mandating endowment spending

The bill, which has not been finalized, would require universities to, over a given period of time, spend at least 5 percent of their endowments in what Welch said is a push to make college more affordable.

“The big issue here is the escalating cost of tuition that is rising way faster than inflation and wages,” Welch said in an interview with The Daily Princetonian. “My major goal is to call upon our university leaders to be aggressive in managing cost. We simply can’t sustain this burden on the taxpayer.”

Talks of mandating endowment spending minimums earlier this year were met with strong opposition from the leaders of many institutions across the country, including Harvard, Yale, Penn, Brown and Dartmouth.

“A fixed payout [of college endowments] would be a very bad thing for this country,” President Tilghman told the ‘Prince’ in March.

In an interview on Thursday, she said that she will work to oppose the legislation.

“It’s almost certain that in the next year ... I will be in Washington trying to talk not just to Congressman Welch but to members of the N.J. delegation and any other members of the Congress who are in a position to influence how this comes out,” she said.

Princeton spent an average of about 4.05 percent of its endowment annually between 1998 and 2007, according to a letter that the University sent to the Senate Finance Committee last March. The University spent a projected 4.55 percent of its endowment during the 2007-08 fiscal year, according to the March letter.

The University Board of Trustees adopted a target spending rate of between 4 and 5.75 percent in November 2006.

A surprise proposal

Welch also questioned the $54 billion tax deduction that educational institutions receive every year from the federal government.

“If any institutions have this billion-dollar endowment, it raises the question of whether the taxpayers are getting the benefit of what they’re entitled to,” he said, adding that the tax deductions needed to be met by the “actions of the colleges and universities to use the endowment to making college accessible and affordable.”

Sen. Charles Grassley (R-Iowa), one of Congress’ biggest proponents of endowment spending rules and a participant at the roundtable, could not be reached for comment.

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Tilghman, also a roundtable participant, was not expecting Welch to introduce legislation on the matter.

“I was a little surprised by the announcement,” Tilghman said. “In that roundtable discussion ... there was very little support for that idea among any of the participants.”

Tilghman said this week that most roundtable participants, including those not affiliated with universities, argued against mandating endowment spending.

One who supported the proposal, however, was Lynne Munson, an adjunct fellow at the Center for College Affordability and Productivity (CCAP) who testified before the Senate Finance Committee in September 2007.

In addition to a spending rule, she said at the roundtable, government should provide guidance on how to use endowments. She also called for additional transparency from institutions regarding the use of those funds.

But CCAP administrative director Daniel Bennett disagreed, noting that he does not believe in mandating a spending rate, especially for universities who do not boast endowments as large as Princeton’s or other Ivy League universities’.

“CCAP’s position wouldn’t be to mandate a spending rule,” Bennett said in an interview. “Trying to implement this 5 percent spending per year is certainly heading into [financial] uncertainty” for the universities.

As the economy begins to affect state government spending, smaller state universities would no longer be able to rely on state-sponsored aid, he said.

As a result, these institutions would need to use their endowments simply to support day-to-day operations and may not be able to devote resources to subsidizing tuition.

Tilghman said that “one of the most telling testimonies” at the roundtable came from University of Vermont president Daniel Fogel. As state aid began to decline, she said, Fogel was forced to increase the proportion of out-of-state students, who pay full tuition, to the point where in-state enrollment dropped to just 25 percent.

“That’s just not good public policy,” Tilghman said. Given that Welch is from Vermont, she said, he should be interested in “figuring out how ... to return his flagship university to the place where it can once again be educating Vermont.”

Fogel could not be reached for comment.

Tilghman added that colleges and universities with small endowments will suffer from “a mandatory cap” to the point where tuition hikes would become the only option.

Welch, however, said he believes that “whether you’re a large educational foundation or a small one, you have an obligation to the taxpayer.”

Welch added that smaller universities cannot just rely on government financial aid to lower the cost of attendance. “We’ve had this sort of cycle where Congress raises student aid and colleges raise tuition,” he said. “Something’s got to give.”

He said, however, that he did listen to the concerns of the university officials at the roundtable.

“President Tilghman was a very positive participant in the roundtable,” Welch said, adding that her suggestions will be incorporated into his pending legislation.

These suggestions include averaging the 5 percent spending limit over several years instead of mandating a strict annual payout. Additionally, Tilghman suggested that colleges and universities, rather than Congress, have control over how that 5 percent is spent.

A spending ‘arms race’

In the last fiscal year, Penn’s endowment decreased by 3.9 percent, and the growth of Brown’s endowment plummeted from 21.7 to 6.3 percent. Princeton is scheduled to release information on its endowment performance later this month.

Christopher McCrudden, former treasurer and University secretary for finance and current senior adviser to Tilghman, told the ‘Prince’ earlier this week that “we are now seeing times where I think it’s going to be difficult to achieve our long-term endowment goals.”

Colleges and universities are concerned that the endowment spending rule would imperil their institutional autonomy, CCAP director Richard Vedder told the ‘Prince’ last March.

Bennett said that controlling cost would be “an obvious example” of an alternative to endowment spending rules.

“There’s been this academic arms race recently, where universities have been putting up business centers and luxury dormitories to attract students,” he said, explaining that cutting back on those expenses and slowing rapid expansion goals would cut costs across the board.

Tilghman, however, said that the University needs to spend more money each year just to stay relevant. “We have to remember that new fields of knowledge are popping up,” she said.

But Bennett said that CCAP does not buy into the theory that greater spending is necessary for better academic quality and questioned administrators’ spending priorities.

“We’re under the impression that academic quality has actually declined for the past decade or two, so if administrators say we need to spend more money to keep up the quality, we would question if that’s the quality of their academics or the quality of their campus,” he said.

He cited studies that show that though the United States has more money in education than any other country, it still was not ranked first in academic learning.

“I guess you could kind of call it the dumbing down of academia to allow more students to pass through the halls,” he said.

Easing up on students and families

Though Tilghman acknowledged that the Princeton’s expenses are indeed increasing because academia is a “labor-intensive” business, she added that for most students, the cost of attending the University has actually decreased in recent years.

Averaged over the last 10 years, the cost of attending Princeton has decreased by 25 percent in total because tuition increases — which have been kept to low single digits — have been “massively outstripped by increases in our financial aid budget,” Tilghman said.

“Given that statistic, I find it very difficult to understand how anyone could argue that we are not using our endowment to support our students,” she said.

The University could, however, do much more to make information about affordability available, she said, adding that it needs to better publicize its efforts.

“We have not done as good a job as we should have ... the story is a very, very positive story, and it’s very sad that people look at the size of the endowment and don’t then ask the next question” of what is being done with it, she said.

Ivy League universities reacted to a similar amendment that Welch inserted but later withdrew from the Higher Education Act in February.

Around that time, Yale announced that it would increase its endowment spending by 37 percent, while Harvard bumped up its total endowment spending from 4.3 to 5 percent.

Earlier this year, several universities, including Harvard, Yale and Stanford, overhauled their financial aid systems, giving full-tuition scholarships for many low-income students. Stanford had the highest cutoff for full tuition, at a family income of $100,000.

In the 2006-07 academic year, the University spent more than $60 million on financial aid. Fifty-four percent of the freshman class received an average of $31,187 in aid.