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Ways and Means Explores Ways to Reduce College Costs, Help More Americans Pursue an Education

September 13, 2016

Today, the Ways and Means Oversight Subcommittee, chaired by Rep. Peter Roskam (R-IL), held a hearing to explore why college costs continue to soar and how some colleges and universities are using their tax-exempt status to fulfill their charitable missions and help more Americans achieve the dream of a higher education.

As Chairman Roskam said at the start of the hearing:

“When I go home to Illinois, parents tell me all the time about how they are struggling to put their kids through college and how they worry about their children’s future. I’m sure that the rest of our Members here can tell similar stories from across the country. We’re here today to tell those families that we hear them and we’re looking for solutions.”

Highlighting the enormous challenge facing students and families, Director of the Cato Institute’s Center for Educational Freedom Dr. Neal McCluskey said:

“The country has seen an unremitting increase in college prices for the last 35 years and with it, greatly increasing student debt … in 2012, total student debt surpassed the psychologically powerful $1 trillion mark.”  

As Washington College President Sheila Bair noted:

“The cost of higher education has increased more rapidly than that of food, shelter, and medical care for the current generation of college students … 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 four-year graduation has grown by a whopping 163.8 percent.” 

When Rep. Pat Meehan (R-PA) asked what could be causing this, Bair responded, likening the college cost crisis to the mortgage crisis—as she did in a recent Wall Street Journal op-ed:

“The ability to freely borrow has made it easy for schools to raise tuition because students can just keep borrowing more to pay for it. Your usual supply and demand is out of whack. You’re increasing the price but you’re not necessarily reducing demand and getting that price discipline … That’s what feeds an asset bubble. That’s the same dynamic we saw during the subprime crisis.” 

As Dr. Mark Schneider, Vice President of American Institutes for Research, explained, the tax-exempt status of colleges and universities further complicates the college cost crisis. He said:

“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 [at the universities with the biggest endowments], there are questions about the extent to which the public interest is in fact being served by the distribution of these endowments.”  

Through their research of endowments at private colleges and universities, Dr. Schneider and his colleague Jorge Klor de Alva actually found that this tax exemption does not necessarily ensure taxpayer dollars are going toward the students most in need:

“The unequal distribution of endowment wealth and the unequal enrollment of Pell Grant recipients leads to a pattern where more affluent students attending richer universities get far more money from the taxpayer than the students attending public institutions.” 

Many Members talked about their personal experiences with college costs—both as college graduates with student loan debt and as parents of college students.

Rep. Tom Reed (R-NY) expressed his frustration with the many colleges that irresponsibly spend exorbitant amounts of money on non-academic staff and infrastructure and levy those costs onto students. He went on to praise the institutions that are investing their resources wisely and using their tax-exempt status to help make college more affordable.

For example, at Berea College in Kentucky, students receive their education tuition free—largely because of how the school chooses to use its endowment. As Jeff Amburgey, Vice President for Finance at Berea College, explained:

Berea provides from its endowment, augmented by private, state, and federal scholarship funds, 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 high cost of a private liberal arts education … Approximately 68 percent of the annual endowment spendable return is used to fund these Tuition Promise Scholarship and other direct financial aid to students.” 

Similarly, Ms. Bair explained how a heightened focus on philanthropy and increasing financial aid at Washington College is helping her students reduce their student loan debt and even allowed her to freeze Washington College’s tuition:

“I like to say giving to endow a scholarship is more enduring than giving to bricks and mortar. We need both, but we always need more scholarships … I’m proud to say that 60% of our endowment draw is dedicated to scholarships.”

Ways and Means Members will continue to examine the tax-exempt status of colleges and universities to help more Americans pursue a college degree without incurring crippling amounts of debt.

CLICK HERE to learn more about today’s hearing.