Senators Scrutinize Well-Endowed Colleges

Lawmakers ask 136 institutions with endowments of at least $500 million for information about how they set tuition, award financial aid, and spend from their funds.
January 25, 2008

Expanding their scrutiny of spending and other financial practices in higher education, leaders of the U.S. Senate Finance Committee on Thursday asked the 136 colleges with the largest endowments for a wealth of data and analysis about how they set tuition prices, mete out financial aid, and manage their endowments. Although some higher education leaders criticized the senators for their expansive request and for focusing their review of colleges' practices on such a narrow and unrepresentative band of institutions, others said they believed campuses would welcome "the chance to tell their stories," as one put it.

Sen. Charles Grassley (R-Iowa), particularly, has kept college officials busy over the last two years with a slew of inquiries and requests for information about a range of topics, including college governance, presidential pay, research entanglements with corporations and, most recently, whether they should be spending more from their endowments to bolster access to college for needy students. On Thursday, on the day the National Association of College and University Business Officers released its annual survey on college endowments, Sen. Max Baucus (D-Mont.) and Grassley, the Finance Committee's chairman and senior Republican, respectively, said they were troubled by the study's finding that endowments continue to grow at double digit rates on average, yet the average college spent just 4.6 percent of its endowment in 2007.

“Tuition has gone up, college presidents’ salaries have gone up, and endowments continue to go up and up," Grassley said in a news release about the letter. "We need to start seeing tuition relief for families go up just as fast. It’s fair to ask whether a college kid should have to wash dishes in the dining hall to pay his tuition when his college has a billion dollars in the bank. We’re giving well-funded colleges a chance to describe what they’re doing to help students. More information will help Congress make informed decisions about a potential pay-out requirement and allow universities to show what they can accomplish on their own initiative.”

The lawmakers said they had been heartened by recent announcements by Harvard, Yale and other universities "taking steps to increase endowment spending and provide free tuition for low-income families and greatly reduced tuition for middle-income families. This has been the first good news in a long time for families struggling with the burden of ever-increasing tuition. These actions have given hope to many that a top education is possible without having to take on crippling debt."

But much more remains to be done, the lawmakers suggested, and they characterized their inquiry as helping them understand the landscape better as they consider federal policies that might encourage (or force, some college officials fear) institutions to do more. The letter from Baucus and Grassley, which they said they had sent to all 136 colleges with endowments of $500 million or more in 2007 (which can be found on this list of participants in the NACUBO survey), asks the institutions to provide information about:

  • The number of undergraduate and graduate students year-by-year for the last 10 years.
  • The total cost of undergraduate tuition and fees -- both sticker and average, mean and median -- year-by-year for the last 10 years; the amount of tuition assistance (not including loans or work study) that the institution has given to undergraduate students annually for a decade; and the percentage of students receiving institutional grants and the average grant amount.
  • How the institution informs students and parents about its financial aid policies, what outreach efforts it uses to recruit potential low-income students, how it defines low income, and how much it spends on such recruitment.
  • Who determines and decides when tuition increases are necessary, whether the full governing board votes, whether students and the public are given a chance to comment on tuition increases before the fact, and "what role does your university endowment play in providing financial assistance to students?"
  • How the endowment is managed, and the role of the "Board of Directors;" what the mission of university’s endowment is, and what its payout and investment policies are; and when those policies were last reviewed and will be next reviewed.
  • The year-by-year net growth of the university’s endowment for 10 years, in percentage and dollars; the amount of donations the endowment has received year-by-year for 10 years; the percentage of investment in each asset class (equity, fixed income, hedge funds, private equity, venture capital, etc.) and the amount invested outside the United States.
  • What investments are and aren't included in the endowment; whether there any other long term investments not included in the endowment as reported to NACUBO, and if so, what those are and their values.
  • The cost of managing the endowment for each of the last 10 years.
  • The payout (both in dollars and percentage) from the endowment, and the targeted payout, annually for the past 10 years; for years that the actual or targeted payouts were below 5 percent, an explanation of "how this meets the needs of the current student body;" and what the the top 10 major expenditures from the endowment were last year.
  • How much of the endowment is subject to permanent spending restrictions or limitations set by the original donor; how much is restricted for need-based scholarships or undergraduate financial aid; how much is restricted because of decisions by the board or a college official; and the investment return to the endowment each year for the past 10.
  • The fee arrangement to investment advisers and the process used to review reasonableness of the fee and compensation; the relationship, if any, that exists between endowment size/growth and the compensation given to the campus president and endowment manager; and any bonuses given to the president or endowment manager.

The lawmakers' letter closed by saying their staffs would work to ensure that the request "is not unduly burdensome.... We envision that many or most of the answers can be answered in brief -- a page or less."

Critics of colleges' spending practices applauded the senators' inquiry. "It is necessary because colleges and universities routinely refuse to share endowment spending information with the public," said Lynne Munson, a researcher affiliated with the Center for College Affordability and Productivity. She noted that the NACUBO survey did not reveal the endowment payout rates of individual institutions (they were "coded for secrecy," she said), and said that "parents, donors, and all taxpayers deserve to know how tax-free endowment funds are being spent."

While college officials challenged the lawmakers' suggestion that their inquiry would not be "unduly burdensome," leaders of several higher education groups said they believed that colleges would generally welcome the opportunity to make their case. "I am certain that colleges and universities will be pleased to share the information requested by the Finance Committee leadership," said John Walda, president of NACUBO, the business officers' association. "I'm also confident that this information will strengthen the committee's understanding of college and university endowments and will demonstrate the prudent practices through which higher education institutions manage their endowments."

"I think they're asking good solid questions, and I think they'll be surprised at the answers," said Sarah Flanagan, vice president for government relations and policy development at the National Association of Independent Colleges and Universities. "This gives schools a chance to tell their stories, and I think [the senators] will find that people are using their endowment funds for appropriate educational purposes and for good causes."

Flanagan also said, however, that some of the questions reflected lawmakers' flawed understanding of how college finances work. Asking colleges how the endowment payout "meets the needs of the current student body," for instance, fails to recognize that endowments exist primarily not to get an institution through the next year or even five, but to support its long-term financial health, Flanagan said.

Becky Timmons, assistant vice president for government relations at the American Council on Education, expressed a more fundamental frustration with the request from Baucus and Grassley. College lobbyists have been pressing the Finance Committee for months -- "doing everything but stand on our heads," she said -- for an opportunity to "give them this information, to sit down and talk to them about every aspect of this" issue. "We don't take exception to the Finance Committee's interest in student financial aid; their focus on it is welcome," Timmons said. "We have tried everything to provide them with the information they need to understand what endowments can and can't do to expand access."

Instead, she said, the lawmakers have chosen to collect information from a relatively narrow set of extremely wealthy (and in many ways unrepresentative) institutions -- "136 out of 4,300" colleges -- with the idea of using their situations to make policy for all of higher education.

"That is tantamount to building tax policy for the United States based on the citizens of Manhattan instead of the entire country," Timmons said. Given the wealth of the institutions involved, and the fact that the NACUBO survey contained twice as many colleges with endowments under $50 million as there were funds over $500 million, it might be more like focusing on residents of Trump Tower.


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