Over the next several months, about 40 private, nonprofit colleges and universities -- those with more than 500 students and $500,000 in endowment per full-time student -- will start writing checks to the IRS. The exact amount due will depend on the size of each institution’s endowment, with the bill for Harvard University estimated to be as high as $50 million.
Colleges and universities subject to the new tax, and others that worry about the precedent of taxing institutions of higher education or expect they also might be subject to the tax, have lobbied hard to remove this provision of the Tax Cuts and Jobs Act. Even after it was passed in 2017, efforts to amend it have continued.
Here’s a better strategy: carefully consider congressional motivation and address the underlying concerns of policy makers. Waiting for new leaders in Congress and expecting a reversal in thinking may not pay off. The tax bill passed along party lines when the U.S. House of Representatives and Senate were controlled by the Republicans, so their concerns about elite higher education are noteworthy. The majority party in the House has changed and, with an election in 2020, we could see further shifts, but legislators in both parties have raised issues about higher education.
For example, many Republicans who supported the tax bill in 2017 continue to be concerned that colleges do not adequately protect free speech, including representation of conservative points of view in the classroom and from speakers invited to campus. Most college leaders are committed to free speech and diversity of points of view, regarding them as important to both learning and the pursuit of new knowledge. While most institutions do, in fact, welcome a variety of ideological points of view, I suspect there is also a significant political tilt in the views represented.
A stronger effort to present ideological diversity on our campuses would go further to win back support from the right. Doing so would improve learning on campus, since wrestling with different points of view encourages students to think more critically about issues. Colleges also clearly need to protect speakers from being disrupted and prevented from speaking, even as such incidents have been few compared to the number of speakers invited to campuses across the country -- and have rarely occurred at the institutions slated to pay the endowment tax.
Another vital move to turn the tide: do more for veterans. That could include recruiting a greater number of veterans as students and hiring more veterans as staff and faculty members. Support programs that benefit veterans would contribute to the diversity of experience and points of view on campuses, including among the faculty. Interestingly, student veteran groups have been effective at lobbying Congress on policies that affect them. If student veterans had a greater presence at the colleges and universities subjected to the endowment tax, and felt that those institutions were going all out to assist student veterans and hire returning ones, could they have helped eliminate this provision from the tax bill?
Across the political spectrum, families are also worried about the cost of higher education. While all of the institutions with large endowments use significant resources for need-based financial aid, touting low net prices and no or low loan burdens for low- and middle-income families hasn’t allayed families’ concerns. Significant financial aid reduces the prices that low- and middle-income families at these colleges and universities are asked to pay -- in some cases coming close to zero -- but these institutions don’t recruit that many low- and truly middle-income students. Too few students are experiencing the low net prices. Rather than continuing to talk about the low net prices, colleges and universities would be better off making a big push to admit and enroll more such students.
Institutions may regard this move as difficult because of the financial cost -- and because taking more low- and middle-income students means taking fewer students with other desired attributes. Such a move would, in fact, come at a cost, in terms of increased need-based financial aid. But failure to win back the public trust will also prove costly in the form of a continued endowment tax that may continue to rise. Colleges and universities may also face reduced access to other forms of public financial support. And these 40 institutions in particular have adequate resources to increase enrollments without significantly reducing the quality of the education offered. Enrolling more low- and middle-income students need not be a zero-sum decision.
The strategy of relying on lobbying to undo the harm of the endowment tax bill was based on the assumptions that the public was misinformed and that the problem was mostly a public relations issue. That may be true in part. But the best approach that these institutions could take to win back support is to clearly demonstrate, through a set of actions, that they are listening and committed to doing a better job of serving the public good -- by bringing on more intellectual diversity, more low- and middle-income students, and more veterans.