Three stars are crossing up in the bright, winter sky, perhaps showing the way to easing the financial burdens of middle class and poor families struggling to finance a basic college education.
The bright star is the tax-free wealth pileup in Ivy League and other elite college endowments, which at last has entered the visible-light spectrum. Second is the slowing of charitable contributions given an uncertain economy, and, third, the price of college -- tuition or dollars spent, public and private, is exorbitant. In response to these trends, now is the time to consider three simple shifts in federal tax policy, which can generate millions in student aid without raising taxes.
The three ideas?
1. Increase the federal tax deductions for gifts to endow need-based scholarships to 110 percent. Let donors write off large gifts as fast as their income permits, rather than over three years.
2. Reinstate the deductions for gifts of IRAs donated to endow need-based scholarships.
3. Require tax-exempt institutions to file a federal EIS -- Educational Impact Statement -- explaining the educational impact of their tax benefits. This links to the welcome, overdue IRS revision of the 990 Form, the tax form that colleges and non-profit groups must file each year.
Sidestep the issue of taking current money from wealthy institutions. Pillaging Yale and Princeton and plowing salt into their football fields helps no one. We can start where everyone agrees – college is expensive. Millions of middle-class families are crushed with debt and millions more low-income students right now, as a new semester begins, are working two jobs and deciding between textbooks and groceries. My self-interest, I disclose, is the 8,900 students at Bunker Hill Community College, where I teach. For these students, often working two and three jobs to attend school, and the 11 million others at the nation’s 1,100 community colleges, even $1,000 in tuition is as large a barrier as $45,000 at an Ivy League school. Yes, Harvard and Yale and others are, at last, offering to spend more endowment income on need-based scholarships. The Ivies and the wealthy liberal arts colleges, though, have barely 100,000 spots. No matter what these institutions do, the nation still has the other 20 million students struggling to finance an education.
Let’s start with Idea (1), to increase the federal tax deduction for donations to endow need-based scholarships. This works for state colleges and private ones alike. Stick with donations to endow only need-based, not merit, scholarships. That creates a national financial asset in perpetuity.
I’ve offered this on a platter once to the American Council on Education and twice to the National Association of Independent Colleges and Universities and on the Hill and to every college and university president I meet. No luck so far.
Idea (2): The IRA charitable rollover has expired. Why not reopen the option for gifts to endow need-based scholarships? This, I credit to a thoughtful Senate Republican tax counsel, who didn’t wish his name to appear in such a prestigious column. Today’s wobbly stock market is still way higher than at any time in history. This move would enable large gifts from more people, and these large gifts would speed creation of enough principal to generate income to award scholarships soon.
Democrats and Republicans are both considering economic-stimulus programs. Ideas (1) and (2) would work now, as part of any economic stimulus package. Why not encourage charitable spending, too? What better cause than the millions of families and students struggling to pay college bills? Scholarship dollars move right into the retail economy as salaries, utility bills, books, computers and cheeseburgers.
Idea (3), for the EIS, will bring a few rumbles, but higher education has earned the need for citizen vigilance by spending tax-exempt dollars on luxurious buildings and following up with poor cost control and high tuitions passed on to middle-class and low-income families. Let the EIS demonstrate the public good and the education that the institution has achieved in return for tax-exempt status. (Measures could, for example, be how many students are taking courses challenging to them rather than studies to ensure high GPAs at low risk. Or how many students have mastered Asia or Islam or a culture other than their own. Or even how many students can write a simple, declarative sentence. )
This one I credit to James E. Coleman Jr, the Duke law professor who served as deputy general counsel for the U.S. Department of Education in 1980. Let the colleges and universities participate in the EIS design. Those that declare such an impact statement impossible may shift to taxable status. Idea (3) will help ensure that institutions spend the money, from new scholarships or robust endowments, on aid to students, rather than golf nets. Nothing now limits the use of increased endowment spending or of tax-deducted donations.
The knotty part of this debate is whether the actions of fewer than 25 institutions in the nation -- the Ivies, Stanford, Duke, Chicago and a dozen or so wealthy liberal arts colleges -- makes any difference. Let’s do the numbers. As written here and elsewhere before by me, and vetted by experts, the federal subsidy per student at these institutions via tax policy for endowments and donations alone is as much as $30,000 per student. That’s every undergraduate, not just students on financial aid.
To humor my critics, call the subsidy $15,000 per student. Then, round down and say the total undergraduate enrollment at the wealthy elites is 75,000 students. That’s a federal tax subsidy of $1.125 billion, all for students at institutions with endowments of hundreds of thousands of dollars per student at least, and a few with more than $1 million per student. This wealth derives from hard work, good management, alumni generosity and superb endowment management. The question is: When, given the nation’s need for an educated work force and an argumentative citizenry, is enough enough?
This brings me back to community college students and textbooks. The day I read The New York Times article in which President Rick Levin alluded to the greatness of my own Yale’s willingness to spend 5 percent of the endowment income (after years of returns of 20 percent and higher), I was trying to determine the least expensive combination of books for my expository writing class this semester at Bunker Hill Community College, in Boston. Last semester, I gave my copy of Concise Guide to Writing to a student who had to decide between health insurance and the textbook.
The Bunker Hill students, and most of the 11 million community college students in the nation, include battered mothers, refugees from wars in Sierra Leone and the Congo, and U.S.-born students who’ve just never had a break. The standard writing textbooks – Concise Guide to Writing, $37.50; and Keys for Writers, $73.96 for the new edition and $49.35 for the old – are just too expensive (and too heavy) for community college students. I went instead this semester with my own $39.94 package starting with, at $10.17 each, Syn and Syntax by Constance Hale and On Writing Well by William Zinsser. I added the remarkable $10 card for access to the online grammar and writing exercises from Smarthinking and $9.60 for The Old Man and the Sea because many of my students have not lingered with a great book before.
Perhaps by next semester, we, the people, will have a few of these minor adjustments to the tax code, so we can help a few more community college students without raising taxes. Every $1 million we can find from tax-policy adjustments would buy my $39.94 book package for 25,000 students. In the meantime, with my $39.94 learning-stimulus package and the fine essay questions from old AP English Composition exams, we’ll manage.