ITHACA, N.Y. — Rep. Tom Reed has called for new federal rules controlling how elite universities use their investment returns, according to multiple reports in national news outlets.
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Inside Higher Ed’s Michael Stratford reports that Reed, who represents an area in upstate New York that includes Ithaca, joined U.S. House Republicans on Thursday in questioning how schools with endowments above one billion dollars spend their returns.
In October 2014, Cornell University’s endowment was $6.2 billion — up from $5.7 billion in 2013 — according to a news release from the university. Its payout was $311.1 million — or about 10 percent of total university revenues.
If Reed’s suggestion came to pass, Cornell would have to use more of the endowment to reduce student tuition. Reed floated new federal rules that would require the Ivy League university to spend 10 percent of its endowment earning for lower tuition.
Reed said he is working on new legislation that would force universities with endowments exceeding $1 billion to spend more of their investment returns. The goal is for the endowments at those institutions to allow students to “pay zero dollars in tuition,” he said.
One such requirement in the bill, he said, might involve requiring wealthy universities to put 10 percent of their endowment earnings toward reducing student tuition.
Reed also suggested that he wants to change the tax benefits of charitable contributions to universities so that unrestricted gifts are treated more favorably than gifts from donors who direct their money to a specific purpose. That might give university donors an incentive to provide institutions with financial gifts that the university can be free to spend directly on students, he said.
Reed added in an interview with Bloomberg Business that he has two children in high school and that he himself will soon be paying their tuition.
(Reed) said Wednesday in a hearing of the House Ways and Means subcommittee that he was drafting legislation that would “deal with what I believe is a crisis when it comes to higher education costs in America.”
The cost of college has been rising faster than inflation for decades, and members of Congress are scrutinizing endowments as positive returns have enabled the wealthiest universities to return to pre-financial crisis levels.
Taxing investment returns or requiring annual outlays, which have been repeatedly suggested by Congress, is an especially costly and complicated proposition for the almost 100 universities with endowments of at least $1 billion.
Reed said that the new rules could help colleges lower tuition to zero. Its unclear how likely his proposal is to pass, however; Michigan State University Dean Don Heller told Bloomberg that “schools would be concerned about fundraising if Congress began to restrict how money could be spent.”
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