As the cost of higher education continues to rise dramatically, some wealthy colleges and universities are facing increased scrutiny over the percentage of their endowments being invested in student aid.
Earlier this month, Sen. Charles Grassley, R-Iowa, ranking member of the Senate Finance Committee and one of the fiercest critics of these payout rates, held a roundtable forum to discuss the issue. Brown's Director of Government Relations and Community Affairs Tim Leshan was there, as was Rep. Peter Welch, D-Vt., as well as presidents and policy experts from other universities. Jill Gerber, Grassley's press secretary for the Senate Finance Committee, said the senator "is arguing that there's a lot of money in academia and there are a lot of colleges with significant endowments. They should take a look at whether they can (be) doing more to hold down the cost of education for students."
Since 2007, Grassley has called for reform of endowment spending, including requiring colleges and universities to spend a minimum of 5 percent from their endowments. However, according to both Leshan and a representative from Grassley's office, no legislation is on the immediate horizon.
Grassley's 5-percent figure comes from the standards to which other non-profit organizations are held. "Endowments are tax-exempt, and in exchange for tax-exempt status, these groups have an obligation to use their assets to advance their charitable mission, which in their case is to educate students." Gerber said.
Gerber added that Grassley was "not just picking out the top-10 wealthiest" schools, nor was he "critical of universities for investing well and amassing funds."
In January, Grassley and Sen. Max Baucus, D-Mont., chairman of the Senate Finance Committee, mailed letters to 136 of the nation's richest universities asking for more detailed information on their spending. Brown was among the schools and complied with the request.
On Sept. 11, the Internal Revenue Service announced that it would be sending a questionnaire to 400 colleges and universities asking for detailed information on various aspects of spending and budget. Neither Leshan nor Susan Howitt, associate vice president for budget and planning, could confirm that Brown had received one of these letters yet.
According to Howitt, Brown's endowment, which topped $2.8 billion this year, "is basically a collection of thousands and thousands of gifts" that the University has received. When donors make a gift to the endowment, Brown must keep that money but is allowed to spend the interest earned on it. This year, the University spent about 5.9 percent, or roughly $130 million, out of its endowment, Howitt said, adding that these payouts comprise about 21 percent of the revenue in Brown's operating budget.
Brown's payout percentage rate, set every February by the Corporation, Brown's highest governing body, always falls somewhere between 4.5 and 5.5 percent of the endowment's average market value over a period of 12 quarters, Howitt said. The University uses a 12-quarter average to control for market fluctuations, she added.
Many colleges and universities, however, argue that putting a minimum on endowment payouts does not allow them to make smart financial decisions.
Schools "have to balance current needs with future needs. When they make spending decisions, they have to do it for the long term, so that they can weather the ups and downs of the market," said Brian Flahaven, director of government relations at the Council for Advancement and Support of Education, a nonprofit lobbying group.
"The whole point is that the original investments will last forever," Howitt said. "We want to spend as much on our students today as we spent 20 years ago, adjusted for inflation."
Furthermore, many endowment gifts are restricted - for example, a donor may set up a specific scholarship fund or establish a particular professorship. Thus, these gifts cannot legally be applied to things like student aid.
Gerber, however, said Grassley believes "some universities overstate (donor) restrictions. Donors who love their university are, many times, likely to respond to what their university needs."
Carly Devlin '09, a member of Students for a Democratic Society, which has been fighting for financial aid reform, said she supports Grassley's initiative and would like to see more of the University's resources going toward student aid. "Brown comes at a ridiculously expensive cost and it's a huge burden for a lot of students and their families," Devlin said.
She added that she viewed increasing endowment payouts as only part of a larger educational reform: "I don't think it's the only thing they should be doing, but it's a start."
"To be frank, there is no direct connection between endowment spending and tuition," Flahaven said. "Mandatory endowment payouts is not going to be the silver bullet that's going to solve the whole issue," he added. "It needs to be a more comprehensive discussion."
