Congress considers new endowment spending rules

By Nicholas Nardini

That shady bricked Delphi of American higher education, Harvard Yard, is about to become obsolete. Harvard University’s plan to build an entirely new campus, a mile distant from Cambridge in the city of Allston, received final approval from the Boston Redevelopment Authority earlier this month. The project will take about 30 years to complete. Administrators have avoided tabulating costs yet, but the term “untold billions” was thrown around in the school newspaper.

It isn’t an entirely foreign concept to the U of C, which has spent hundreds of millions in the last decade erecting Ratner, Max Palevsky, and the newly christened Charles M. Harper Center. Across the Midway, the new residence hall rearing its head and the planned $100-million Reva and David Logan Center for Creative and Performing Arts continue to widen the University’s effective campus.

Such gargantuan University projects are now common across the country, as colleges compete for prestige and applicants like never before. Whenever a new glass-and-steel polyhedron gets thrown up on the quad, the attached nine-digit price tags reinforce the image of schools with large endowments afloat on vast seas of frothy capital.

This has many wondering, then why are students experiencing such a drought?

Average college tuition has risen at rates trouncing inflation for the past 11 years and increased by 6.3 percent from 2006 to 2007. During the same period, the ratio of grants to loans as components of financial aid packages has decreased, inciting national debate about how much student debt is acceptable.

While students shell out, universities have been raking in at spectacular rates: This year Yale saw a 28-percent return on its endowment, led by the legendary portfolio guru David Swensen, who has earned over $16 billion for Yale during his 22 years there. Princeton realized 24.7 percent, and in a much talked-about achievement, tiny Bowdoin College took 24.4 percent. The U of C regularly sees impressive returns, leading the nation in 2004 with a 17.6 percent return.

This disparity has generated growing interest from members of Congress and especially the Senate Finance Committee, which heard testimony in September from lobbyists urging new laws that would treat universities like other nonprofits, which must spend at least five percent of their endowments each year. Currently, colleges average a 4.6-percent annual payout from their endowments. The extra .4 percent, argued Lynn Munson of the Center for College Affordability and Productivity, would go a long way toward stemming rapidly rising tuition costs. “Skyrocketing tuition is undoubtedly the biggest problem in higher education…. Senators, what would you say to your constituents if gasoline cost $9.15 a gallon? Or if the price of milk was over $15? That is how much those items would cost if their price had gone up at the same rate that tuition has since 1980.”

The proposal met with general approval from several senators, especially from Charles Grassley (R-IA), ranking member of the committee and a specialist in nonprofit policy. “It’d be good to see the very elite institutions, with the richest endowments, take the lead and create a ripple effect throughout higher education to make college more affordable for everyone,” he said in a statement.

While the Finance Committee continues to consider the proposal as part of a larger package of education policies, universities have spoken out against the measure. Though not invited to the hearing in September, a consortium of education-lobbying firms submitted an official statement to the committee earlier this month, urging Congress not to “harm the ability of colleges and universities to effectively manage their finances for the benefit of current and future students and faculty and the public good that higher education serves.” The statement argues that endowments, far from being “savings accounts for colleges and universities that can be spent by an institution however and whenever it chooses,” are rather composed of thousands of individual accounts, most of which were donated under strict stipulations on how they may be spent. Eighty percent of the endowments of the average public school and 55 percent of that of the average private school are thus restricted. “An institution is legally prohibited from spending funds on student financial aid from revenue generated from an endowment fund established by a donor to support cancer research or a professorship in a particular subject.”

The U of C’s endowment, which University policy stipulates must pay out between 4.5 and 5.5 percent annually, is steered by the University Board of Trustees. At $6.09 billion, it is currently the 13th largest endowment in the country.