ERIC Number: EJ788995
Record Type: Journal
Publication Date: 2008-Mar-14
Reference Count: 0
Should Colleges Be Required to Spend More from Their Endowments?
Chronicle of Higher Education, v54 n27 pA33 Mar 2008
As tuitions continue to rise, Congress is looking for ways to mitigate the costs of college attendance for students and their families. Legislators are giving particular scrutiny to how colleges spend money from their endowments, which have grown significantly over the past decade. Some lawmakers have proposed that institutions with endowments of $500-million or more spend at least 5 percent of that money each year, the same percentage that nonprofit foundations are required to spend. This article contains excerpts from an American Enterprise Institute forum on the topic. A private investor who opposes any requirement by the federal government of a minimum endowment-payout ratio maintains that mandating a payout ratio to deal with problems in financing higher education would be ineffective; that the time and energy required would detract from more urgent and significant reform; and that endowment income is also often legally dedicated for specific purposes under trust statutes or other legal instruments and cannot be redirected without abrogation of prior contracts. A professor spoke for the case that a 5-percent payout rate is too low and that most American universities have used some of their endowment returns over the past decade to increase the principal amount of the endowment rather than to meet current operating or capital needs and that in order to require minimum spending from endowments, some alternatives to a 5-percent spending rule would probably be more efficient and effective, such as taxing low endowment spending rather than prohibiting it. A third speaker recognized the appeal of slower-increasing college prices, but noted that the bulk of university endowments are restricted funds; that university leaders must try to find an equilibrium in the use of their endowments that allows their institutions to be not only as strong as possible today but also even stronger in the future; that endowment returns can go down; and that a federal payout mandate will not necessarily curb tuition increases. Noting the cautionary "Do No Harm" first adage of medical schools, the article concludes that federally-mandated endowment spending is an area to be approached with care, if at all.
Descriptors: Universities, Federal Government, Endowment Funds, Tuition, Paying for College, Government School Relationship, Educational Finance, Money Management, Public Policy, Contracts, Trusts (Financial), Government Role, Institutional Autonomy, Economic Factors
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Publication Type: Journal Articles; Reports - Descriptive
Education Level: Higher Education
Authoring Institution: N/A