The House Ways and Means Committee held a hearing last month to exam the rising costs of college tuition and the US tax policies that may be contributing to those rising costs.
There were two issues the committee considered: tax breaks for college administrators’ salaries and college endowments.
First, we are all aware that the cost of college and the corresponding student debt have been rising astronomically. There are many reasons for this.
1. The decrease in state aid to colleges to offset tuition.
2. The recession with more people out of work and turning to college.
3. The enormous amounts of the salaries of college presidents and coaches. Median annual income for a President of a university is $400,000. The median for a football coach is obscene.
4. The enormous amounts that colleges have been spending on recreation centers, swimming pools, lazy rivers, fancy dormitories, etc.
5. The growing of endowments at colleges that is not spent to lower tuition.
The Committee spent the day addressing number 3 and number 5.
Most colleges and universities are registered with the IRS as not-for-profits. These not-for-profits have raised the salaries of the administrators and athletic coaches to enormous amounts. They need to offset these costs with revenue, obviously. Because that revenue has been decreased by the states, the colleges must get the revenue through tuition increases. The not-for-profits have a tax benefit in that they pay no taxes. Because of this, according to the tax code, salaries are to be “reasonable”. Who decides what is reasonable? The colleges themselves, of course. They justify these enormous increases in compensation by stating that every other college is doing it, so they need to do it to compete. This is disastrous.
Endowments and their investment earnings are also not taxed. Free money so to speak. As long as the withdrawals from the endowments are used for a charitable purpose. At most universities, these endowments are used to provide the ability for those without the means to attend the university. Well, that is fine. It helps open doors for the less fortunate. But what about the students that have to take out huge loans to pay for tuition and do not qualify for the endowment help? There are 90 schools in this country that have endowments of greater than $1 billion. The average endowment is $25 to $26 million. That is a lot a money sitting on the sidelines.
Of course, the answer from the universities is that they have to spend all this student money to pay large salaries and amenities to compete with other universities. Does that make any sense? What if you lower tuition, become the favored school, and get lots more students to attend your school? Wow, what a concept! Does anyone not think that maybe a student would rather get a quality education at a lower price so that they are not spending the rest of their lives paying off student debt?
And lastly, what about this not-for-profit tax code? There should be changes there to require that universities actually are not-for-profit before paying out huge salaries and keeping all their endowment money. It is time to take a hard look at these issues before our young people become consumed with student debt. Maybe it is too late.[ ][ ]
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