Harvard Rejects Endowment Regulation

Citing booming wealth at universities across the country even as college tuition continues to rise, the U.S. Senate is considering ways to regulate university endowments. The move brought a rebuke from Harvard, which insisted that Congress should not dictate how university funds are spent.

At a Finance Committee hearing on Wednesday, senators considered measures including the repeal of university endowments’ tax-exempt status and mandating minimum yearly payouts to help lower tuition costs.

The discussion at last week’s hearing focused on the spectacular growth of university endowments, which collectively increased by 17.7 percent to dollars in fiscal year 2006, according to testimony at the hearing. Average tuition for four-year colleges in the United States, meanwhile, has risen 35 percent since 2002, according to the College Board.

Several proponents of greater regulation cited Harvard and its $35-billion endowment as an example of soaring university wealth being nonetheless accompanied by continuing tuition increases. Harvard’s tuition rose 3.9 percent for this academic year, while the endowment posted a 23 percent gain in the most recent fiscal year.

Kevin Casey, senior director of federal and state relations for Harvard, took issue with the idea that Washington should regulate how universities spend their vast endowment incomes.

“The most highly endowed colleges are in fact the ones doing the most to support affordability among the individuals that go there,” Casey said in an interview. “Harvard, Yale, and Princeton have been using significant methods to bring down tuition. They already are the most generous. It may not be the best thing for Congress to dictate the formulas by which student financial aid and endowment spend out should be connected.”

But advocates of closer regulation argue that students are not benefiting from universities’ increasing wealth. Citing her findings in a report commissioned by the Finance Committee, Jane G. Gravelle, an economic policy specialist for the Congressional Research Service, argued that low endowment payments in recent years—a number she said hovered under 5 percent of yearly income—indicated a need to impose mandates on how schools use their money.

“Small additions from the endowment distribution could mitigate or eliminate tuition growth and substantially expand student aid,” Gravelle said in a report presented to the committee. She recommended tax penalties or a required annual payout to direct funds to tuition assistance.

Sen. Chuck Grassley (R-Iowa), ranking member of the Finance Committee, called on the top universities to rein tuition costs. “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,” Grassley said in a statement to The Crimson.

Jill Gerber, Grassley’s press secretary, said it is unlikely that the Finance Committee will take immediate action on university endowments, even though the Senate is scheduled to address higher education tax legislation later this month. “It depends on the timing,” she said, “and how the bill develops.”

The Finance Committee has targeted Harvard twice before in its sessions over the past year, questioning the University’s use of off-shore hedge fund investments and its practice of giving preference to legacy students.