Summers Criticizes Mandated Endowment Payouts

Former Harvard President and U.S. Treasury Secretary Lawrence H. Summers weighed in this week against a congressional proposal to mandate a minimum level of university endowment spending, while at the same time endorsing the sentiment behind the recommendation.

“Universities are institutions with a great social trust and responsibility,” Summers said in an interview. “Their purpose is not to hoard wealth.”

But Summers also rejected what he called “across-the-board mandates,” criticizing sweeping regulations for ignoring the fact that institutions often have different sizes and structures.

“I sympathize with the impulse, but worry about straitjackets,” he said.

The issue of university endowment spending, which has drawn the attention of Senator Charles E. Grassley, came to the fore last week when he and Senate Finance committee chair Max S. Baucus sent letters to the 136 wealthiest colleges in the nation, requesting detailed information about their investments and spending practices.

Summers said the scrutiny and media attention could motivate colleges to increase endowment spending, even absent any new laws.

“It may be that the prospect of legislation will have constructive impact,” he said.

Jill Gerber, a spokeswoman for Grassley, said that the Iowa Republican hopes the questionnaires will spark a “national discussion” about the affordability of higher education, but she added that the senators have yet to plan a hearing on the issue and have not endorsed a specific course of action.

“He is not wedded to a mandatory payout requirement,” Gerber said of Grassley. “He always says he doesn’t jump to impose more requirements on any non-profits, including universities.”

Grassley and Baucus have praised recent initiatives by Harvard and Yale to increase financial aid for upper-middle-class families, but Summers said he believed Harvard’s move was independent of the senator’s concerns, contrary to speculation by some in the media.

Summers said last fall that he had proposed setting the income threshold for free tuition under the Harvard Financial Aid Initiative (HFAI) at least $100,000.

Summers added that he faced strong opposition within the Faculty of Arts and Sciences (FAS), and was overruled by the Harvard Corporation, the Universisty’s executive governing body, which approves the annual operating budget.

The Corporation set the initial income limit at $40,000, and later raised it to $60,000.

But while Summers claimed that the Faculty were critical of his original plan for HFAI, Jeremy R. Knowles, a former FAS dean who is known for his fiscal conservatism, said that previous Faculties had made undergraduate financial aid a priority.

Knowles cited aid increases during his deanship in the early-1990s—amid FAS budget deficits—as an indication that making Harvard affordable has always been a priority of the institution.

—Staff writer Clifford M. Marks can be reached at cmarks@fas.harvard.edu.
—Staff writer Nathan C. Strauss can be reached at strauss@fas.harvard.edu.

CLARIFICATION

The Jan. 31 story "Summers Criticizes Mandated Endowment Payouts" stated that former University President Lawrence H. Summers had said that members of the Faculty of Arts and Sciences opposed some of his proposed expansions in financial aid. In fact, he was quoted as saying that opposition came from the leadership of the Faculty.

The comments made by Jeremy R. Knowles—dean of the Faculty from 1991 to 2002, and again from April to July 2007—about increases in financial aid during his own administration were a defense of both prior faculties as well as prior deans.