Too Well Endowed?

On February 8, three congressional Republicans sent an open letter to 56 universities with endowments over $1 billion to solicit information as to how these universities use their endowment funds. One of the congressmen, Thomas W. Reed II, has also proposed legislation that would force those universities to put at least 25 percent of their endowment income towards providing financial aid in order to keep their tax-exempt statuses.

This proposal is fundamentally misguided. Congress has no basis for understanding the needs of Harvard and other universities, or the intricacies of their budgets. For this reason, the University has repeatedly stated its opposition to the legislation.

It is true that Harvard could do more on financial aid. As we have argued in the past, Harvard should expand benefits for undergraduates to ensure that they cover incidental costs like textbooks and printing for students from low-income backgrounds.

Nevertheless, the broader implication of the proposed legislation is that institutions like Harvard cannot be trusted to manage their own endowments effectively. While we are concerned that Harvard’s financial aid programs might not match its rising tuition, we find the prospect of government interventions to be even more troubling. Washington has no business telling Harvard how to raise or spend its money.

Among those who look warily on the ever-increasing size of university endowments, two positions have emerged. One view, represented by Congressman Reed's bill, holds that Congress should act to keep the wealthiest universities from hoarding cash by creating financial aid requirements. The other posits that an excise tax on the largest endowments could redirect the funds to community colleges, which educate nearly half of all American undergraduates.

This latter effort is laudable, as community colleges need more funding. But it is not Congress’s job to redistribute funds between private and public universities. Making Harvard poorer will do little to change the systemic problems facing the American higher education system.

The proposed legislation also fails to take into account the differences in size between major universities’ endowments, as well as more relevant statistics such as endowment-per-student. A one-size-fits-all mandate would disadvantage universities with lower endowments. After all, siphoning off 25 percent of the income from Amherst College’s $2.1 billion endowment would have a larger impact than would the same policy for Harvard’s $37.6 billion endowment.

Ultimately, these attempts to meddle in the finances of private institutions is worrying. Universities know better than Congress how to handle their endowments. We hope that recent legislative developments do not portend challenges in the future.