Business Costs & Regulation

Should Congress Dictate How Colleges Spend Their Endowments?

Charitable institutions with endowments—whether colleges, museums or hospitals—have a legal and moral obligation to honor the wishes of past donors.

Q. I think that both public and private colleges have a moral obligation to make themselves more affordable without burdening their students with heavy loans. Now I see that some members of Congress want to force colleges to spend more of their endowments on financial aid. Your thoughts, please.

 

A. I agree with you that colleges should address the twin issues of high tuition and student loan burdens—not just as a matter of fairness, but for the sake of a stronger economy and the civic good of an educated citizenry. They should cut their operating costs by reducing administrative overhead; trim campus amenities that aren’t essential to learning, such as lavish recreational, dining and athletic facilities; and even eliminate less-distinguished or underenrolled academic departments.

I think schools should allocate a large portion of those savings to more financial aid for low- and middle-income students—in the form of grants, not loans. And colleges should motivate their donors to earmark more gifts for that purpose. Fortunately, all of these trends are now under way in higher education, which recognizes that it has an ethical and public-relations problem.

I do not support attempts by the government to legislate how colleges use their endowments—for example, by forcing them to boost the annual withdrawal and spend it on financial aid. Many colleges saw their endowments shrink in the bear market of 2007–09, so they’re properly wary of boosting the annual drawdown beyond a prudent 5% or so. Besides, charitable institutions with endowments—whether colleges, museums or hospitals—have a legal and moral obligation to honor the wishes of past donors. They can’t divert the annual income from gifts given for one purpose to another purpose, however worthy, without donor consent.

Other ill-advised proposals include changing the tax code to give donors of restricted endowment gifts (say, earmarked for the teaching of biology or art history) a smaller charitable tax deduction than donors would receive if they made gifts to unrestricted endowments or to scholarship funds. Using the tax code to play favorites (a longtime habit of Congress) is a bad idea anytime.

Have a money-and-ethics question you’d like answered in this column? Write to editor in chief Knight Kiplinger at ethics@kiplinger.com.

Most Popular

Election 2020: Joe Biden's Tax Plans
taxes

Election 2020: Joe Biden's Tax Plans

With the economy in trouble, tax policy takes on added importance in the 2020 presidential election. So, let's take a look at what Joe Biden has said …
October 15, 2020
Election 2020: States With Tax Questions on the Ballot
Politics

Election 2020: States With Tax Questions on the Ballot

On November 3, voters in 17 states will weigh in on a variety of proposed changes impacting taxes on everything from property to pot.
October 15, 2020
Will Joe Biden Raise YOUR Taxes?
taxes

Will Joe Biden Raise YOUR Taxes?

There's little doubt that, if elected, Joe Biden will try to raise taxes for some people. Will you be one of them?
October 16, 2020

Recommended

File the FAFSA Now: Urgent Reasons for Families to File Early in 2020 for College Aid
college

File the FAFSA Now: Urgent Reasons for Families to File Early in 2020 for College Aid

If you have a college-bound student at home, don't procrastinate on securing financial aid for the 2021-22 school year.
October 9, 2020
Back in School Decades Later
Empty Nesters

Back in School Decades Later

Getting a degree or certificate in retirement or later in life can have its advantages.
September 2, 2020
College During COVID
Paying for College

College During COVID

Students and their families must be ready to adapt to the changes in the way they attend—and possibly pay for—college.
July 30, 2020
How COVID-19 Is Changing the Way Families Save for College Costs
college

How COVID-19 Is Changing the Way Families Save for College Costs

CollegeFinance.com's Kevin Walker joins our Your Money's Worth podcast to discuss how the global health pandemic is impacting the way families plan a…
July 28, 2020