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.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
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.
Get Kiplinger Today newsletter — free
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.
Knight came to Kiplinger in 1983, after 13 years in daily newspaper journalism, the last six as Washington bureau chief of the Ottaway Newspapers division of Dow Jones. A frequent speaker before business audiences, he has appeared on NPR, CNN, Fox and CNBC, among other networks. Knight contributes to the weekly Kiplinger Letter.
-
13 Practical Strategies for Making Homeownership a Reality
If your dream of homeownership feels out of reach, these expert-recommended tips can bring you closer to realizing your goal.
By Kiplinger Advisor Collective Published
-
IRA vs. 401(k): Should You Pick One or Both?
An IRA or 401(k) can help you supercharge your retirement savings. We'll help you pick one or opt for both.
By Brandon Renfro Published
-
What Will Happen With Health Costs in 2023
Business Costs & Regulation Higher drug costs are likely to accelerate health insurance premium increases.
By David Payne Published
-
New Platforms for a Comedy Couple
Coronavirus and Your Money COVID forced them to expand their stand-up repertoire to YouTube and podcasts.
By Emma Patch Published
-
This Vet is on the Frontlines of the Pandemic Pet Problem
Coronavirus and Your Money Lisa Gretebeck used telemedicine and other creative ways to handle a surge of new cat and dog patients.
By Emma Patch Published
-
Tying the Knot Post-Pandemic
Business Costs & Regulation This wedding planner is gearing up for a full fall season amid continuing concerns about safety.
By Emma Patch Published
-
Fintech: The Bank Disrupters
Financial Planning Fintechs offer mostly free accounts with tantalizing yields and slick features, but don’t expect much hand-holding.
By Rivan V. Stinson Published
-
Biden Puts New Cops on the Money Beat
Business Costs & Regulation President Biden has nominated well-known watchdogs to head agencies that regulate the financial sector.
By Sandra Block Published
-
A New Chapter for This Bookstore
Coronavirus and Your Money Katrina and COVID haven’t deterred the owner of a used bookstore from catering to his clientele.
By Emma Patch Published
-
From Music to Merchandise
Making Your Money Last This rapper has pivoted from putting on live shows to selling T-shirts and tote bags.
By Emma Patch Published