The bill, drafted by Rep. Tom Reed, R-New York, would require universities with endowments larger than $1 billion, such as UNC-Chapel Hill, to use 25 percent of their annual returns on endowment investments to reduce tuition costs for students from families below the federal poverty level.
“Congress is trying to signal that they are concerned about higher costs and want universities to do more to lower these costs,” said Shirley Ort, associate provost and director of scholarships and student aid for UNC.
An endowment fund is created when a donor gives money to a university to be invested, and the money generated by the investment is spent on programs specified by the donor — such as scholarships, fellowships, library acquisitions, faculty research and undergraduate advising.
Eric Johnson, spokesperson for the UNC Office of Scholarships and Student Aid, said the bill targets schools with large endowments and less-generous financial aid policies than UNC.
“Schools are in very different circumstances when it comes to endowment wealth and how they choose to use it,” he said. “I think a single solution for all of them is unlikely to work well.”
UNC, for example, is already meeting full financial need, doing so overwhelmingly through the use of grants. During the 2015-16 academic year, UNC’s endowment fund provided more than $7 million in funding for scholarships, said Janet Kelly-Scholle, spokesperson for UNC Finance and Accounting.
Forty-three percent of students at UNC receive financial aid, and 74 percent of undergraduate aid comes in the form of grants and scholarships, Johnson said.
“There is a lot of angst nationwide — especially about the cost of private universities — and this is another area where we are obviously not the target of a proposal like this,” he said.
If passed, universities must comply for three consecutive years or they risk losing tax exempt status, said Brandy Brown, Reed’s spokesperson.
“We care about helping these kids and their families and want to make sure that there is a fair and transparent way to keep the cost of higher education in check,” Reed said in an email. “This proposal is about holding universities accountable to the students and families who are continuing to pay higher and higher tuition costs year after year without explanation.”
George Leef, director of research for the John William Pope Center for Higher Education Policy, a conservative think-tank, said he thinks decisions about endowment spending should be determined by the state.
“Politicians should not mess around with decisions that rightfully belong to the university,” he said. “States have authority over the spending of their universities and private schools are entitled to set their priorities for spending.”
The bill is currently a preliminary discussion draft, and is expected to change as it moves forward. Gregory Brown, a finance professor at UNC’s Kenan-Flagler Business School, said he does not know how financially viable the bill is.
“It seems like a one-size-fits-all solution for a problem that may not exist,” Brown said. “There are astronomical odds that a single spending policy or constraint would be optimal for every school on that list.”