Anyone sending a child to an expensive college these days undoubtedly looks askance at the difference between the high cost of tuition and the amount of financial aid available. Some members of Congress are also skeptical, and they have floated the idea of requiring universities to spend 5 percent of their endowments each year to give students and their families more tuition relief.
Given the value of higher education and the tax-exempt status of universities, it's fair to ask them to do all they can to make higher education accessible and affordable to as many students as possible. A required amount of financial aid is probably not the best solution, but Congress is right to push for more well-heeled universities to pony up on their own.
An annual study of endowments at nearly 800 colleges and universities showed the average rate of return on investments in 2007 was 17.2 percent, while the average spending rate was 4.6 percent -the lowest since 1999. Such disparities have understandably frustrated Democrat Max Baucus of Montana and Republican Charles E. Grassley of Iowa, chairman and ranking member, respectively, of the Senate Finance Committee. They want 136 colleges with endowments of more than $500 million - including the Johns Hopkins University at $2.8 billion and the University System of Maryland at more than $800 million - to explain how their endowments have been defined and managed, how much financial aid they have given and how they have determined tuition increases in the last 10 years.
Some schools have already targeted an average 5 percent payout for aid and are meeting their obligation over time, even as investment return rates ebb and flow. Institutions also defend themselves by pointing to their need for long-term planning, donor restrictions on gifts (for example, more than half of Hopkins' total endowment is targeted for medicine-related education research and other programs) and the difficulty of raising money specifically for financial aid.
But since Senators Baucus and Grassley started asking hard questions, Harvard and Yale, the nation's wealthiest universities, announced that they would use more of their endowments for tuition relief, benefiting students from low- and middle-income families. Hopkins provides $40 million in financial aid for its Homewood undergraduates - including scholarships for 20 Baltimore high school graduates - of which only $3 million comes from its endowment.
Congress should push for more institutions to follow those leads, without tying them down to a number.