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22–150 2017

THE RISING COSTS OF HIGHER EDUCATION 

AND TAX POLICY 

HEARING 

BEFORE THE

SUBCOMMITTEE ON OVERSIGHT 

OF THE

COMMITTEE ON WAYS AND MEANS 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED FOURTEENTH CONGRESS 

FIRST SESSION 

OCTOBER 7, 2015 

Serial No. 114–OS08 

Printed for the use of the Committee on Ways and Means 

( 

ii 

COMMITTEE ON WAYS AND MEANS 

PAUL RYAN, Wisconsin, Chairman 

SAM JOHNSON, Texas 

KEVIN BRADY, Texas 

DEVIN NUNES, California 

PATRICK J. TIBERI, Ohio 

DAVID G. REICHERT, Washington 

CHARLES W. BOUSTANY, JR., Louisiana 

PETER J. ROSKAM, Illinois 

TOM PRICE, Georgia 

VERN BUCHANAN, Florida 

ADRIAN SMITH, Nebraska 

LYNN JENKINS, Kansas 

ERIK PAULSEN, Minnesota 

KENNY MARCHANT, Texas 

DIANE BLACK, Tennessee 

TOM REED, New York 

TODD YOUNG, Indiana 

MIKE KELLY, Pennsylvania 

JIM RENACCI, Ohio 

PAT MEEHAN, Pennsylvania 

KRISTI NOEM, South Dakota 

GEORGE HOLDING, North Carolina 

JASON SMITH, Missouri 

ROBERT J. DOLD, Illinois 

SANDER M. LEVIN, Michigan 

CHARLES B. RANGEL, New York 

JIM MCDERMOTT, Washington 

JOHN LEWIS, Georgia 

RICHARD E. NEAL, Massachusetts 

XAVIER BECERRA, California 

LLOYD DOGGETT, Texas 

MIKE THOMPSON, California 

JOHN B. LARSON, Connecticut 

EARL BLUMENAUER, Oregon 

RON KIND, Wisconsin 

BILL PASCRELL, JR., New Jersey 

JOSEPH CROWLEY, New York 

DANNY DAVIS, Illinois 

LINDA SA ́ NCHEZ, California 

JOYCE MYER, Staff Director 

JANICE MAYS, Minority Chief Counsel and Staff Director 

SUBCOMMITTEE ON OVERSIGHT 

PETER J. ROSKAM, Illinois, Chairman 

MIKE KELLY, Pennsylvania 

PAT MEEHAN, Pennsylvania 

GEORGE HOLDING, North Carolina 

JASON SMITH, Missouri 

KRISTI NOEM, South Dakota 

JIM RENACCI, Ohio 

JOHN LEWIS, Georgia 

JOSEPH CROWLEY, New York 

CHARLES B. RANGEL, New York 

LLOYD DOGGETT, Texas 

iii 

C O N T E N T S 

Page 

Advisory of October 7, 2015 announcing the hearing ........................................... 2 

WITNESSES 

Brian Galle, Professor of Law, Georgetown University Law Center ................... 21 

Terry W. Hartle, Senior Vice President, American Council on Education ......... 44 

David Lucca, Ph.D., Research Officer, Federal Reserve Bank of New York ...... 5 

MaryFrances McCourt, Senior Vice President and Chief Financial Officer, 

Indiana University, on behalf of the National Association of College and 

University Business Officers (NACUBO) ........................................................... 32 

Richard K. Vedder, Ph.D., Distinguished Professor of Economics, Ohio University, and Director, Center for College Affordability and Productivity ............. 16 

EXTENDED TESTIMONY FOR THE RECORD 

Terry W. Hartle ....................................................................................................... 107 

Richard K. Vedder ................................................................................................... 132 

SUBMISSIONS FOR THE RECORD 

Business Coalition for Fair Competition, BCFC ................................................... 142 

NEXUS Research & Policy Center ......................................................................... 150 

(1) 

THE RISING COSTS OF HIGHER EDUCATION 

AND TAX POLICY 

WEDNESDAY, OCTOBER 7, 2015 

U.S. HOUSE OF REPRESENTATIVES, 

COMMITTEE ON WAYS AND MEANS, 

SUBCOMMITTEE ON OVERSIGHT, 

Washington, DC. 

The Subcommittee met, pursuant to notice, at 10:00 a.m., in 

Room 1100, Longworth House Office Building, Hon. Peter J. Roskam [Chairman of the Subcommittee] presiding. 

[The advisory announcing the hearing follows:] 

2 

ADVISORY 

FROM THE COMMITTEE ON WAYS AND MEANS 

SUBCOMMITTEE ON OVERSIGHT 

FOR IMMEDIATE RELEASE CONTACT: (202) 225–3625 

Wednesday, September 30, 2015 

No. OS–08 

Chairman Roskam Announces Hearing on 

The Rising Costs of Higher Education 

and Tax Policy 

House Committee on Ways and Means Subcommittee on Oversight Chairman 

Peter J. Roskam (R–IL), today announced that the Committee on Ways and Means 

Subcommittee on Oversight will hold a hearing on the rising costs of higher education and tax policy. The hearing will take place on Wednesday, October 7, 

2015, in Room 1100 of the Longworth House Office Building, beginning at 

10:00 a.m. 

Oral testimony at the hearing will be from the invited witnesses only. However, 

any individual or organization may submit a written statement for consideration by 

the Committee and for inclusion in the printed record of the hearing. 

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS: 

Please Note: Any person(s) and/or organization(s) wishing to submit written comments for the hearing record must follow the appropriate link on the hearing page 

of the Committee website and complete the informational forms. From the Committee homepage, http://waysandmeans.house.gov, select ‘‘Hearings.’’ Select the hearing for which you would like to make a submission, and click on the link entitled, 

‘‘Click here to provide a submission for the record.’’ Once you have followed the online instructions, submit all requested information. ATTACH your submission as a 

Word document, in compliance with the formatting requirements listed below, by 

the close of business on Wednesday, October 7, 2015. For questions, or if you 

encounter technical problems, please call (202) 225–3625 or (202) 225–2610. 

FORMATTING REQUIREMENTS: 

The Committee relies on electronic submissions for printing the official hearing 

record. As always, submissions will be included in the record according to the discretion of the Committee. The Committee will not alter the content of your submission, 

but we reserve the right to format it according to our guidelines. Any submission 

provided to the Committee by a witness, any materials submitted for the printed 

record, and any written comments in response to a request for written comments 

must conform to the guidelines listed below. Any submission not in compliance with 

these guidelines will not be printed, but will be maintained in the Committee files 

for review and use by the Committee. 

1. All submissions and supplementary materials must be submitted in a single 

document via email, provided in Word format and must not exceed a total of 10 

pages. Witnesses and submitters are advised that the Committee relies on electronic 

submissions for printing the official hearing record. 

2. All submissions must include a list of all clients, persons and/or organizations 

on whose behalf the witness appears. The name, company, address, telephone, and 

fax numbers of each witness must be included in the body of the email. Please exclude any personal identifiable information in the attached submission. 

3 

3. Failure to follow the formatting requirements may result in the exclusion of 

a submission. All submissions for the record are final. 

The Committee seeks to make its facilities accessible to persons with disabilities. 

If you are in need of special accommodations, please call 202–225–1721 or 202–226– 

3411 TDD/TTY in advance of the event (four business days notice is requested). 

Questions with regard to special accommodation needs in general (including availability of Committee materials in alternative formats) may be directed to the Committee as noted above. 

Note: All Committee advisories and news releases are available online at 

http://www.waysandmeans.house.gov

f 

/. 

Chairman ROSKAM. The Subcommittee will come to order. 

Welcome to the Ways and Means Oversight Subcommittee hearing on ‘‘The Rising Costs of Higher Education and Tax Policy.’’ 

Right now college students are preparing for a great tradition in 

this country, homecoming. However, as they head to the tailgates 

and the football teams are taking the field, parents and some students themselves are facing a harsh reality. 

The first tuition checks of the year are clearing the bank, and 

families are figuring out how to make ends meet, during one of the 

biggest financial challenges in modern life, that is, figuring out how 

to pay for the cost of college. 

Let us talk about some numbers. The current median income in 

the United States is about $55,000 a year. If you look at private, 

nonprofit, 4-year schools, the average sticker price, meaning the 

advertised price before financial assistance, is more than $31,000. 

For a public 4-year college, it is just under $10,000, and on top of 

that, students obviously need to buy food and books and pay rent. 

The College Board estimates that students spend between $15,000 

and $23,000 each year to cover those costs. 

So without financial aid, college would cost somewhere between 

$24,000 and $54,000 a year, and students are graduating with, on 

average, $33,000 a year in student loan debt. 

I have a chart I would like to put up. 

We talk a lot about the increasing cost of health care in this 

Committee. Tuition makes those numbers look tame. Medical costs 

have increased over 600 percent over the last 40 years, but tuition 

and fees have doubled that, increasing over 1,200 percent and show 

no signs of slowing down. 

So just marinade in that for a second. We have had a huge national debate about healthcare costs, very different opinions, and so 

forth, but what brought all Americans together was the notion of 

the acceleration of healthcare costs that was outpacing inflation to 

a breathtaking point, and yet tuition and fees have doubled the 

pace of health care. 

Today we are here to look at what is behind the rising cost of 

college tuition and to consider whether this Nation’s tax policies 

are partly to blame. 

We will come at the problem from a number of different angles. 

First, we are going to look at Federal student aid. In 1987, Secretary of Education Bill Bennett argued in a ‘‘New York Times’’ editorial that increases in financial aid allow colleges to raise their 

tuition rates because schools think the students can afford it. 

4 

The New York Federal Reserve recently published a study that 

bears this out. The Federal Reserve study finds that at private 

schools a $1 increase in the subsidized loan cap could increase tuition by as much as 65 cents. To be clear about what this means, 

the data shows that when the Federal Government makes more 

loan money available, schools generally respond by raising tuition, 

and one of the studies’ authors, economist David Lucca is here 

today to discuss those findings. 

Next, we’re going to consider how schools are spending their 

money. Over the last 30 years schools have significantly increased 

their administrative staff and engaged in an ‘‘arms race’’ with each 

other to build things like movie theaters and luxury gyms. Are 

these expenses necessary? Are they really helping students secure 

a better education? 

We will also look at how private schools are setting their executive compensation rates. For nonprofit institutions, it seems like a 

lot of university presidents are making very good money. For example, in 2013, 42 private college presidents made more than a million dollars. 

One way schools can justify their compensation as reasonable to 

the IRS for the purpose of favorable tax consideration is to show 

that similarly situated institutions pay comparable salaries to their 

executives. Well, that method points in one direction: up. It allows 

executives to increase their compensation year after year simply 

because others are doing it, too. 

I am not against people succeeding, but this is another area that 

is important for our Subcommittee to consider. Are the highest 

paid college and university presidents the ones providing the best 

education for students? If not, why not? Further, how does tax policy fit into that math? 

Finally, we will look at endowments. Currently, endowments and 

their investment earnings are tax exempt. Congress provides that 

exemption to further a charitable purpose: better educating our Nation’s students, preparing them for successful careers, and increasing the store of human knowledge through research. 

We understand that endowments can help assure financial stability to schools, but about 90 schools have endowments of more 

than a billion dollars, and some of those schools have made great 

strides in providing exceptional financial aid to their students, but 

others have not. So we will look at those issues as well. 

We look forward to hearing from our witnesses who can shed 

light on these important challenges as we examine whether Federal tax policies for colleges and universities are best serving students and families. 

At this time, I recognize Mr. Lewis for the purpose of his opening 

statement. 

Mr. LEWIS. Good morning. Mr. Chairman, I want to thank you 

for holding today’s hearing on ‘‘The Rising Costs of Higher Education and Tax Policy.’’ 

I am proud to have many outstanding colleges and universities 

in my congressional district. Spellman, Morehouse, Georgia State, 

Clark Atlanta University, Georgia Tech, Agnes Scott, and Emory, 

all just a few of more than 80 institutions of higher learning in 

Metro Atlanta. 

5 

These and other colleges and universities across the country play 

a critical role in our society. They educate our young people and 

create the skilled workforce that we need to compete with other 

countries around the world. 

These institutions train future doctors, nurses, teachers, engineers, and scientists. They build the technology and develop the 

business leaders that will create a better tomorrow for generations 

yet unborn. At academic research centers, students and professors 

seek solutions to the most difficult issues facing the global family. 

They lead the way in searching for cures to cancer, Alzheimer’s, 

HIV–AIDS and other diseases. 

Perhaps most important, institutions of higher learning play a 

key role in expanding opportunity and reducing income inequality 

for those who have been left out and left behind for too long. A college degree creates a significant advantage for an individual’s lifetime earnings. 

For example, in 2014, the average weekly earnings of a college 

graduate was over 60 percent higher than a worker with only a 

high school diploma. Every year higher education becomes more 

important to our Nation’s economic needs. Federal student aid programs like Pell Grants and student loans are critical tools to ensure that a college education is affordable and accessible to all who 

aspire. 

In light of a decrease in State support for higher education, it is 

more important than ever for the Federal Government to do our 

part and play our role. As Members of Congress, we have a mission, an obligation, and a mandate to keep the dream of higher 

education within the reach of every student. 

I look forward to hearing from today’s witnesses and thank you 

all for being here today. 

Thank you, again, Mr. Chairman, for holding this hearing. 

Chairman ROSKAM. Thank you, Mr. Lewis. 

Today we have a panel comprised of academics, industry experts, 

college and university representatives, and our panel is as follows: 

Dr. David Lucca, Research Officer at the Federal Reserve Bank 

of New York; 

Dr. Richard Vedder, Distinguished Professor of Economics at 

Ohio University and Director of the Center for College Affordability 

and Productivity; 

Dr. Brian Galle, Professor of Law at Georgetown University Law 

Center; 

MaryFrances McCourt, Senior Vice President and Chief Financial Officer at Indiana University, on behalf of the National Association of College and University Business Officers; and 

Terry Hartle, Senior Vice President of the American Council on 

Education. 

Thank you all for your time today. 

Mr. Lucca, you are recognized for 5 minutes. 

STATEMENT OF DAVID LUCCA, PH.D., RESEARCH OFFICER, 

FEDERAL RESERVE BANK OF NEW YORK 

Mr. LUCCA. Chairman Roskam, Ranking Member Lewis, and 

Members of the Subcommittee, thank you for inviting me to testify 

today. 

6 

My name is David Lucca. I am a Research Officer at the Federal 

Reserve Bank of New York. I was born in Switzerland and am 

happy to share with you that I am a naturalized U.S. citizen as of 

today. 

In July I coauthored, along with Taylor Nadauld of Brigham 

Young University and Karen Shen of Harvard University, a report 

entitled ‘‘Credit Supply and the Rising College Tuition Evidenced 

from the Expansion in Federal Student Aid Programs.’’ 

My testimony today, which does not represent the official view 

of the Federal Reserve Bank of New York or any other parts of the 

Federal Reserve System, will focus on the research and conclusions 

in that report. 

First I would like to discuss the motivation for our research. The 

rapid growth in student debt in recent years is reminiscent of the 

expansion in mortgage credit in the first half of the 2000s, and understanding its consequences is a key economic research question. 

Federal aid programs are a key source of student credit with 

about 90 percent of all student loans in the United States originating under such programs. There are clear economic rationales 

for government support of student loan programs, but the implications of large credit expansions can be more subtle. 

Access to more borrowing increases the spending capacity of each 

borrower, which generally will boost demand. Our study aims to 

determine to what degree this increase in demand for higher education may in the short run be reflected in higher tuition prices at 

postsecondary education institutions. 

To that end we studied tuition setting following changes to the 

annual student aid limits that took place in recent years. Here is 

a summary of our conclusions. 

Our main finding is that changes in subsidized loan amounts 

have been associated with sizable increases in posted tuition. Our 

estimate suggests that an additional dollar of per-student credit led 

to about a 70-cent increase in posted tuition. We find smaller effects on tuition for additional Pell Grants and unsubsidized loans 

of about 55 cents and 30 cents on the dollar, respectively. 

Because of the many factors that went into account for our study, 

I am much more confident that the subsidized student loan availability has had an impact on tuition as opposed to other forms of 

aid like Pell Grants and unsubsidized loans. 

Our study sample includes a large number of public, for-profit, 

private and not-for-profit institutions. We find it likely that tuition 

will rise in response to the greater availability of student loans, to 

be more pronounced among the more expensive private institutions 

offering 4-year degrees that are also among the more but not the 

most selective in terms of admission rates. 

We are currently revising the study to expand the sample of institutions and to address helpful comments and suggestions we 

have received, including some from a trade group represented on 

today’s panel. 

Even with these revisions, we believe our findings on the effects 

of the availability of Federal student aid on tuition will not materially change. Nonetheless, it is important that our findings not be 

misinterpreted or blown out of proportion. 

7 

I will now discuss some of the limits to our study findings, as 

well as other factors that you should bear in mind when considering the results of our research. 

Our results are not a comprehensive explanation of tuition over 

longer periods of time and are not informative about other possibly 

important factors in the rise of college tuition. These other factors 

could include the decline in State contribution to public universities 

and an increasing demand for higher education because, for example, of the rising wage gap between college educated workers and 

others. 

Next, the study speaks to posted tuition rather than tuition that 

the institution discounts and grants because comprehensive measures of these are generally unavailable to researchers. I do not believe that studying the actual tuition paid by students rather than 

posted tuition will have materially changed our findings, but it 

would have certainly been preferable. 

Finally, while our study suggests that tuition price increases may 

be lowering the impact of some Federal student aid, these are not 

the only factors that should be considered when evaluating the effectiveness of student aid. For one, these programs could be essential for students of lower-income families to access higher education. 

Also, long-term price effects may be smaller than what we estimate in the short run, as the institutions boost student enrollment 

capacity over time. This expansion in enrollment may constitute a 

public benefit as more students could access higher education in 

the long run. 

Thank you for your attention. I am happy to answer any questions you may have. 

[The prepared statement of Mr. Lucca follows:] 

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Chairman ROSKAM. Thank you, Dr. Lucca. 

Dr. Vedder. 

STATEMENT OF RICHARD K. VEDDER, PH.D., DISTINGUISHED 

PROFESSOR OF ECONOMICS, OHIO UNIVERSITY, AND DIRECTOR, CENTER FOR COLLEGE AFFORDABILITY AND 

PRODUCTIVITY 

Mr. VEDDER. It is widely agreed that the American tax system 

violates most of the basic principles of taxation relating to simplicity, efficiency and fairness, and that tax reform should lead to 

lower marginal rates, an expanded tax base with fewer exemptions, 

credits, and special loopholes. 

Higher education tax policies contribute somewhat to this problem. People can lower their tax liability by making gifts to nonacademic aspects of university life, such as building fancy stadium 

skyboxes or luxurious resort-like housing facilities. Tax treatments 

of some collegiate compensation arrangements deserve scrutiny. 

But today I want to talk mainly about university endowments. 

Almost a half trillion dollars is invested in university endowment 

funds. The distribution is extremely unequal. The top 1 percent of 

measured endowments has nearly 30 percent of all the funds. 

There are several schools with over 1 million dollars in funds for 

every student, enough to provide $50,000 per student in annual investment income, using a 5 percent payout rate. The average institution, however, has about $25,000 of endowment per student, 

while endowments are particularly critical for private institutions. 

Four of the 15 largest ones are held by State universities. 

My student associate Justin Strehle and I have used econometric 

techniques to examine the relationship between endowment spending and several key variables, looking at a sample of nearly 500 

schools, including most of the largest and most prestigious American colleges and universities. 

The basic question asked is: Are endowments used for useful 

public purposes? Let me share four conclusions. 

First, endowments are not generally used to lower the stated tuition fees of colleges. There is no statistically significant relationship 

between endowment size and tuition fees. 

There are exceptions. Berea College in Kentucky, the College of 

the Ozarks in Missouri, and historically Cooper Union in New York 

City have used endowments to essentially eliminate student fees, 

but that is rare. 

Second, endowments are used some to provide scholarships, effectively lowering the actual or net tuition fee paid by students. However, assuming a 4 or 5 percent payout rate, the evidence suggests 

that typically less than 20 cents out of every dollar of endowment 

income goes for this purpose. Making college more affordable is not 

the dominant use of endowed resources. 

Third, because of inherent measurement issues, it is difficult 

to assess the relationship between endowments and institutional 

quality. 

Fourth, magazines rank schools mainly on how they satisfy student needs. Do students like the professors, excel after graduation, 

avoid much debt, graduate in a timely manner, and so on? 

17 

Controlling for other factors, there is no statistically significant 

relationship between the quality of an institution and an endowment size. 

Fifth, there is some indication that some endowment funds go to 

increase faculty compensation at institutions. In some cases, this 

might lead to higher quality teachers and researchers, but it might 

also lead to excessive bureaucracies or unjustified pay increases 

rather than meeting student needs. The evidence is somewhat 

murky but raises real questions about whether endowment funds 

mainly serve social objectives justifying special tax treatment. 

The quality gap between the public and private school has widened over time partly because of Federal student loan policies and 

increasingly parents believe success depends on their children getting into highly endowed academic, gated communities, such as Ivy 

League schools. This trend is arguably inconsistent with basic 

American egalitarian ideals, and special tax preferences of endowments, especially for extremely wealthy schools, may be of questionable social value. 

Thank you. 

[The prepared statement of Mr. Vedder follows:] 

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Chairman ROSKAM. Thank you, Dr. Vedder. 

Mr. Galle. 

STATEMENT OF BRIAN GALLE, PROFESSOR OF LAW, 

GEORGETOWN UNIVERSITY LAW CENTER 

Mr. GALLE. Thank you, Mr. Chairman, Ranking Member Lewis, 

Members of the Subcommittee. 

My name is Brian Galle. I am a professor at Georgetown University Law Center. 

American colleges and universities are the best in the world, but 

for reasons that are in part out of their control, and probably Congress’, costs in the education sector have risen faster than inflation, 

a lot faster, and likely will in the future. Costs are rising because 

of structural factors in the economy and the nature of nonprofit organization. These are things that are hard to change in the short 

term. 

But our tax policy has also, in my view, contributed in a couple 

of ways to cost growth. Tax policy has encouraged universities to 

save money instead of spending it on students, and has helped to 

drive up administrators’ salaries. 

Let me talk first about endowment funds and then executive 

compensation. 

To be clear, universities should have endowments. They should 

have a pool of money that is set aside for future needs in case 

times get tight. But modern universities are taking their rainy-day 

savings to possibly absurd extremes. You could read Harvard’s 

2013 tax return. Harvard could put all of its investments in a 

money market fund tomorrow, make its tuition free for all, and 

then keep spending at 2013 levels for another 12 years. That is 

quite a rainy day. 

Most colleges and universities have spending policies that are designed to keep the school’s endowment growing in real terms after 

inflation terms forever. According to the National Association of 

College and University Business Officers, the average private 

school spends less than 5 percent of its net investment assets every 

year. 

So if you make a gift to your alma mater and you restrict that 

gift to a particular purpose, most schools have a rule that will prohibit them from spending more than 5 percent of the gift in any 

year. That way the school is only spending investment earnings 

and is never spending that gift principal. 

This growth plan is working. Education costs have gone up, but 

college investment assets have grown a little faster, and the bigger 

each school’s investment account grows, the more money they have 

to pay their fund managers in order to invest. 

Now, that is all money that could be going to need-based financial aid. It could be going to outreach to underserved communities, 

to new teaching technologies, cutting-edge research. It is a lost opportunity, in other words. You can understand why colleges’ alumni 

would like the idea that their alma mater is going to keep getting 

richer forever, but it is not necessarily a good idea for America. We 

should be investing in kids’ futures, not bond futures. 

I do not necessarily get behind the idea of government telling 

market actors how to run their businesses, but it turns out in this 

22 

case we already are. Federal tax policy is contributing to the culture of big college wealth accumulation. We give a bigger tax break 

to donors who restrict their gifts so that the gifts cannot be spent 

right now, and the longer it takes to spend the money, the bigger 

the tax break. 

Keep in mind that if the 5 percent spending plan works as colleges intend, the school will never spend the donated principal that 

the donor took a deduction on when given. 

There are a few ways to fix the problem. I am not a fan of taxing 

endowments or endowment returns because I think taxing investments has unwanted distortive effects on investments and other 

choices. Also, as I am sure you know, this body in the past has considered extending the minimum payout rule that applies to private 

foundations, to educational organizations. 

I support minimum payouts for private foundations and donor 

advice funds, and actually think the current level of minimum 

spending should be higher, but a floor might not be flexible enough 

admittedly for a charity that, unlike a foundation, has a huge 

workforce and consumer base. So my recommendation would be to 

consider reducing or eliminating the tax advantage that comes with 

giving to organizations that restrict their endowment spending. 

We could calculate how long it will take to spend out a gift at 

current spending levels, compute the extra tax benefit the donor is 

getting as a result, and reduce the current contributions by some 

fraction of that amount. Then at least we would just be neutral toward instead of encouraging saving over spending on students. 

Let me also now talk about administrator compensation. Without 

oversight, administrators can make decisions for their school that 

make it easier for them to be more highly compensated. For instance, my research suggests that schools with more tuition and 

more endowment savings tend to pay their administrators more. 

The existing oversight comes mostly from Section 4942 of the Tax 

Code, the so-called intermediate sanctions regime. These are the 

rules that say a school has to pay a penalty for overpaying its top 

administrators. Under the regulations, schools get the benefit of 

the doubt if they can show that their compensation is comparable 

to others, and, of course, no one wants to say that their president 

is below average, so you get a ratcheting up effect. 

My research shows that pay started going up much faster in 

2002 after the IRS issued the comparable salary rule. This is an 

area where my research suggests that it is possible that market 

forces could work if we gave them a little bit of help. 

I find that when you make it easier for donors to know what executives at their alma maters or the other institutions they are 

supporting are getting paid, they will respond fairly quickly if they 

think those administrators are getting too much. So instead of asking the IRS to guess what a comparable salary is, we might instead 

just require a more complete and honest disclosure of presidents’ 

pay packages, including items that right now are usually pretty 

opaque, like housing, travel in summertime, and benefits. 

Thank you again for inviting me to testify today. I am happy to 

answer any questions you may have. 

[The prepared statement of Mr. Galle follows:] 

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Chairman ROSKAM. Thank you, Mr. Galle. 

Ms. McCourt. 

STATEMENT OF MARYFRANCES MCCOURT, SENIOR VICE 

PRESIDENT AND CHIEF FINANCIAL OFFICER, INDIANA UNIVERSITY, ON BEHALF OF THE NATIONAL ASSOCIATION OF 

COLLEGE AND UNIVERSITY BUSINESS OFFICERS (NACUBO) 

Ms. MCCOURT. Thank you for this opportunity. 

I am speaking on behalf of the National Association of College 

and University Business Officers, representing financial officers at 

2,100 colleges and universities. 

I came to higher education 10 years ago after 20 years as a corporate finance executive. At Indiana University, I managed one of 

the largest and most complex institutions of higher education in 

the country, with an annual operating budget of over $3.3 billion, 

over 105,000 students across seven campuses. 

I take very seriously the responsibility to deliver on the purpose 

of higher education, to enhance intergenerational mobility, and 

drive the knowledge creation and innovation that supports economic growth. 

As demographic, geographic, financial and cultural forces reshape our economy, we are using sophisticated business analytics 

tools to implement our mission and optimize our operations to meet 

the expectations of all of our stakeholders, from parents and students to our donors, to the U.S. economy at large. 

I am held accountable by IU’s governing board of trustees who 

hold the university’s financial, physical and human assets in trust 

for today’s students and future generations. 

The dramatic erosion of State support has been our most challenging financial pressure. In the mid-1980s, State operating appropriations made up 58 percent of the general education fund 

budget, and tuition and fees just 26 percent. That ratio has now 

completely flipped. Just since 1990, had State appropriations kept 

up with CPI, we would have received $125 million more in our fiscal year 2014 budget, and had it kept up with the higher education 

price index, we would have received $225 million more just that 

year. 

However, we have managed to thrive through our focused attention on running efficient operations, to reallocate resources for strategic investment. Historically low tuition increases are our new 

normal. 

Just as an aside, at Indiana University, tuition increased this 

past fiscal year from zero dollars a week to $4.46 a week. Despite 

this, we have invested heavily in student success in affordability 

with significant attention to the reduction of student debt. Our institutional aid budget of $287 million has increased $139 million, 

or 106 percent, over the past 8 years. 

The national focus on sticker price rather than net price is missing this important fact. The majority of students are not paying 

sticker price, and student debt at Indiana University had decreased 

over $82 million, or 16 percent, in the past 3 years. 

We also balance short-term needs with long-term financial viability. We have comprehensive long-term financial models to proacVerDate Sep 11 2014 09:48 Feb 21, 2017 Jkt 022150 PO 00000 Frm 00036 Fmt 6633 Sfmt 6602 I:\WAYS\WAYSPS\22150\22150.XXX 22150
33 

tively manage our several billion dollar operation commensurate 

with corporate business practice. 

Our strategic financial planning also includes prudent management of our endowment. Endowed funds established contractually 

with donors represent IU’s promise to use income and investment 

gains generated by their gifts to support a donor directed initiative 

tied to our mission into perpetuity. 

Legally our endowment cannot be used as a rainy day fund. Donors must consent to a change in use. Endowment distributions, be 

they for financial aid or other operational areas, relieve tuition 

pressure and have served as a critical contributor to student access. 

Private donors are transferring wealth for the public good, and 

access to higher education has never been greater. 

In a recent report Child Care Aware of America found that in 

2013, the average annual cost for an infant in center-based care 

was higher than a year’s tuition and fees at a 4-year public college 

in 31 States and the District of Columbia. Our faculty and staff are 

highly educated and are often experts or leaders in their field. Our 

academic programs and operations require state-of-the-art information technology. A standard of care demanded by the employers of 

our students. The cost of providing infant and childcare simply 

does not compare to the cost of running our center for applied cyber 

research, cyber security research, or our national center for genome 

analysis support. 

I raise the comparison to day care because while there is a public 

outcry that the cost of college is too high, we have not had a fundamental conversation about what a college education should cost to 

ensure America’s educational institutions remain the finest in the 

world. 

Are higher education institutions concerned about student affordability? All day long, yes. 

As I examined the issue, I asked myself what has happened since 

the financial crisis that moved this conversation front and center. 

The crisis impacted families’ ability to pay for college. Median 

household income has remained flat. Housing wealth and volatile 

stock markets limited parents’ ability to draw on their savings and 

other forms of borrowing. Families turned to student loans. 

We will continue to maintain our focus on these issues and we 

will continually direct attention to the role we all play in the multitude of factors that are contributing to this national issue as we 

work to fulfill the dreams we would have for our own children: A 

bright future built on a strong educational foundation. 

Thank you for having me here today. 

[The prepared statement of Ms. McCourt follows:] 

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Chairman ROSKAM. Thank you, Ms. McCourt. 

Mr. Hartle. 

STATEMENT OF TERRY W. HARTLE, SENIOR VICE PRESIDENT, 

AMERICAN COUNCIL ON EDUCATION 

Mr. HARTLE. Thank you very much, Mr. Chairman. I appreciate 

the opportunity to be here with you today. 

The price of higher education is a huge issue, and there is no 

shortage of evidence that the public and policymakers are deeply 

worried. I talk to college and university presidents every day, and 

over the last 5 years this issue, the price of higher education and 

what can be done to minimize it, is by far the issue that has most 

frequently been on their mind. 

Every president I know wants to find ways to minimize tuition 

increases while offering the highest possible quality education to 

their students. American higher education is a very complex and 

diverse industry. There are roughly 4,700 2-year and 4-year degree 

granting institutions in America, most of which are public and private, not-for-profit. There are about 17 million undergraduate students, more students than America currently has in high school. 

Colleges and universities differ considerably from community colleges to entirely online institutions, to liberal arts colleges, to great 

research universities. 

While it is risky to generalize about the rise in college prices 

given this institutional diversity, I think there are two central factors that are involved. The first is structural. Higher education is 

a labor intensive industry with high fixed costs, and it relies on a 

large number of well-educated staff. Productivity increases that 

might allow the same amount of product to be delivered at the 

same or lower cost have come slowly. There are some promising developments, but so far no panaceas. 

The second major factor behind research tuition increases is a 

rapid decline in State support to cover operating costs at public institutions. Since the widespread creation of public college following 

the 1862 Morrill Act, these schools have historically charged low 

tuition to ensure that all citizens of the State would be able to enroll. 

But for a variety of reasons over the last 30 years, State support 

has withered. According to one analysis, since 1988, State funding 

on a per-student basis has fallen by $2,500, almost one-third. Even 

the National Association of State Legislatures notes that higher 

education has become ‘‘the fiscal balance wheel of State budgets.’’ 

So tuition in public colleges and universities, which is where 80 

percent of American students are enrolled, has gone up. The posted 

price of tuition last year at community colleges was $3,400, and at 

4-year colleges it was $9,100. For millions of students, financial aid 

reduced those numbers considerably. Still, this represents an increase in posted price of 150 percent and 225 percent, respectively, 

over the last three decades. 

Other factors that help explain tuition increases include the exponential growth of scientific knowledge, the need to continually 

update and enhance campus technology, and the increasingly complex and expensive legal and regulatory environment institutions 

face. 

45 

Despite the desire for a simple explanation and/or an easy solution to this problem, there really are not any. Some suggest the 

Federal student aid drives up tuition because institutions raise 

their prices to capture the money. The extensive research on the 

issue does not suggest this claim is valid. 

Another suggestion is that universities could reduce tuition if 

they just spent more from their endowments, but only a few schools 

have large endowments. Those that do spend a great deal of that 

money on financial aid, and even if they wanted to spend more 

money on financial aid, their ability to do so is significantly restricted by State law and legally binding donor restrictions. 

Many institutions are taking aggressive steps to lower their cost. 

Purdue University, for example, President Mitch Daniels has committed the institution to maintain tuition by finding internal efficiencies, and they have not increased tuition for the last 4 years. 

The ‘‘Washington Post’’ recently reported that Catholic, George 

Washington, and Howard Universities had all reduced the number 

of staff in an effort to lower their cost structure. 

In another important development, tuition at public colleges in 

Washington State will fall 15 to 20 percent in the next 2 years, 

thanks to increases in State support. 

I will conclude by underscoring the point that I began with. College presidents understand the importance of this issue and the extraordinarily high levels of public concern. Most presidents firmly 

believe that higher tuition depresses enrollment, and the vast majority of colleges and universities in the country are always anxious 

to increase enrollment. 

But addressing the challenge posed by the high price of higher 

education is a complicated matter. We appreciate the willingness of 

this Committee to examine this issue in hopes of shedding light on 

the challenges facing families, institutions, States and the Federal 

Government. 

Thank you. 

[The prepared statement of Mr. Hartle follows:] 

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Chairman ROSKAM. Thank you, Mr. Hartle. And thank you all. 

You know, you have framed out some of these issues in ways 

that I think are very, very helpful. I think on this panel what we 

are interested in doing is trying to essentially pursue the Wisdom 

of Solomon on this. So, in other words, how do we create an environment where resources are made available to students who without those resources would not be able to have access to higher education? How do we do that in a way that does not just chase a 

price, basically Mr. Lucca’s argument, forcing something to become 

more and more expensive? 

Because here is what I am sensing at home, I think we are in 

the midst of a bubble. My wife and I have four children, and if you 

see Peter and Elizabeth Roskam out with a metal detector picking 

up loose change to pay the tuition for our children, the explanation 

is these incredible expenses in doing so, and writing these checks 

just takes your breath away. 

I know I am not unique in this. I know that there are other folks 

on this panel and so forth, and I think that we are in the midst 

of something that is really, really significant. 

In short, institutions by definition do not reform themselves, by 

and large. Congress does not reform itself. Congress reforms itself 

based on pressure from other institutions, and so forth. 

I would submit that higher education is not likely to reform itself 

without pressure from other points, and this Committee has an interest particularly from a tax policy point of view. So, in other 

words, the question is: Does the Tax Code help create more access 

to higher education, or does the Tax Code hinder that? Does the 

Tax Code create absurdities and distortions and so forth? 

So there is a lot to talk about. Before we began, I told the panel 

we want to flip the game board a little bit today, just to ask some 

of these provocative questions not for the sake of being provocative, 

but for provoking some reflection all the way around. 

So, with that, I recognize the gentleman from Pennsylvania, Mr. 

Kelly. 

Mr. KELLY. I thank the Chairman, and I thank the panel for 

being here. 

I come from the private sector, and our whole model is based on 

some assumptions. Specifically, it is based upon predictions and 

projections of historical data. However, when it comes to personnel, 

one of the things that we have always tried to do is to hire the best 

people we could and then make sure that we put programs in place 

that set benchmarks for them to achieve because I do not know of 

any other way to determine if this is working or not working, and 

whether these are the best people to have in these jobs. 

So having said that, I often wonder because I look at what is 

going on, and I think the Chairman was very articulate about this. 

This is not so much about who is making what and trying to make 

them look bad. This is about are we getting the best return on the 

investment for hard-working American taxpayers. 

So it should not be an ‘‘us versus you’’ or a ‘‘you worried about 

us coming knocking at your door and trying to upend your economic model,’’ but in my life everything has been about sustainability. Can you continue on the path that you are on and think 

that somehow it bodes well going into the future? 

59 

So, Ms. McCourt, having a little bit of an idea of what I do for 

a living, whenever we are hiring these folks, the boards are bringing people in, what are the measures? I mean, how do we look at 

these folks that are in these upper positions and say these are the 

metrics we expect you to perform to? 

There is a great incentive for doing that, and it is called compensation, but how do we measure it and what do we look at? 

Do we look at student graduation rates? What do we look at? 

Ms. MCCOURT. Well, it is interesting you would ask that question today because our board of trustee meetings are tomorrow and 

the next day, and I happen to have in front of me the financial 

models and benchmarks that happen to be on our agenda, 8 o’clock 

Friday morning. 

We are very benchmark driven. Our trustees are very high 

achieving businessmen. We have the CFO of Eli Lilly, for instance, 

who is on our board right now. 

And when we benchmark, you know, one of the things we are 

very conscious about is we are not benchmarking against higher 

education on the business side of the institution. They want to see 

benchmarks against corporate gold standards. So we will go out 

and have benchmarking analyses done on our business operations 

and compare them to that, but we also set very stringent benchmarks. In fact, none of these are industry averages. They are all 

at a higher level than an industry average. 

We also have just approved a bicentennial strategic plan, and 

every item in that strategic plan will have associated benchmarks, 

and I think you are going to see that across the industry. 

The industry has shifted, and people that are being hired in on 

the business side are corporate. 

Mr. KELLY. Is the benchmark based on the success, the graduation rate? 

Ms. MCCOURT. Oh, we have many, but we do have completion, 

graduation, all kinds of benchmarks, but there are many based on 

student success, and we have fared extremely well on those. 

Mr. KELLY. Mr. Galle, what Ms. McCourt has just said, is that 

something that makes sense to you and do you agree? 

Mr. GALLE. That is consistent with some of what I have seen, 

yes, sir. 

Mr. KELLY. Okay. I think the big question is, and Mr. Vedder, 

I am going to come to you also, and I think this is where we are 

really trying to come to, the best return on investment, because we 

all know the way out of poverty is education, but education for 

something that actually gets you to where you need to go and not 

just a degree that is accompanied with a lot of debt, but actually 

a destination that you can reach that is going to lift you out of it. 

So what is your take on all of this? Because I know it is a highly 

competitive field. When you are looking at the people to come in 

and run this business now, forget about being a university, but as 

a business, because you are competing for the same talent that everybody else is competing for to come to something that is a real 

sound economic model. 

So how does that figure in and how do you think that weighs 

when it comes out? 

How do we recruit the best of the best? 

60 

Well, certainly compensation has to have something to do with 

it. Mr. Vedder, that is for you. Is there a different way to go about 

it? 

Mr. VEDDER. To get better people in higher education? Is that 

what you are asking? 

Mr. KELLY. Yes, my question is: What is the incentive to get 

them in? 

Mr. VEDDER. Well, you mentioned two good words, Congressman. One is incentives, and another was by inference, information. 

How do you measure what is good in higher education? How do you 

know what is good? 

Did Harvard have a good year last year? Who the heck would 

know? How would you know? 

Do the seniors know more than the freshmen? We do not know 

that. 

What happens to kids 5 years after graduation? We are starting 

to get that information. Finally, the Department of Education is finally grudgingly publishing data on that. 

What is the rate of return on faculty research? If you write an 

article for the ‘‘Journal of Last Resort’’ that three people read and 

get a lower teaching load to do that, is that serving the broader 

issue, interest of society? 

And, by the way, I have been ripping off taxpayers for 51 years. 

I am in my 51st year of teaching. 

Chairman ROSKAM. You have the right to remain silent. 

[Laughter.] 

Mr. VEDDER. Yes. I will drink to that. 

But I think, and I am being a little facetious here. I think it is 

a noble profession, and I think what we are doing is important, before Mr. Hartle has a heart attack, but we do not really know a 

lot. 

We are in the information business, and we do not even know 

basic things. Students study 30 hours a week or less. That is what 

the Department of Labor tells us. Thirty hours a week, that is 900 

hours a year. The parents work twice as many hours. 

Eighth graders study 40 percent more than 13th graders. Now, 

does that make any sense at all? Why are we not doing anything 

about it? 

We are not measuring all of this. I do not know if I answered 

your question. 

Mr. KELLY. Well, the thing is the benchmarks that we use to 

hire the really good people, because you are in a very competitive 

environment, and if you are going to get the best of the best, it is 

not just what is in their heart and their passion for what they are 

doing. It is also dollars that have a little bit of influence, too. So 

I want to make sure we keep it in perspective because the return 

on taxpayer investment is what we are concerned about, and that 

it is fair. 

Thank you. 

Chairman ROSKAM. Mr. Lewis. 

Mr. LEWIS. Thank you very much, Mr. Chairman. 

I thank each and every one of you for being here today. 

61 

Now, Mr. Chairman, I am concerned that we are here today focusing on side issues rather than the main driver of tuition increases for most college students. 

Dr. Hartle, what is the biggest factor driving the rise in tuition 

for most students? 

Mr. HARTLE. Thank you for the question, Mr. Lewis. 

As I mentioned, I think there are two fundamental issues here. 

One is the structural nature of higher education as a labor intensive industry. 

The second and more pronounced—higher education has always 

been a labor intensive industry—the second and more pronounced 

is that States recently have begun to reduce spending substantially 

for public colleges and universities. Forty percent of American college students are in community colleges, public institutions. About 

the same percentage are in public 4-year institutions, and we have 

seen States cut spending now for over a generation. 

We have to have some sympathy with the States. They have to 

balance their budgets. When State legislators look at budgets, they 

see four big buckets: elementary-secondary education, prisons, 

Medicaid, and higher education. When they have to balance the 

budget, higher education looks like something that has paying customers. 

And the trend over the last 30 years has been down. It is a wavy 

line, but the line is going down. 

I happened to just discover the other day that a significant number of States now spend more money on prisons than they spend 

on public colleges and universities. Last year for the first time in 

the Nation’s history, public colleges and universities got more 

money from tuition than they received in State support. 

Just the other day my colleagues and I were looking at a list prepared by the Department of Education of the 50 most expensive 

public universities in the country, and we happened to notice that 

four of them were in the Chairman’s home State, Illinois. This 

struck us as a surprise because Illinois historically has had pretty 

moderately priced public colleges and universities. 

So we did a little investigation, and discovered that between 

2001–2002 and the present, Illinois, which has obviously had some 

well publicized State budget problems, has cut more than $100 million from the budget of the University of Illinois, Urbana; more 

than $100 million from the budget of the University of Illinois at 

Chicago and let tuition go up to make up the difference. 

I can assure you that was not what presidents and managers at 

either of those institutions wanted, but it was a decision made by 

the States as part of the necessity to balance their budget. 

We are seeing that to a similar degree in State after State across 

the country. 

Mr. LEWIS. Well, thank you very much. 

Ms. McCourt, do you agree with Dr. Hartle? 

As a matter of fact, I visited your university a few weeks ago, 

had a great visit there, wonderful faculty and staff and students. 

Do you agree with Dr. Hartle? 

Ms. MCCOURT. Yes, I do. 

Mr. LEWIS. Do you have anything to add? 

62 

Ms. MCCOURT. No, I think he has articulated it very well. We 

are grateful for what we get from the State. There are very many 

competing priorities. I actually was not aware of the statistic on 

spending on prisons, but the decrease in State operating appropriations has had probably the single biggest factor, and I want to say 

on the price of higher education, not the cost. 

The cost has actually not increased that much. 

Mr. LEWIS. Well, thank you very much. 

Now, I believe that access to affordable higher education is a 

right that all Americans should have regardless of their income 

level. The Federal Government must play a role in making college 

affordable and must expand, not decrease Federal student programs. Pell Grants and student loans are vital to low- and middleincome Americans. 

Dr. Hartle, do Federal financial aid programs drive up the cost 

of tuition? 

Mr. HARTLE. No, sir, I do not believe the Federal student aid 

programs drive up the cost of higher education. This is not a new 

debate. This issue has been around for more than 30 years. It has 

been exhaustively researched. 

As I noted in my written testimony, independent studies like the 

congressionally-mandated study of this issue by the Department of 

Education were unambiguous in their conclusion that there was 

not a relationship between Federal student aid and tuition. 

They were equally unambiguous that the single biggest driver 

was State budget cuts. Harvard Professor Bridget Terry Long in 

testimony before the Senate Finance Committee on the impact of 

tax credits on college tuition said, ‘‘Concerns about a relationship between Federal student aid and tuition were largely unwarranted.’’ 

I would like to submit a paper for the record written by Don 

Heller, the Dean of the School of Education at the Michigan State 

University, an education economist, which addresses this issue. 

And I would also like to suggest that the Members of the Committee do two things in this regard. Do not take my word for it. 

Look at the report on this issue prepared by the Congressional Research Service. The Congressional Research Service evaluated the 

nine most methodologically sophisticated studies on this issue that 

they could find, and they concluded that there was not a clear or 

even a consistent set of findings about the relationship between 

Federal student aid and college and university tuition. CRS works 

for you. 

The second thing I would ask you to do is ask the presidents and 

ask the trustees and ask the people like MaryFrances McCourt at 

the universities in your district. Ask them if Federal student aid 

ever comes up in discussions about tuition setting. 

What you will find is that they are surprised you would even ask 

the question because it never comes up in the discussions. 

Mr. LEWIS. Thank you very much. 

I yield back, Mr. Chairman. 

Chairman ROSKAM. In terms of the paper that you have requested, without objection, we will enter it into the record. 

Let me just plant a seed and maybe some of the discussion as 

I turn to my colleagues, but, Mr. Hartle, you made a point that 

63 

higher education costs are going up because of the intensity of the 

labor. So I am planting seeds about things maybe to talk about further, but think about this. 

So it does not seem to me that is new. So it has been intense 

for a long, long time. 

The other thing, the lack of public support from the State legislative point of view does not explain the increase in tuition at private 

institutions, and it does not explain the longer term trend in my 

opening when I showed a 40-year trend and 2X over healthcare 

costs. 

So maybe during my time I will come back, but that is an area 

that I would like to inquire about. 

Mr. Holding. 

Mr. HOLDING. Thank you, Mr. Chairman. 

Dr. Lucca, let me ask you a hypothetical. If the government handed out $50 credit cards that could only be used to buy milk, 

what do you think would happen to the price of milk? 

Mr. LUCCA. It depends on the elasticity of supply, but generally 

you would imagine that the price of milk, unless supply can immediately adjust, would rise. Mr. HOLDING. Right. Do you think that this $50 credit card, 

this subsidy, would improve the quality of the milk? 

Mr. LUCCA. Obviously not in the short run. The long run is a 

different question. 

Mr. HOLDING. So I think what you are saying is that when the 

grocery store knows that buyers have the means to buy a product 

at an inflated cost, the seller will raise the price. Is that a correct 

assumption? 

Mr. LUCCA. Yes, that is what basic economic theory would suggest. 

Mr. HOLDING. So this makes sense when the seller is a forprofit entity and charges prices based on what the market will 

bear, but from listening to you and some of the other witnesses, I 

think this is exactly what nonprofit colleges and universities are 

doing. 

So as soon as the Federal Government increases grants or student loan caps, colleges and universities react by raising tuition 

and absorbing that taxpayer money. 

Now, I know you are familiar with Ronald Reagan’s former Education Secretary William Bennett, who back in 1987 hypothesized 

that increases in financial aid have enabled colleges and universities blithely to raise their tuitions, confident that the Federal 

loan subsidies would help cushion the increase, and this has come 

to be known as the Bennett hypothesis, and you have done some 

work in this area. 

So could you expand a little bit on the work that you have done 

in this area and talk a little bit more about the Bennett hypothesis? 

Mr. LUCCA. Yes. So the Bennett hypothesis that many have discussed in the past is essentially the idea that financial aid, the 

availability of financial aid allows colleges to raise their tuition. 

From the perspective of an economist, going back to your points, 

it is fairly standard to imagine that any sort of subsidy that will 

boost demand will have a price effect. It is fairly natural. It is not 

64 

that, you know, colleges are evil in any way. You know, it is just 

essentially supply needs to meet demand. 

What is really important, I think, is to some extent distinguish 

short-run versus long-run effects. What our study is doing is to try 

to focus on the changes in Federal aid policy of the past few years. 

These changes have been very significant, and from the point of 

view of researchers, they are, you know, very useful to try to assess 

these potential price impacts. 

And we do seem to find significant responses when we compare 

institutions where students are heavily dependent on Federal aid 

versus those that are not. 

Now, Mr. Hartle has cited a number of other studies that have 

found results against our own findings. I think the way to reconcile 

these studies is to some extent the availability of data in the past 

versus today. 

Today over the past few years, we have seen, you know, significant and discrete changes in Federal aid, and I think this is what 

has allowed me as a researcher to find, you know, price effects or, 

you know, responses of tuition as opposed to other studies that 

have looked at this issue in the past. 

Mr. HOLDING. My undergraduate degree is in classical studies, 

and I think they teach classical studies today exactly the same way 

that they taught it 30 years ago when I was in college, and they 

probably teach it exactly the way that they taught it 150 years ago 

when a great-great-great-grandfather of mine was a classics professor. 

So with the rise in increased tuition cost, do you think that students are getting a higher quality education? 

Mr. LUCCA. This is an excellent and important question. Where 

does the money go? 

In theory our study is unfortunately silent on that. You would 

hope that, you know, in the long run, you know, much of this additional revenue coming into colleges will be re-spent on investment 

for students, but there is nothing in my study that really can tell 

one story versus another. 

Mr. HOLDING. Thank you, Dr. Lucca. 

Thank you, Mr. Chairman. 

Chairman ROSKAM. Mr. Rangel. 

Mr. RANGEL. Mr. Chairman, I have been here in the Congress 

since 1971, and I cannot think of any issue more important to my 

country than the issue that you have raised. This is especially true 

in view of the fact that questions of war and peace, Presidents, Republicans, Democrats have not seen fit to bring those questions to 

the Congress. 

I do not understand the language that they are talking about. It 

is my understanding that most people believe that since the Constitution did not raise the question of education, that it is a State 

issue. I am fortunate that I can look at this from an entirely different perspective. 

I was raised in a community where I did not know anybody of 

my color that went to college, and the only people I knew were the 

recipients of the GI Bill. So I come at this with a strong, emotional 

bias that out of the pits of a high school dropout with absolutely 

no incentive to go to school, that I can sit in this body and the 

65 

question of education now becomes whether the States are not 

going to fulfill their responsibility and what can we do as a tax 

committee to provide incentives. 

Health is not a national responsibility. The pursuit of happiness 

is not. Homelessness is not. How can we sit here and say that the 

cost of labor and the disparity that we have in income is going to 

make it possible for a guy with our salary, that you are concerned 

about your kids getting an education? 

The numbers are actually going to show that tuition is going up, 

and there will not be enough savings for people that have incomes 

to even consider their kids going to school. Well, forget the poor 

and forget all of that. As a patriot, are any of you going to tell me 

that education is a local issue and that the States are not being 

responsible when we are talking about technology, science, cyber 

space? 

Are we checking what they are doing in China and India to find 

out whether the local communities are supporting this? 

The cost of labor, do you know how much it costs for a dumb GI to get an education to kill people? Over $1 million. So let us not 

talk about the cost of labor. 

And how can we even discuss this when nobody can justify why college presidents can make $2 and $3 million? I am not knocking 

if they are raising money, or coaches that make $1 million or $2 

or $3, $8 million. If it is raising money, that is the private sector. 

Whatever they do is okay. 

But who is going to tell me sitting here, just put up your hand 

to say that the education of Americans’ ability to make a contribution to our national defense is a State issue? 

Who believes that? Put up your hands. And if you don’t believe 

it, why are we talking about tuition? Could you tell me whether or 

not you take an individual, an average American, and see what 

happens to him without an education, the costs of it? Forgetting all 

the emotional prison costs, I am just talking about a guy that tries 

to make it and he can’t make it in a competitive society. Do you 

need a social scientist to say how much you have given to America 

by educating this bum and making him productive? 

So I don’t—I am not talking about endowments. Those that have 

money, you put it in the money market. It makes money, but what 

the heck has that got to do with education? 

So I want to thank you for raising this issue. It shouldn’t be 

before our Committee. It’s a national security issue. If any of the 

panelists want to bring this into reality rather than talking about 

decreases in State contributions to education, like I’m supposed to 

depend on Mississippi’s contribution—strike that out. 

I am supposed to depend on a State Governor’s contribution to 

make my country strong against international people that we’re involved in trade with? I don’t think so. 

And who is talking about the costs? I am not even going to ask 

you what the cost of labor is in our universities. I know the cost 

of police, of doctors, of developers, and we have a Congressman/ 

Chairman of the Committee, he is talking about he’s concerned 

about his kids going to college. 

So I’m going to act like you didn’t testify to what we are asking 

you about and ask what does anybody think about the future of 

66 

education under the system that we have and where does America 

stand up to our competitors? 

Chairman ROSKAM. Why doesn’t one person take a stab at responding to that? 

Mr. Vedder. 

Mr. VEDDER. Congressman Rangel, I was struck by your very 

first sentence. In your very first sentence you said, ‘‘I didn’t know 

any of my friends or anyone around me who went to college unless 

they went on the GI Bill.’’ I think the most interesting tragedy in 

higher education that might be interesting to you given your remarks was that in the year you started in Congress, which was 

1971, right? 

Mr. RANGEL. Yes, sir. 

Mr. VEDDER. In 1971, when you started in Congress, 12 percent 

of poor people in America, which I will define as the bottom quarter of the income distribution, 12 percent of recent college graduates were poor, came from poor backgrounds, 12 percent. Today, 

it is 10 percent. It is lower. 

We have all of these programs, financial aid programs, all of this 

stuff going on, everything supposedly to help increase access and 

we do have more people going to college and we do have more college graduates, but in terms of bringing about equal opportunity 

among people, education is serving as a way to get up the ladder, 

to move up the ladder. I think we failed and I think part of the 

reason relates to the kinds of things that my colleague here was 

talking about. The financial aid programs haven’t worked the way 

they were intended to work. There were unintended consequences, 

but that may be going too far afield. 

Chairman ROSKAM. Mr. Renacci. 

Mr. RENACCI. Thank you, Mr. Chairman. 

I kind of want to pull this boat back to where I thought the hearing was going, which is examining whether the favorable tax treatment given the college and university is fully justified and I know 

we have kind of talked about a lot of good points, but that is where 

we’re really at, the favorable tax treatment, and in the real world, 

where I spent 30 years before I came here, I actually operated 

healthcare facilities, where I had to compete against facilities that 

were not-for-profit. They had favorable tax consequences I didn’t 

have access to. 

There was a big advantage there that I always remember. Number one, they didn’t pay taxes, and number two, they received 

donations/endowments. So if you think about it, they were able to 

receive additional revenues, which helped their cause, and they 

were able not to pay taxes, which also helped their revenue side. 

On the other side, as a for-profit businessowner, I had to make 

sure that I could compete against that person who had favorable 

tax treatment and I think that is where we want to talk. We want 

to get back to that. 

So now we talked about universities, the private schools, and I 

want to talk a little bit about executive compensation because I 

think that is important. We are talking about costs and the costs 

of these universities and what is reasonable and how do we determine what is reasonable. 

67 

In my world, I had to make sure there were metrics that said 

this is what is reasonable and here is how we are going to get 

there. If you met this, you made this amount of money, and ultimately, you can make a lot of money, but you had to meet certain 

metrics. 

In colleges, how do we determine what is reasonable? I mean we 

saw a slide or there was something here about executive compensation, how quickly it has grown. I think it was you, Mr. Galle, in 

your testimony. It has grown rapidly over the years. 

So how do we justify, especially in a situation where some of 

these private universities are getting favorable tax treatment, how 

do we justify compensation? We heard that labor is a big number, 

but how do we justify compensation? 

I will start with you, Mr. Galle. What does it take for compensation to be determined reasonable or unreasonable? 

Mr. GALLE. Well, I think it is a difficult question to answer because being a university president is a difficult job that takes a talented person and I don’t think that anyone in this room wants to 

say what someone else’s labor is worth, but we do have a group of 

people who are pretty attached to their university and are relatively well-informed about it and that group of people are the university’s alumni and its supporters. 

And so the focus of my work has been in making sure that that 

community of people, the community of people who have reasons 

to care, have the information that they need to make a decision 

about whether the president is getting paid the right amount, and 

by and large, today it is pretty difficult for people to get that information. For example, it is true that presidents are often judged on 

a set of performance metrics, but it is very hard for someone other 

than on the board of trustees to know what those performance 

metrics are or whether the president hit them or not. And so, for 

me, the issue is more about transparency and less about secondguessing by folks who aren’t part of the university community. 

Mr. RENACCI. What is interesting is you talked about being the 

president of a university is a very tough job. A president of an 

automobile company, like Mr. Kelly talked about, or a president— 

all positions are tough, but you still have to have metrics to determine what they are worth and how these costs are being passed 

on to the students. It is part of the cost of higher education. 

We keep talking about labor. You know, how many kids are graduating? Where are they going after they graduate? These should be 

some of the metrics. What are the universities doing? These are expenses that should be part of it, and the problem I have, and I 

think this is part of this hearing, is that many of these universities 

are getting favorable tax treatment. They are getting all these 

extra dollars in. So we have to consider that. 

Ms. McCourt, do you—— 

Ms. MCCOURT. Yes, I have a couple of points. 

Number one, there are many, many, many metrics that senior 

leadership and down are judged on in public institutions of higher 

education. You can peruse certain websites out there. They are 

very public and they are growing and business analytic tools are 

growing and compensation is being linked—— 

68 

Mr. RENACCI. I need to—I apologize. I do have to interrupt you. 

I am running out of time, but isn’t one of the most important 

comparables? So if one university raises theirs up, I have to make 

sure—— 

Ms. MCCOURT. Let me use one statistic. We are talking about— 

I want to make sure we are not talking about the .001 percent of 

a couple of very large private institutions that I don’t think the 

compensation is even that high, but when you look at several billion dollar organizations and when you look at the highest paid 

CEOs on the corporate side earning compensation packages north 

of $12 million, for instance, the Indiana University president 

makes $600,000 to manage a several billion dollar organization of 

multiple businesses with performance metrics. 

So I think we need to be careful to stay—stick to the data. That 

information—most institutions of higher education are public and 

that information is public. 

Mr. RENACCI. One thing I would add, and I know I have run 

out of time, Mitch Daniels demanded that a portion of his salary 

be contingent on meeting certain goals. I think that is important. 

Ms. MCCOURT. Absolutely. We do the same. 

Mr. RENACCI. Thank you. I yield back. 

Chairman ROSKAM. Mr. Doggett. 

Mr. DOGGETT. Thank you, Mr. Chairman. 

Excessive, exorbitant corporate CEO salaries and soaring prices 

for consumers are certainly problems and they rarely get any attention in this Committee. I have offered legislation to eliminate or 

reduce the tax subsidy for excessive corporate salaries. The Committee’s not interested. We see price increases in the pharmaceutical industry of 5,000 percent overnight, bankrupting families. 

The Committee has been uninterested in dealing with this problem 

of soaring prices, but we have today’s hearing and it does address 

an important problem. 

There are families across America that are encountering major 

economic obstacles to helping their child get all of the education 

that that child is willing to work for. Many colleges and universities with spiked—increases in tuition are part of the problem and 

I think we need to look at our Federal aid policies and consider 

that aspect of the problem, but I think much of the focus of today’s 

hearing is misdirected. 

The basic reason that tuition is going up is not because the Federal Government is doing too much to help students, but because 

the States have been doing too little. We have seen a steady decline 

in State support for the 80 percent of college students that attend 

a public or State university. Some States, like Texas, have cut their 

support for public education, for higher education, even again this 

past year, and a report out in the last week identifies 11 States— 

that is the American Academy of Arts and Sciences—11 States that 

are spending more on their prisons than they are spending on their 

higher education institutions. 

Within the last week, the University of Texas System Board of 

Regents gave approval for another increase in tuition for the next 

school year and the chancellor, William McRaven, said that the 

school needed the increase because of the decline in per-student 

State appropriations by the legislature over the last decade. 

69 

So that has us to where we are today and because they 

misdiagnosed what ails higher education and the families that 

want to get it, they are also applying the wrong remedies and the 

Republican remedy is reflected in the Republican budget agreement 

this year. They proposed to solve this problem by cutting about 

$200 billion from higher education support and while the final 

agreement is silent on how they would do that, many of their Members have been very vocal about how they would implement that 

$200 billion cut. They would reduce or eliminate Public Service 

Loan Forgiveness that allows students to have the choice of serving 

their communities in underserved areas in health care and a variety of other areas, shrink income focused repayment plans, and 

freeze Pell Grants for 10 years while cutting $90 billion in funds 

for those grants alone. 

Those are the kind of remedies that the Republicans have been 

offering, the kind of remedy they have offered in the Senate is to 

block our efforts to reduce the cost—to let people who are overwhelmed with student debt do something about it by reducing interest rates. The change that was proposed there would save 

$2,000 per loan for an estimated 25 billion borrowers nationwide. 

That is the kind of solution that we need. 

My efforts to make the American Opportunity Tax Credit permanent so our families could get at least $2,500 off their taxes, 

blocked in this Committee. 

If we want to focus on where Federal dollars are being misdirected, we might focus more specifically on what are little more, 

in some cases, than mail-order diploma mills and the attempts of 

the Department of Education to do something about it. The President’s general employment rule requires that these schools demonstrate that they are getting their students into some gainful 

employment, and yet, some of the same people who want to cut 

student financial assistance are the folks that support siphoning off 

as much money as possible to these for-profit schools without looking to see whether they are actually producing results for the families and especially for many of our veterans who sign up for these 

programs. 

So I believe we need to do more to afford opportunity, the very 

kind of opportunity President Johnson had in mind when 50 years 

ago in San Marcos, Texas, he signed the Higher Education Authorization Act that is about to expire, but we need to do it in a more 

constructive way than is being done in today’s hearing. 

And I yield back. 

Chairman ROSKAM. Thank you. 

Mrs. Noem. 

Mrs. NOEM. Thank you, Mr. Chairman. 

You know, a lot of colleges’ and universities’ endowments, we 

have made very clear at today’s hearing, receive specific tax advantages and when a donor gives money that money is not subject to 

taxes. The institution doesn’t have to pay taxes on the gift and if 

it is invested, the institution doesn’t have to pay taxes on the returns from that investment. 

Currently, I was surprised to learn, over 90 different institutions 

have more than $1 billion in endowment funds and we are talking 

70 

about very substantial tax benefits then to those institutions and 

so I wanted to visit this topic a little bit more. 

With tuition costs going up and such high endowments, Dr. 

Vedder, you have talked a lot about research that you have done, 

but I want to find out if you specifically think that institutions are 

using these endowment funds to benefit students specifically? 

Mr. VEDDER. I suspect most institutions feel that they are 

using the endowments to serve students and it is a little—I am still 

in the middle of research in this and I don’t feel I have all the answers. 

Mrs. NOEM. Well, do you have some statistics on how they are 

spending endowment funds? 

Mr. VEDDER. Well, we know, for example, that some endowment monies do go to support student financial aid, which is directly, you might say, student friendly, aimed to lower costs, and 

so forth. 

Mrs. NOEM. Is some 10 percent or—— 

Mr. VEDDER. No, I—— 

Mrs. NOEM [continuing]. Fifteen percent? 

Mr. VEDDER [continuing]. In my estimations that I have done, 

we estimate between 15 and 20 cents out of each endowment generated dollar of income goes for that purpose. Now, that is not trivial, but it is not the major ‘‘aww’’ factor. We are finding a lot of 

money going to support things like student services. I mean at 

least we see an association between endowment size and spending 

on student services. 

Now, that is a—that may be student oriented, but it may not be 

too academically oriented. For example, some of that money might 

be going to help support sort of luxury living on the parts of the 

students in some fashion. 

Mrs. NOEM. Why do you think school rankings give so much 

weight to the size of endowment funds? 

Mr. VEDDER. Rankings do not. By the way, I do the rankings 

for Forbes magazine, so I—— 

Mrs. NOEM. Okay. 

Mr. VEDDER [continuing]. Should be—full disclosure here. 

Mrs. NOEM. Okay. 

Mr. VEDDER. I actually do—I am a ranker—— 

[Laughter.] 

Mrs. NOEM. Okay. Thank you. 

Mr. VEDDER [continuing]. Which is better than being a rapist 

or something, but not much in the eyes of the higher education 

community. 

I don’t know of a single ranking that uses endowment size as a 

direct variable in the analysis, but it is true that spending on 

whatever can influence rankings. The U.S. News rankings, for example, give—you get a higher ranking if you pay your professors 

more, if you have more faculty in relation to student size, and so 

forth, all of which, you know, improve your rankings. So—— 

Mrs. NOEM. Have you seen a correlation between student outcomes and the size of endowment funds a university raises? 

Mr. VEDDER. I have not. That is the point I was making. I have 

done—using the imperfect rankings that I do, and they are imperVerDate Sep 11 2014 09:48 Feb 21, 2017 Jkt 022150 PO 00000 Frm 00074 Fmt 6633 Sfmt 6602 I:\WAYS\WAYSPS\22150\22150.XXX 22150
71 

fect in large part because of data limitations, as I say, we don’t 

know whether seniors know more than freshman. 

Mrs. NOEM. Uh-huh. 

Mr. VEDDER. I mean until you know basic things, like are kids 

learning in college, it is very hard to come up with a full assessment of the quality of an institution, but given what we know and 

looking at what students think are important, I can say that there 

seems to be very little relationship between what students think 

are important in their learning and endowments. 

Mrs. NOEM. Okay. Thank you. 

Ms. McCourt, can you tell me why universities and schools don’t 

spend down their endowment funds? 

Ms. MCCOURT. There are contractual obligations with donors 

putting money into these long-term investments, you know, and I 

would say that the picture we are missing is sustainability. Donors 

want to make sure that there is sustainability and there is a term 

called intergenerational equity. They want tomorrow’s students to 

have the same benefits as today’s students and most donors are 

very, very interested in that. They don’t want to see us—you know, 

they wouldn’t be giving the dollars today to just have it spent. 

Mrs. NOEM. Is there a standard? Is there a specific level of endowment funds that should be in place to guarantee that its intergenerational benefits will be there? 

Ms. MCCOURT. Well, that—and that is how that—distribution 

rate it is called—when we are referencing this 5 percent number, 

that is how that is determined. They will look at long-term investment returns with a lot of sophisticated modeling and then they 

will say, all right, what is that return to keep a level of funding 

that will go into perpetuity and they back into what that spending 

rate is. 

Mrs. NOEM. And some endowment funds are restricted on what 

they can be spent on, correct? 

Ms. MCCOURT. Most are. Most are restricted. At Indiana University, I think 98 percent are restricted. 

Mrs. NOEM. Do you feel that is appropriate? I mean—— 

Ms. MCCOURT. I—— 

Mrs. NOEM [continuing]. A lot of times, I will argue for more 

local control because they best know what their needs are to 

meet the students where they are at and help them be successful. So to have restricted funds, I think ties the hands of some of 

these—— 

Ms. MCCOURT. Well, but these are—we are carrying out the 

will of donors and donors feel very passionate about what they are 

giving money toward and so—and I will say most of it goes to the 

scholar—you know, when I—I am looking at ours right now. I 

mean data is behind every single thing I am saying today. 

Mrs. NOEM. So you believe restricted funds may be just as beneficial as unrestricted funds? 

Ms. MCCOURT. Absolutely. Absolutely. Yes. 

Mrs. NOEM. All right. 

Mr. Chairman, I will yield back. 

Chairman ROSKAM. Thank you. 

Mr. Crowley. 

72 

Mr. CROWLEY. Thank you, Mr. Chairman, and I thank all the 

witnesses. Thank you, Mr. Chairman, for holding this hearing 

today and thank you to all the witnesses for providing your testimony before us. 

I am glad that my colleagues on the other side of the aisle are 

finally taking note of how important it is to address the issue of 

higher education affordability, although I do take some interest in 

noting the suggestion that maybe eliminating Pell Grants will 

somehow force private higher education in the country to actually 

reduce the amount of tuition is very interesting. 

It is an issue that my Democratic colleagues feel has not received 

the due attention it really has deserved, but I must say there is 

so much more this Committee, the most powerful Committee in 

Congress, could focus on with—as crucial an issue as this. Instead 

of getting bogged down in picking at taxes and status or the use 

of endowments, we could discuss how to strengthen the Pell Grant 

program as opposed to weakening it or eliminating it or how to 

build up the progress that Democrats have made years ago in making student loans work better for students and families alike. 

Surely this hearing can’t be my colleagues’ only response to calls 

from millions of struggling, middle-class, hard-working Americans 

who are concerned about how they will put their children through 

college. If anyone turned on C–SPAN today hoping to find out more 

about the other side’s plan to actually make higher education more 

affordable, I think they are all going to be, if not already, very, 

very disappointed. There is no plan. 

Mr. Hartle, in your testimony, you discussed the various restrictions on endowments and you clarify that the vast majority of institutions of higher education do not have large endowments to rely 

upon. Would you agree that even if we could require schools to use 

more of their endowments for tuition reduction than they already 

do, it would become nowhere—it would come nowhere close to 

eliminating the need for important Federal student aid, aid programs like the Pell Grants, like Supplemental Education Opportunity Grants, and subsidized student loans? 

Mr. HARTLE. Thank you for the question, sir. 

You are absolutely right. The vast majority—as MaryFrancis 

McCourt has indicated, the vast majority of college and university 

funds are restricted. They are given to institutions by donors for 

purposes that the donors specify. Many times, the donors will want 

to give the money to something—to the institution and the institution will say, ‘‘We might rather have it for this,’’ and the donor will 

say, ‘‘I will give it to you for what I want’’—— 

Mr. CROWLEY. Only for this. 

Mr. HARTLE [continuing]. ‘‘Or nothing.’’ 

Mr. CROWLEY. Right. 

Mr. HARTLE. Institutions cannot simply decide to take money 

that is given to them for one purpose and to spend it for another 

purpose without violating the law. We have counted in the last 10 

years—excuse me—6 legal cases where donors later sued institutions because the donors felt the institutions had not been honoring 

donor intent. 

Mr. CROWLEY. Very interesting. 

73 

Mr. HARTLE. Most universities do not have large endowments. 

The average endowment—sorry—the median endowment for a public university is $26 million. For a private university, it is about 

the same level. Obviously, there are a small number of universities 

that have very large endowments. 

And I would actually respectfully disagree with my friend Dr. 

Vedder about the value of endowments and institutional quality. 

The Times of London, an independent news organization, ranks the 

world’s best universities. Seventeen of the world’s top 25 universities are American. All of them have significant endowments. 

These endowments enable them to hire the faculty and staff they 

need. It allows them to conduct the research that they believe is 

in the Nation’s interest. They can get the equipment and facilities 

they want and they can allow any student to enroll without having 

to worry about the financial consequences. 

Money helps build great universities and delivers opportunities 

and I think that the ranking of The Times of London and the fact 

that the American universities that are on that list overwhelmingly 

have large endowments tells us something, which is that if you 

have a large endowment, you can build a great university. It is not 

automatic, but it certainly helps. 

Mr. CROWLEY. Thank you. 

I was intrigued by Mr. Rangel’s questioning. Really, it was right 

to the point. If we think that this is not a national issue, this is 

a State’s rights issue; we really have to reexamine what we are 

doing here. The reality is we can’t expect that States like—and he 

mentioned Mississippi, there are others, can invest in the State 

system in the way in which New York and California maybe can 

or without the assistance from the Federal Government is really 

not going in the right direction. 

And, again, I hope my colleagues on the other side will take 

a look at proposals that can truly make college more affordable 

rather than seeking to cut back on Federal student aid, as we have 

seen in numerous other Republican proposals. 

And, Mr. Chairman, I look forward to working with you on finding ways not only to make college more affordable to you and your 

family, but to all Americans who want to see their children succeed. I think that is important. It is not just about us. It is about 

what we can do for the American people and I think it is critical. 

Right now is—I mentioned—one last point I’ll mention to you if, 

Mr. Chairman, you will forgive. 

Before the Pope came, I had the opportunity to sit down with 

some of my colleagues with the Conference of Catholic Bishops. I 

noticed that some of the sharpest tuition increases we have been 

seeing are at what are known as traditional Catholic colleges. I 

think there is more responsibility, not only to the Catholic Church 

but on all of us, to have opportunity for our children to attend private or public schools and to have the assistance in help they need 

to make it affordable to everyone and not everyone because the economic situation is cast aside or put out of the system because of 

what their parents did or didn’t do for a living. 

And with that, Mr. Chairman, I will yield back. 

Chairman ROSKAM. Thank you. 

74 

I think, just for the record, it is important to note nobody is talking about eliminating Pell Grants. The notion that this is just a 

State’s rights issue is something that is just not persuasive. We 

have a national Tax Code, national tax implications. So the reason 

that we are talking about this—— 

Mr. CROWLEY. Mr. Chairman, would you yield briefly just for 

a moment—— 

Chairman ROSKAM. Yes. 

Mr. CROWLEY [continuing]. On that? 

On that point, there was a question to Mr. Lucca about the impact of Federal subsidies and what impact that has on the increase 

of tuition at private institutions—— 

Chairman ROSKAM. Fair enough. 

Mr. CROWLEY [continuing]. And that is the point I was making, 

but I—— 

Chairman ROSKAM. Yes. 

Mr. CROWLEY [continuing]. Think the opposite—you have to 

suggest the opposite. What impact would cutting it have and that 

was the point I was suggesting. 

Chairman ROSKAM. Fair enough. 

So nobody is talking about eliminating Pell Grants. That was 

your word earlier, but I take your point. If by hosting this hearing 

somebody is going to pull out the ‘‘Peter Roskam three-point plan 

to save higher education,’’ it is that it is going to be a slow train 

coming. We have a lot of work to do. 

So getting toward that work, I recognize the gentleman from 

Missouri, Mr. Smith. 

Mr. SMITH. Thank you, Mr. Chairman. Thank you for holding 

this hearing on a quite important issue. 

Being the youngest Member of the House Ways and Means Committee and one of the youngest Members of Congress, the rising 

cost of tuition isn’t foreign to me. I get it. In fact, I am still paying 

my student loans as a Member of Congress. The cost of tuition is 

rising faster than the cost of inflation. We all know that. It is increasing beyond the reach of lower income Americans and middleclass Americans. We know that. This is a huge problem. 

The real question is, how can we help stop the rising costs and 

make college affordable again? That is a true problem. 

When I started at the University of Missouri in Columbia not too 

many years ago, the required cost of tuition and fees was $4,280. 

Currently, it is $9,433. After adjusting for inflation, that still represents more than a 66 percent increase, 66 percent increase. I 

wish mutual funds did that well. Universities argue that fluctuating State funding is the biggest factor in tuition increases. But 

has State funding decreased by 66 percent in the State of Missouri? 

Being a former State legislator, I know it hasn’t. 

That being said, the University of Missouri is an example of a 

good school that has decreased real cost per student. They have 

lowered actual operating expenses per degrees awarded and are 

beating the national trend, while increasing degrees awarded. 

Their tuition is less than the national average, but students still 

have an average debt of over $35,000 a year. 

We are here in the Ways and Means Committee because of our 

jurisdiction over tax policy. So I have to highlight the work of colVerDate Sep 11 2014 09:48 Feb 21, 2017 Jkt 022150 PO 00000 Frm 00078 Fmt 6633 Sfmt 6602 I:\WAYS\WAYSPS\22150\22150.XXX 22150
75 

leges across the Nation in a bill that I introduced in July, the Tax 

Relief for Working Students Act. Currently, students earning at 

work colleges, like College of the Ozarks in Branson, Missouri, are 

taxed as income, not as tax-free scholarships by the IRS. That is 

unacceptable. 

My bill would reward hard-working students by reducing taxes 

on those students in order to make it easier for them to earn the 

scholarships they need to pay for their college. It is just one small 

piece to encourage the hard work of students at these unique institutions, but other issues must be addressed. After all, taxpayers 

and students pay a lot of money to colleges and universities, but 

are we getting proportionate results? Colleges and universities 

have a tax exemption because we all agree that education is valuable and important, but, as the Federal Government, we need to 

be sure that this foregone tax revenue is delivering results. 

Ms. McCourt, what are some areas that you see where public institutions can be better stewards of taxpayer dollars while still fulfilling their mission of educating future generations? 

Ms. MCCOURT. Well, actually, the average debt at University of 

Missouri surprises me. It is quite high. So I am not sure what is 

going on at the university that is driving it that high, its undergraduate, graduate. At Indiana University, it is about $23,000. 

Mr. SMITH. I said the average debt—— 

Ms. MCCOURT. Yes. 

Mr. SMITH [continuing]. Of all students is $35,000. 

Ms. MCCOURT. Yes. Okay. So graduate student debt—— 

Mr. SMITH. And the University of Missouri is lower than that. 

So—— 

Ms. MCCOURT. Oh, okay. 

Mr. SMITH [continuing]. I want to make sure you are—— 

Ms. MCCOURT. Oh, okay. 

Mr. SMITH [continuing]. Correct on that. 

Ms. MCCOURT. I was going to say and all students—so graduate students, that is a different issue and that is where a lot of 

debt is. 

Indiana University is doing a lot—I want to make sure I have 

heard your question appropriately. We have done a heck of a lot 

with operational efficiencies driving costs down, everything we can 

do almost on the cost side of the equation. When you look below 

salaries and wages and benefits, financial aid is the next line down. 

So I am always being careful what you ask for because cutting 

budgets further, we have reduced administrative headcount over 

the last decade. We have kept salary increases at about 2 percent 

a year, some years none. 

So when we think about the compounding issue on the American 

economy, one thing we haven’t talked about today that I think is 

a very important issue is the issue—and this goes back to the 

metrics and benchmarks that we should all be held accountable 

to—of completion. You know, we have seen completion moving from 

a 4-year completion rate—we talk about 5- and 6-year completion. 

The fastest way to reduce debt is to graduate, and, you know, so 

I think there is accountability on all sides. There is accountability 

on the institutions of higher education and on the recipients of 

these grants and aid. 

76 

I think there is something there to—— 

Mr. SMITH. In regards to costs, to—— 

Ms. MCCOURT. Yes? 

Mr. SMITH [continuing]. Help lower the cost, what has your university seen in regards to health care? 

Ms. MCCOURT. Our university—when I came—so I have been 

there 10 years. When I started modeling healthcare costs, we were 

going to see healthcare costs double in the next, like, 5 or 6 years 

in that first model. We have now taken that down. We have a massive wellness initiative, but health care is a big cost underneath— 

after compensation, that is the next one down. 

As I have the opportunity, I also want to draw attention to the 

first slide that was up. When we talk about the rising cost of 

health care, we need to be careful because most of the—you know, 

when the Bureau of Labor Statistics looks at healthcare costs, they 

don’t look at sticker price. They are looking at net price, but when 

we look at higher education price, we are looking at sticker. We 

have to focus on net price because net price tells you a very different story. 

Chairman ROSKAM. It tells you a different story, but it doesn’t 

tell you a different trend and we can talk more about that. 

Ms. MCCOURT. Yes. Yes, I would love to circle back with you 

on that. 

Chairman ROSKAM. Okay. Thank you. 

Mr. Meehan. 

Mr. MEEHAN. Thank you, Mr. Chairman. 

Mr. Vedder, I hesitate to do this, but—and I know it was even 

a moment of rancor, but in the context of doing that, you made a 

comparison between rankers and rapists. As a former prosecutor, 

there is nothing in any context which is jovial about that issue and 

I hope that you will retract your statement. 

Notwithstanding that, and I am sorry that I raised the issue, but 

I thought I had to, Ms. McCourt, you just raised a very, very important issue which relates to the ability of students to graduate 

on time. What is the impact of students not graduating on time 

and despite all of the infusion of dollars, are we actually doing better at graduation rates? 

Ms. MCCOURT. The impact is more debt, if they are financing 

their education with debt, and lost earnings. 

Mr. MEEHAN. This is particularly troubling to me because when 

you really go through the statistics, when you start to see who is 

impacted the most, and oftentimes we hear about this, poor students are taking on more and greater burdens with loans, and as 

a result, they are paying—they are increasing debt for poor students and their families. The average working family in the blue 

collar districts that I represent has a $55,000 salary and, if they 

have two children in school, their after-tax income, virtually 100 

percent of it would be paid toward college education. 

Ms. MCCOURT. If they are making $55,000, most institutions of 

higher education would be offering them significant aid. 

Mr. MEEHAN. You expect that they would be—— 

Ms. MCCOURT. Absolutely. 

Mr. MEEHAN [continuing]. Offering them significant aid. 

Ms. MCCOURT. Absolutely. 

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Mr. MEEHAN. If I might, and this is a question just of accountability, is public education a public service? Those who—is it a public service? If you are at a public college, is that a public service? 

Ms. MCCOURT. I think we owe it to our younger population to 

educate them. When we talk about the issue of the U.S. economy 

and our ability to compete, you know, on into the future, yes, I 

think we owe it to our—— 

Mr. MEEHAN. Well, are we talking—let me ask it another way. 

We talk about accountability for institutions and I realize that 

these are difficult—and in some ways, it may even be symbolic, but 

should a president of a college, notwithstanding the complexities, 

be making more than the president of the United States? 

Ms. MCCOURT. I am going to go back to the issue of running 

a very large—— 

Mr. MEEHAN. Yes or no? 

Ms. MCCOURT [continuing]. Complex—I am going to—the market of supply and demand and labor and getting good talent to run 

these institutions of higher education, I think the president—— 

Mr. MEEHAN. But you don’t think we get very good people to 

be superintendents of high schools and very good people to be 

school teachers in public school systems and you don’t think with 

the prestige associated with being at a public institution of major— 

that we wouldn’t be able still to attract the highest quality person 

as the president of a major university if they were being paid—— 

Ms. MCCOURT. I think if—— 

Mr. MEEHAN [continuing]. The same salary as the Governor? 

Ms. MCCOURT [continuing]. I think if we don’t pay people appropriately, you will not be able to attract the talent you need at 

these very large, complex institutions. 

Mr. MEEHAN. Let me ask a question about accountability for 

anybody here. 

I hear two things when I go and talk to my students. One is their 

aspirations, and I ask this question very specifically, and the second is what concerns you the most and invariably they say, ‘‘How 

are my parents going to pay for college education?’’ So it is affecting every family across America, but one of the bigger concerns I 

get is when I go to employers and they say to me that they can’t 

find people who are adequately trained to fill the jobs that they 

have. 

Where is there a measure of accountability and this is for anyone 

that looks at it and says if we cannot fill the available jobs here 

in the United States with college graduates—and I say this as a 

liberal arts graduate, a classics major like my colleague here, who 

finds great value in that kind of an education, but notwithstanding, 

we are not educating for the jobs of today and they are going unfilled at great cost to us? 

Where is the accountability there? Why should we not hold institutions responsible for their failure to meet that? 

And I open it to anybody who may have—— 

Mr. VEDDER. Mr. Meehan, I apologize for my earlier remark. 

With respect to that question, we don’t have a good match between what people do in college and what the labor market wants 

and some people have suggested that one way to sort of incentivize 

colleges to get a little better on this is to have colleges have skin 

78 

in the game. Now, that can be—take different forms. One way is 

with respect to defaults on student loans and all, that maybe the 

colleges ought to pay back some of that rather than the students 

themselves. I think that is something that Congress maybe should 

start looking into. 

And it is interesting, by the way, that I have heard people on 

both sides of the aisle, I won’t name names, but from highly progressive liberal Democrats to fairly conservative Republicans, saying the same thing. So this might be an area where there might 

be some bipartisan possibilities. 

Mr. MEEHAN. Thank you, Mr. Vedder. 

Mr. Chairman, I yield back. 

Chairman ROSKAM. Ms. Black. 

Ms. BLACK. Thank you, Mr. Chairman. I appreciate being a part 

of this Committee. I thank you for allowing me to be here and ask 

a question. 

This is an area that I have great concern about, having served 

on the Ways and Means Subcommittee on Education and coming 

out with some ideas of our own, but I want to follow the vein of 

my colleague, my colleague that was just questioning, Mr. Meehan, 

about outcomes and about how we get to know about those outcomes so that as we look at these costs, which has been established 

are really high costs, rising costs, that students and their families 

would be able to make those decisions that are necessary in order 

to be able to decide what can I afford and what can I expect as an 

outcome if I choose this particular university or this setting. 

Last month, the Department of Education and the IRS published 

a new college scorecard database to help students and their families make more informed decisions about higher education. The 

scorecard provides information about the student outcomes from individual schools, including information about post-college earnings 

and debt levels. 

Mr. Vedder, what are your thoughts about this scorecard? Is this 

a scorecard that is something that the students and their families 

can really count on in helping them to make that best decision? 

Mr. VEDDER. Well, I think the scorecard is a step forward. 

There is a huge information problem in higher education. I have 

been saying this all throughout this hearing. And the scorecard 

does provide some information that was previously not available, 

for example, earnings data on post-graduates. 

There are some deficiencies in that scorecard. We don’t—first of 

all, there are a few schools that are not even included in the scorecard. I can name—you know, Hillsdale College would be one. Grove 

City College would be two. Christian College would be three. I 

could name several universities. 

Ms. BLACK. Well, why are they not included in it? 

Mr. VEDDER. Well, you will have to ask them, but I think it relates to the fact that they do not participate in the—they don’t participate in Federal student aid programs. 

Ms. BLACK. Oh, okay, the Federal student aid programs. Okay. 

That is—— 

Mr. VEDDER. And, although Hillsdale also claims that they 

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ciple. I read this in The Wall Street Journal. So there are deficiencies there. 

Ms. BLACK. Okay. 

Mr. VEDDER. It would be nice if we had more information on 

earnings by major, earnings by—in a variety of other contexts 

other than just one earnings measure. It is—as I say, it is a start, 

but we are way, way, way behind where we should be in this area. 

Ms. BLACK. So, in your opinion, and the opinion of others on the 

panel, what do we need to do to force this to occur because I believe 

there isn’t enough information out there to be able to use good data 

to drive those decisions so that when you are spending $23,000 a 

year, which is a huge amount of money for education, that you 

could say at the end of the day, that money was well spent because 

I am going to get this job or I am going to be able to move up in 

whatever my job is? 

What else do we have to do? What else should we be looking to 

do? Mr. Vedder. 

Mr. VEDDER. Well, let me respond. I think—— 

Ms. BLACK [continuing]. You want to start and then—— 

Mr. VEDDER [continuing]. I see Mr. Hartle wants—— 

Ms. BLACK [continuing]. Mr. Hartle, yes. 

Mr. VEDDER [continuing]. To respond as well. I think we 

could—one thing that has been suggested is that we actually have 

some sort of—something like the collegiate learning assessment 

tests that could be administered at the freshman and senior years 

nationwide or something so we can measure value-added during 

college of what students learn. We do it certainly at the K through 

12 level. We could do it on a—and I am not proposing a huge, 

highly intrusive amount of testing, but we could do a little bit at 

that national level. 

The Spellings Commission a decade ago, which I was a member 

of, made recommendations along—or in that direction. Nothing was 

done. Colleges don’t want to be compared with one another. They 

don’t like—it is sometimes embarrassing. Two comparable schools 

are different in some ways. They don’t want the information out. 

I think we could force more information to be provided along those 

lines. 

We need better information on what happens to students after 

they graduate than we are getting now. 

Ms. BLACK. Mr. Hartle, I have exactly 27 seconds, so if you 

could just quickly tell us your thoughts. 

Mr. HARTLE. I would be happy to chat with you following the 

hearing if that would be helpful, but I think to answer your point 

about Hillsdale, one of the limitations of the Department of Education’s scorecard data is it is only for students who received financial aid. So schools like Hillsdale who do not participate in the 

Federal student aid program don’t have anybody in the database. 

Only a fair number of students are excluded, so some schools, the 

numbers are based on 10, 15, 20 percent of the students rather 

than the entirety of the student body. 

The fundamental challenge you face at the Federal level is the 

Federal Government does not have good data to do what they want 

to do. The Department of Education can only rate schools on four 

80 

pieces of information: retention, graduation, student loan defaults, 

and now student loan repayments. Not all of those are accurate. 

Fundamentally, the question for the Federal Government is 

whether they want to create a database that would enable them to 

very accurately compare information by tracking individual students. 

Ms. BLACK. Thank you. And I know my time has expired. I do 

think this is an area that we really do need to take a look at. 

Thank you very much. 

Chairman ROSKAM. Thank you. 

Mr. Reed. 

Mr. REED. Thank you, Mr. Chairman, and as a former Member 

of this Subcommittee, I so appreciate the Chairman holding this 

panel and having this testimony here today and I wanted to come 

here today because this is a priority issue to me. 

As the youngest of 12 siblings, who was raised by a single 

mother who firmly believed that education was the key to getting 

out of poverty, this is something I am very personally interested in 

taking care of because when I got out of school, my student loan 

debt was $110,000. So like my colleague from Missouri, Mr. Smith, 

it was a major load to carry, and when I go around my district and 

I talk to these students and I talk to these kids and they tell me 

they are coming out of undergrad with $100–200,000 worth of debt, 

we are doing a disservice to the next generation. 

So I come here today having taken a hard look, and many of you 

on the panel know that I am drafting legislation as we speak, to 

deal with what I believe is a crisis when it comes to higher educational costs in America and what we are doing to the next generation. 

One of our proposed reforms that I am very interested in and 

that the testimony here got into today is when I looked at the endowments of our largest universities and colleges, the top 90–91 

universities and colleges, each having $1 billion or more of funds 

in endowments, I realized that those endowments are being held in 

a tax-free status. Then I realized that donors get a tax deduction 

for giving these gifts to these institutions. Then I realized when 

you do the simple math, for example, and to all the reporters out 

there, if we just change the rules and force this endowment to be 

a pot of money to be utilized to reduce tuition for our students, we 

could have a headline that says we propose in the crisis, for the 

immediate short-term future, that students at these institutions 

will pay zero dollars for tuition, zero dollars. 

Also, Mr. Galle, your testimony touches upon that a little bit in 

the Harvard Study and let me just do some math. Harvard, $5.5 

billion in returns tax free last year, total tuition charged to its 

undergrad population, $360 million, $100 million is given to Harvard from Federal and State local sources. So when my colleague 

from New York talks about why is this an issue or why are we 

even discussing this, I would propose something to you. 

In order to keep that tax-free qualification that we are referring 

to here today, maybe we mandate that the endowments take their 

earnings, just their earnings, not their principal so we don’t get 

into the sustainability issue that some of you expressed here today, 

and mandate it goes to tuition relief to the students that are going 

81 

there, plus the $100 million that your institutions get in these high 

endowment level institutions, that goes to other institutions across 

America, to the other schools that don’t have this size of endowment. That is $100 million that would be going from Harvard to 

a different institution to allow those costs to be lowered at those 

institutions. 

Take Yale, $3 billion return on their endowment, $291 million of 

tuition charged to its undergrad population. If you just took 10 percent of that money and gave it to the kids that are going to school 

there, you wouldn’t have to charge one kid a dime to go to that institution. That is addressing this crisis, in my opinion. Texas, which has the second largest endowment I believe, $339 million worth of tuition. It is getting a $3 billion return on its endowment each year tax free. And I am not even talking about what 

your endowment managers are making off of that return and some 

of these endowment managers are making $200–300 million just 

off of that return on an annual basis. Talk about going after the 

top 1 percent. This is an opportunity to address this crisis that our 

kids in America are facing and I would hope my colleagues on the 

other side would join me in these types of reforms and looking at 

this resource and saying maybe we can utilize this to address this 

crisis and go forward. 

Mr. Hartle and Ms. McCourt, you actually gave me some information today because the restriction on the gifts to these—from 

these donors and to your institutions, I think the benefit of being 

on this Committee—you say the law restricts you? We can change 

the law. We write the law. That is what we are here for because 

the donors, if they were then told that, hey, if I have to give money 

to an institution and I am going to lose my tax deductibility, maybe 

the conversation you could have with that donor is going to be a 

little bit different and say, ‘‘Do you really want to give us that taxable gift as opposed to a non-taxable or a tax deductible gift that 

we could do,’’ if we change the rules so these restrictions are out 

the door? 

So this is an opportunity. I want to work on reforms that are 

going to say in a headline we propose zero tuition to the kids of 

the next generation as we go through this crisis of getting college 

costs under control. To me, this is a great opportunity. This legislation is being finalized and I hope my colleagues on the other side 

of the aisle would join us in this reform and alleviate this debt burden that we are putting on this next generation of kids like myself 

when I came out of college with $110,000 worth of debt. 

It is not right. It is wrong. I care about these kids and we are 

going to make sure these kids get the education that gets them out 

of poverty to enjoy the opportunity of America. 

With that, I yield back. 

Chairman ROSKAM. Thank you, Mr. Reed. 

You know, I think it is interesting—I have a few questions, but 

it is interesting if you listen to the nature of the discussion today, 

there is really nobody that is defending the status quo. There is no 

voice up here on either side of the aisle that said it is great, just 

leave it alone. There is no panelist who said, oh, it is great, just 

leave it alone, which means I think that there is an opportunity for 

us to be rethinking these things. 

82 

So I had some questions that popped up. Ms. McCourt, let us just 

follow up because we had a little bit of a dialogue that was just 

intermittent. 

Let me recharacterize your testimony as I heard it, particularly 

as it relates to sticker price. So the sticker price, you said, look, 

that is one figure that tells part of the story. Let me stipulate a 

couple of things. 

Let us say for the sake of argument that the sticker price tells 

one story and that the actual price is a different story. The trend, 

though, is significant. So in my opening statement, I referenced 

this relationship between healthcare costs—the rise of healthcare 

costs and the rise of higher education and I said that higher education was increasing twice as fast as health care. So for the sake 

of argument, let us say that it is just increasing at the rate of 

health care. Okay. 

The rise in health care, I would argue the public is getting a benefit at least. We are living longer. We are living healthier lives. 

You know, we have devices, we have this, we have that. We have 

all kinds of things that have changed the quality of life. 

And my question is: Can we really say that about higher education? 

Going back to Mr. Holding’s admonition, is his classics education 

fundamentally different from his father’s or grandfather’s or grandmother’s or great-grandparent’s into perpetuity? 

You see the point that there is some value proposition that the 

healthcare enterprise at least can turn to, and really are students 

better, faster and smarter with the amount of money that is going 

into the front end of this? 

Ms. MCCOURT. There are several points I want to make. So let 

me just try to touch on them quickly. But the wage gap has never 

been wider for those with a college education and those who do not 

have it. There are many benefits. 

There are direct benefits, and then when you think about societal, health, there are all kinds of benefits when you study those 

with college educations and those without. So I would venture to 

say, yes, there are extreme benefits. 

I would also say that the classics education, maybe the book you 

are reading is the same, but there are many things that are happening in institutions of higher education that are wrapped around 

the classics education. There is technology in the classroom. There 

is technology in the books. There is technology across the campuses. There are career and advising services that have not been 

there before. 

So there are many additive costs, and I am in a classics; I am 

an economics degree as well so not classics, but liberal arts, and 

when you think about society and we have talked about, you know, 

other countries and advances they are making. If we do not think 

the advances in research and technology, innovation is the way of 

the future. A lot of that innovation is happening on college campuses. 

So, yes, there is a—— 

Chairman ROSKAM. Okay. So you would make an argument 

there. 

Mr. Hartle. 

83 

Mr. HARTLE. Just an observation. Your charge is actually net 

cost of attendance over time. So it would be tuition and fees, room 

and board, books and supplies for students who live in university 

housing, which is only about 15 percent of all students. Net tuition is $3,000 for students in public 4-year colleges, $12,000 for students in private colleges. Obviously, students who 

do not live in campus housing may well have limited expenses, but 

yours is showing a total cost of attendance for a specific type. 

Chairman ROSKAM. And so your argument is that universities 

can control part of that, that is, on-campus living, and they cannot 

control part of it; is that right? 

Mr. HARTLE. No, the argument is that for the 85 percent of students who do not live in university housing, they are not facing 

that as a net price. They are facing something different in many 

cases. 

Chairman ROSKAM. I understand your point. 

Let me switch gears a little bit. Ms. McCourt, getting back to 

you, first of all, I stipulate that Indiana University and Purdue 

University are doing remarkable things, and this is not false 

praise. It is really remarkable, and particularly leading the Nation 

in a lot of these things, and I know that you are inextricably linked 

to the success there. 

You are today here, however, on behalf of a larger organization. 

Ms. MCCOURT. Right. 

Chairman ROSKAM. And so, you know, they are all with you. So 

let me ask you this. You were implicitly defending high salaries 

for—— 

Ms. MCCOURT. I—— 

Chairman ROSKAM. You were explicitly defending high salaries—let me make a point—for university presidents, and your thesis was, look, these are big systems, and if you need big systems 

to be run, you need bright people to run them, and bright people 

are expensive. And that is not an irrational argument. 

Here is the plot trap though with that argument, I think. The 

comparison was made to the private sector, that is, the for-profit 

sector. The for-profit sector is only able to deduct $1 million in salary, you know, publicly traded C corporations. That is it. 

Now, what do you think about an excise tax, for example? If the 

university says this person is so special that we have looked across 

all the fruited plain, and we think that this is the absolute person 

that we need to bring in for this. 

Is it reasonable then to create a comparison with the private sector because you used the private sector as an analogy? 

Ms. MCCOURT. I think you would find so very few people who 

would meet that criteria it would almost—— 

Chairman ROSKAM. Really? 

Ms. MCCOURT. Yes. 

Chairman ROSKAM. Wow, that is amazing to me. 

Ms. MCCOURT. Yes. 

Chairman ROSKAM. That people would say, ‘‘I am unwilling to 

do it,’’ and that the universities would be unwilling to pay an excise 

tax. That is interesting. 

Ms. MCCOURT. No, I did not say they would or they would not, 

but I am thinking right now of the institutions of higher education 

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across the country, and anyone paid over $1 million. There are not 

that many. 

Chairman ROSKAM. Well, there are 42. 

Ms. MCCOURT. Okay. Forty-two out of all of the employees in 

institutions of higher—— 

Chairman ROSKAM. So you would not object to them? You 

would not object to that? 

I mean, I am not trying to trap you. I am trying to understand. 

Ms. MCCOURT. Yes, I may not. 

Chairman ROSKAM. Okay. Mr. Vedder, what do you think of 

that, the idea and the comparison to C corporations and so forth? 

Mr. VEDDER. Well, I think there ought to be a level playing 

field. I think the tax treatment of employees working for the private sector and public sector should be the same. Whether the current million dollar rule is the appropriate rule, I have not really 

studied that or thought much about it. 

Chairman ROSKAM. In fairness, neither have I. I am just thinking through the comparison. 

Mr. VEDDER. But I cannot see why university presidents would 

be treated differently, and I have even read many cases where the 

IRS has gone and said, ‘‘Oh, you have not paid taxes on your presidential mansion you are staying in and we are going to make you 

do that.’’ 

And then the boards of trustees say, ‘‘Oh, we will pay that for 

you.’’ You know, it is almost like only little people pay taxes. 

And I think economists generally favor level playing fields. 

Chairman ROSKAM. Let me ask you, Mr. Vedder. There has 

been some discussion around restricted contributions, you know, 

restricted gifts and so forth, and the inherent limitations. Listen. 

That makes sense. You can understand if you accept a gift that is 

a donor-directed gift you are bound to use it in the way that the 

donor would contemplate and direct. 

Is there any wisdom to giving it different tax treatment though? 

In other words, a donation that goes from a donor to a university 

that is unrestricted, should that be given more favorable tax treatment than a donation that says, ‘‘I am restricting you to use it for 

this particular purpose?’’ 

Could you not make the argument that part of the benefit that 

the donor receives at the front end is the capacity for direction 

as opposed to an unrestricted gift which the law would view as a 

higher good, going back to Ms. Noem’s point, and that is, you know, 

creating more flexibility and so forth? 

Does that make any sense? 

Mr. VEDDER. It makes sense. It is an intriguing idea. I think 

there are some administrative issues. I am trying to think of the 

practicalities of how you define, how you differentiate, but I think 

it is an interesting idea. 

Similarly, as I mentioned in my testimony, there are certain 

kinds of university donations that are clearly to non-academic purposes. I mean stadium skyboxes, why should some who love their 

alma mater and want to sit in a fancy skybox get credit for it, why 

should they get a tax break for that? 

I am going to get in trouble. Princeton University built a dorm, 

particularly with your own staff that went to Princeton. Princeton 

85 

University built a dorm that cost $120 million. Three hundred and 

fifty kids live in that dorm. That is $340,000 a bed. 

Meg Whitman made a big part of the gift, a major corporate donor. She probably received at least a $10 million deduction for 

that, to provide a facility that cost more than a typical resort built 

by a man who is running for President now, who will remain nameless. 

So it seems to me that there is a lot of reason to look into the 

nature of the gifts, and that may mean to do what you are suggesting. I have not really thought it out fully. 

Chairman ROSKAM. Okay. Ms. McCourt, I just want to get your 

insight, your insights in Indiana versus the experience of my home 

State in Illinois. So I am a graduate of the University of Illinois 

down in Champaign. This statistic I find just jarring. 

This is Illinois. At public universities in Illinois the number of 

full-time administrative staff increased 31 percent from 2004 to 

2010, with only a 1.8 percent increase in full-time faculty and a 2.3 

percent increase in students. 

The University of Illinois has one administrative staff member 

for every 30 students. Does that seem absurd to you like it does 

to me? And I mean gratuitously absurd. 

Ms. MCCOURT. Well, I do not want to comment on that. I can 

tell you at the university—— 

Chairman ROSKAM. I would not either. 

Ms. MCCOURT [continuing]. The trend is exactly the opposite. 

Over the past decade we have seen a 14 percent increase in academic staff and a 3 percent increase in administrative staff. 

When I take that back to fiscal years 2004 to 2011, and then the 

years 2011 to 2014, administrative staff has actually gone down 2 

percent while academic staff has gone up 3 percent, for a net 

change of zero. 

Chairman ROSKAM. Is that in Indiana? 

Ms. MCCOURT. That is Indiana. 

Chairman ROSKAM. Okay. 

Ms. MCCOURT. I mean head count, but to your earlier point—— 

Chairman ROSKAM. You have a good point because you can 

argue in the alternative. When you want to put on your Indiana 

cloak you do, and then when you have the whole crowd in the 

room—— 

Ms. MCCOURT. But to your earlier point, this is why we 

need—— 

Chairman ROSKAM. Hang on. 

Ms. MCCOURT [continuing]. This is why we need to bring business people to higher education, to focus on these metrics. 

Chairman ROSKAM. Is that true though. Are those statistics nationwide statistics or are those Indiana? 

Ms. MCCOURT. I think you are seeing a very large trend, and 

we are now approaching this bubble of people retiring out of higher 

education. There is just a lot of retirements. 

Chairman ROSKAM. Okay. 

Ms. MCCOURT. And so as they retire, they are not getting hired 

back on the administrative side. 

Chairman ROSKAM. Okay. Put on your cloak of the organization 

now. 

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Ms. MCCOURT. Yes. 

Chairman ROSKAM. You are out of the safe zone of Indiana. 

Ms. MCCOURT. Yes. 

Chairman ROSKAM. Now you have the whole team. 

Ms. MCCOURT. Yes. 

Chairman ROSKAM. In 2012, Sterling Partners and Bain & 

Company wrote a report, which I would like to enter into the 

record with no objection. 

[The submission of The Honorable Peter Roskam follows:] 

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Chairman ROSKAM. Administrative costs ‘‘have grown faster 

than the cost of instruction across most campuses. In no other industry would overhead costs be allowed to grow at this rate. Executives would lose their jobs.’’ 

The Department of Education data shows that administrative positions, that is, non-teaching, at colleges and universities grew by 

60 percent between 1993 and 2009. That is indefensible, is it not? 

Ms. MCCOURT. Well, I think you need to get below how they 

are defining administration because outside of my cloak of—— 

Chairman ROSKAM. Non-teaching. 

Ms. MCCOURT [continuing]. Indiana University, non-teaching 

there is much support staff being hired everywhere. There is also 

staff when we think about the Clery Act and student welfare and 

emergency preparedness. That is where the hires are going. 

I do not see a lot of hires in kind of business-type administration. 

Chairman ROSKAM. Okay. However, if that is true, how are you 

enjoying such success at Indiana University and the rest of the 

country is failing? 

Ms. MCCOURT. So back to the Indiana University side. We are 

putting a lot of emphasis on operational efficiency and where can 

we cut costs. 

And the other benefit—— 

Chairman ROSKAM. So my point is it is possible, and you are 

showing and you are leading—— 

Ms. MCCOURT. Yes, we are. 

Chairman ROSKAM [continuing]. And the rest of the group is 

like pressing up their nose against the glass looking in, and they 

are not delivering. 

Ms. MCCOURT. In everybody else’s defense, another benefit we 

have at Indiana University is because it is a seven campus, we are 

not a system, but there are seven campuses we operate. We can leverage that size, and we can create efficiencies. 

Chairman ROSKAM. Come on. That is not a distinction. 

Ms. MCCOURT. It is. I mean, I would love to say it is all great 

and, you know, we have these novel ideas, but that does give us 

a benefit. You can leverage, you know, seven accounts payable organizations or seven student services. 

Chairman ROSKAM. There are many systems across the country. Nice try. 

Ms. MCCOURT. Everyone is focused on it. 

Chairman ROSKAM. I get it, but your presence here today and 

your ability to describe what is happening at Indiana University, 

to which I give you credit and I admire and what we know Governor Daniels is doing at Purdue is something, is the exact reason 

that there is an incongruity. 

What is happening in my home State is lagging compared to 

what you are doing. I appreciate your willingness to try to advocate 

on behalf of a larger entity that you are bound to try to do, and 

you are doing a good job. The challenge is it is a really hard case 

to make, and your presence here is the irony that it is possible. 

We have been joined by Mr. Dold, whom we will go to quickly, 

and then we will wind it up. 

Mr. DOLD. Thank you, Mr. Chairman. 

104 

Again, I want to thank you for holding this hearing on what is 

an incredibly important topic. 

So the Chairman and I actually come from the same State, and 

I am alarmed at the rate at which the number of administrators 

is increasing; 31 percent over 6 years for administration to me as 

a small businessowner seems outrageous. 

I have to tell you when I am out talking to people each and every 

day that are having the kitchen table conversations with their family, the thing that they are concerned about most besides the rising 

cost of fuel, is the cost of higher education. 

We know it is the great equalizer. We know it is the building 

blocks for everything that we want to do. We want to make sure 

that people are able to reach their full potential, and frankly, we 

are going to rely upon you. 

Yet, when you look at the cost of higher education over the 

course of the last several decades, it so far outpaces inflation that 

one has to take a look and say, ‘‘Are we getting better educated 

today than the folks that graduated before?’’ 

Really, what I want to try to focus on because this is such an 

important topic is: How do we enable or how do we start getting 

dual credit? How do we start enabling people to have that leg up 

when they are coming in so that they are not putting 5 years in 

instead of 4? 

Some of the community colleges, they are spending a lot of their 

Pell Grant money on remedial education, and we know if they are 

doing that on remedial education, the chance that they are going 

to actually graduate and get a certificate out of some of these community colleges diminishes greatly. 

I guess one of the questions that I am asking most from you here 

on the panel is: What would you think about having some of the 

universities that you represent actually engaged in the student 

loan process so that we are better aligning the students’ outcome 

and their ability to pay back the universities? 

What would you think, Dr. Lucca, about something along those 

lines? Would that be a change that we might be able to try to better align so that these universities ensure that their college students are coming out and getting good, high-paying jobs? 

Mr. LUCCA. My research does not directly speak to that issue, 

I mean, generally aligning the interests of colleges and students 

would probably not be a terrible idea, but I have not really researched this. 

Mr. DOLD. I would hope it would not be a terrible idea, but I 

mean, again, we want people aligned. We want people in the rowboat rowing in the same direction. 

Dr. Vedder. 

Mr. VEDDER. I think, picking up on Dr. Lucca’s answer, I do 

think universities ought to be more aligned with the interests of 

their students. Their own interests and the students’ should be 

more aligned. 

I have been intrigued in my own thinking about doing exactly 

that. Why are the universities themselves not in the loan business? 

Why do they not use some of their endowments to invest in their 

own students? 

105 

If we are going to move to a new form of financing of higher education as some have suggested, income share agreements where 

people sell a share in themselves as it were, equity in themselves 

rather than debt in themselves so that the risk goes to the investor; why can at least some of the richer schools not be involved in 

that process? 

Why can colleges not have more skin in the game? 

Mr. DOLD. Well, I think they need to, to your point. 

Mr. VEDDER. So I am sympathetic to your idea. 

Mr. DOLD. Mr. Galle, you are over at Georgetown at the Law 

Center. 

Mr. GALLE. Yes. 

Mr. DOLD. Do you have great faith that these lawyers or soon 

to be lawyers coming out under you tutelage are going to do well? 

Mr. GALLE. I do. I think one reason to be cautious is essentially 

in that situation your educator is acting as an insurer, and we 

know from studying health care usually you want a pretty big pool 

if you are acting as an insurer. It is not clear that one university 

level is a big enough pool in order to make a system like that fiscally viable. 

I would be interested in Dr. Vedder’s research on that front. 

You know, another thing to think about when you are thinking 

about having skin in the game is that as we heard, a lot of States 

are having less and less skin in the game of the future of people 

who are being educated in their State, and I think it would be interesting to think about creative ways to get the Federal Government to encourage States to spend more on their students. 

If you think about it, for the most part the Federal Government 

is in the position just of writing checks, and it is hard to get a lot 

of accountability when you are just the checkwriter. But if you are 

actually operating the institution, you can control a lot of these levers. 

So I think maybe State universities are a good answer for a lot 

of the affordability problems that people are facing. Maybe there 

are creative ways to encourage a better balance. 

Mr. DOLD. I can tell you it is at a fever pitch, and that most 

people are terrified about how they are going to be able to afford 

to send their children to college. 

Ms. MCCOURT. I would say colleges and universities have put 

hundreds of millions of dollars of skin in the game when we look 

at institutions like Harvard and Yale, which we have talked about 

several times today. Families that are making under $65,000 are 

virtually paying nothing; families that are making up to $150,000 

are paying zero to 10 percent of their income. 

Mr. DOLD. Okay. When I go back to Grayslake and talk to a 

mother of three children, am I going to tell her she is going to pay 

nothing to send her kids to Harvard? 

Ms. MCCOURT. If her kids are going to get into Harvard? 

Mr. DOLD. Well, I am asking. That is my point. 

Ms. MCCOURT. Her kids are going to get into Harvard and they 

make—— 

Mr. DOLD. I cannot go to a mother in Grayslake and say, ‘‘Do 

not worry about college. Harvard is going to pay for it.’’ 

106 

Ms. MCCOURT. If the kid gets into Harvard and she makes less than $65,000, you probably can tell her she is not going to pay anything for her child to attend Harvard. Mr. DOLD. Okay. So if she’s making less than $65,000 she is 

going to pay nothing or her children will pay nothing to go to Harvard. How about if we are going to the University of Illinois? 

Ms. MCCOURT. The University of Illinois, like all State flagship 

institutions—I am saying all; most—are putting big dollars on the 

table, much skin in the game to attract the best and brightest. So 

if she did not get into Harvard, but anyway—or if you are making 

less than, I think at Indiana it is about $65,000 as well, there are 

hundreds of millions of dollars on the table that institutions are 

putting up. 

Mr. DOLD. I recognize that my time has expired, but let me just 

say please, in some of our low-income areas, they might not have 

those things, and if we are looking to try to level the playing field, 

give them the opportunity. I cannot go to them and say, ‘‘By the 

way, if you just apply, college is going to be free.’’ 

They are looking at the sticker price, and frankly, the sticker 

price is becoming more and more out of reach where people are 

throwing up their hands saying, ‘‘I do not know how I can.’’ 

Ms. MCCOURT. And that is some of the investments, and when 

we look at the investments, financial aid, there are a lot of investments in financial aid counselors so that families can come, get on 

websites and find that they will not be paying those sticker prices. 

Mr. DOLD. Thank you, Mr. Chairman. 

Chairman ROSKAM. Thank you to all of our witnesses. We are 

deeply appreciative of the time and energy that you gave us today, 

and it is not lost on us, your willingness to share your perspectives, 

and all five of you really added a great deal of insight and value, 

and I know I speak on behalf of all of my colleagues here, that we 

are deeply appreciative of your time 

The meeting is adjourned. 

[Whereupon, at 12:12 p.m., the Subcommittee was adjourned.] 

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