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23–192 2017

HEARING ON TAX-EXEMPT COLLEGE AND 

UNIVERSITY ENDOWMENTS 

HEARING 

BEFORE THE

SUBCOMMITTEE ON OVERSIGHT 

OF THE

COMMITTEE ON WAYS AND MEANS 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED FOURTEENTH CONGRESS 

SECOND SESSION 

SEPTEMBER 13, 2016 

SERIAL 114–OS14 

Printed for the use of the Committee on Ways and Means 

( 

ii 

COMMITTEE ON WAYS AND MEANS 

KEVIN BRADY, Texas, Chairman 

SAM JOHNSON, 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 

TOM RICE, South Carolina 

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 

DAVID STEWART, Staff Director 

NICK GWYN, Minority Chief of Staff 

SUBCOMMITTEE ON OVERSIGHT

PETER J. ROSKAM, Illinois, Chairman 

PAT MEEHAN, Pennsylvania 

GEORGE HOLDING, North Carolina 

JASON SMITH, Missouri 

TOM REED, New York 

TOM RICE, South Carolina 

KENNY MARCHANT, Texas 

JOHN LEWIS, Georgia 

JOSEPH CROWLEY, New York 

CHARLES B. RANGEL, New York 

DANNY DAVIS, Illinois 

iii 

C O N T E N T S 

Page 

Advisory of September 13, 2016 announcing the hearing .................................... 2 

WITNESSES 

Jeff Amburgey, Vice President for Finance, Berea College, Berea, Kentucky ... 17 

Sheila Bair, President, Washington College, Chestertown, Maryland (formerly 

chair of the Federal Deposit Insurance Corporation) ........................................ 8 

Sandy Baum, Senior Fellow, Income and Benefits Policy Center, Urban Institute ........................................................................................................................ 38

Neal McCluskey, Director of the Center for Educational Freedom, Cato Institute ........................................................................................................................ 5 

Mark Schneider, Vice President and Institute Fellow, American Institutes 

for Research (formerly Commissioner of the National Center for Education 

Statistics) .............................................................................................................. 25 

(1) 

HEARING ON TAX-EXEMPT COLLEGE AND 

UNIVERSITY ENDOWMENTS 

TUESDAY, SEPTEMBER 13, 2016 

U.S. HOUSE OF REPRESENTATIVES, 

COMMITTEE ON WAYS AND MEANS, 

Washington, DC. 

The subcommittee met, pursuant to call, at 10:04 a.m., in Room 

1100, Longworth House Office Building, the Honorable Peter Roskam [chairman of the subcommittee] presiding. 

[The advisory announcing the hearing follows:] 

2 


23192.001

Cf/A/RMAN KEVIN BRADY 

Chairman Roskam Announces Hearing on Tax-Exempt 

College and University Endowments 

House Committee on Ways and Means Subcommittee on Oversight Chaim1an Peter J. 

Roskam (R-lL) today announced that the Subcommittee will hold a hearing entitled 

"Back to School: A Review of Tax-Exempt College and University Endowments." The 

hearing will take place on Tuesday, September 13, 2016 at 10:00AM in Room 1100 

of the Longworth House Office Building. 

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

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

Conun ittee 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 fonns. From the Committee 

hornepage, 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 infonnation. ATTACH your submission as a Word document, in 

compliance with the formatting requirements listed below, by the close of business on 

Tuesday, September 27, 2016. 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 confonn to the guidelines 

listed below. Any submission not in compliance with these guidelines will not be 

printed, but will be maintained in the Committee fi les for review and use by the 

Committee. 

All submissions and supplementary materials must be submitted in a single document via 

email, provided in Word format and must not exceed a tota l of 10 pages. Witnesses and 
3 

f 

Mr. ROSKAM. The hearing will come to order. Welcome to the 

Ways and Means Oversight Subcommittee hearing entitled ‘‘Back 

to School: A Review of Tax Exempt College and University Endowments.’’ 

Mr. LEWIS. Mr. Chairman. 

Mr. ROSKAM. Mr. Lewis. 

Mr. LEWIS. Will you yield for a moment? 

Mr. ROSKAM. Be delighted. 

Mr. LEWIS. Mr. Chairman, I understand that today is your 

birthday. And before we go on, I think we should just wish you a 

wonderful and happy birthday. Now, I will not sing, because I cannot carry a tune, but happy birthday, Mr. Chairman. 

Mr. ROSKAM. Thank you very much. I appreciate that and look 

forward to us working together. And thank you very much for your 

kindness. I appreciate it. 

We have got some work to do today, and it is work that is good 

work. We know that a year ago, the subcommittee heard from a 

panel of witnesses about how tuition and student debt loads were 

spiraling out of control. From 1980 to 2014, the average college tuition increased 260 percent. I mean, that is a number that just 

takes your breath away. 

We on this subcommittee don’t need a panel of experts to tell us 

that, because we hear that when we go home. Both sides of the 

aisle, we hear this with some frequency and with some regularity. 

And there is a level of anxiety that is being communicated to us 

by our constituents that is just palpable. That is, parents are feeling like this notion of sending children to school is becoming more 

and more and more difficult. 

And in addition to the tuition that they pay, those same parents, 

along with the rest of American taxpayers, are giving subsidies to 


23192.002
4 

colleges and universities via tax exemptions. Tax policy benefits 

these institutions in numerous ways. For starters, people who donate to colleges and universities can write off those donations. The 

schools don’t have to pay tax on those gifts, and any investment 

earnings from those gifts are tax free as well. 

Given families’ concerns and the big tax benefits colleges and 

universities get from taxpayers, the Ways and Means Committee 

believes it is important for us to keep learning about how these 

schools are working to fill their charitable and educational purposes. 

Today’s hearing will be an educational experience for our members and for the public. Following on our hearing from last October, 

we will be learning more about what is driving tuition increases. 

We will also be hearing about what some institutions are doing to 

reduce costs for their students. Some of these ideas are really exciting, and they go to show that this entrenched idea, that is that tuition has to go up each and every year, is not gospel. It doesn’t necessarily have to happen. 

Schools can do creative things to reduce their administrative 

overhead, to develop alternative funding arrangements so students 

don’t have to borrow as much, and to reward middle-class families 

that save for the future instead of penalizing them with high tuition. Imagine this, some schools have actually frozen their tuition, 

and one college we will hear from doesn’t even charge tuition. 

As we have engaged in dialogue with colleges and universities 

over the past few years, we have learned a lot. We have learned 

that institutions are differently situated from each other, and that 

one-size-all policy solutions may not be the answer. But we have 

also learned that when institutions prioritize helping their students 

in creating efficiencies on campus, they can find creative ways to 

make it happen. 

We look forward to hearing about some of those ideas today and 

hearing from experts who will provide us insight into ways that 

Congress can encourage universities and colleges in these endeavors. 

Before I introduce our panel of witnesses, I would like to recognize and yield to my friend from Georgia, the ranking member, Mr. 

Lewis, for his opening statement. 

Mr. LEWIS. Thank you, Mr. Chairman, for yielding. 

Good morning. I would like to thank the chairman for holding today’s hearing on tax-exempt college and university endowments. As 

many of you know, my congressional district is metro Atlanta. It 

is home to many universities and colleges. Spelman, Moorehouse, 

Georgia State, Clark Atlanta, Georgia Tech, Agnes Scott, and 

Emory are just a few of the more than 80 great institutions of higher learning in our community. 

Across the country, colleges and universities have trained and 

prepared the next generation of scientists, teachers, doctors, 

nurses, architects, and engineers. Graduates are the future business owners, thinkers, creators, and leaders of our Nation. 

In addition, many colleges and universities are research centers 

where experts and students search for cures to diseases like cancer, 

HIV–AIDS, and alternative energy sources and new technologies. 

Their work puts us on the path to greener, cleaner, and healthier 

5 

possibilities for a generation yet unborn across the United States 

and around the globe. 

It is important to remember the real impact and benefit of higher 

education for real people. In 2015, the average weekly earning of 

a college graduate was over 60 percent higher than the worker 

with just a high school education. Simply said, education is the 

fastest path to the middle class. Education is the key. Education 

is the great equalizer. 

In light of the decreasing State support, it is more important 

than ever that the Federal Government helps to keep open the 

doors to higher education. Republicans and Democrats must fully 

support Pell Grants and student loan programs that make school 

affordable, and Federal student aid and tuition repayment program 

must be fully funded. We must do our part. We must play a role 

and play it well. 

We have a duty and obligation to help make higher education the 

real thing. We have a moral responsibility to make college accessible to all who aspire. 

I look forward to hearing from today’s witnesses on what we can 

do to keep the dream of education within the reach of all of our 

citizens. It is the right thing to do. It is the fair thing to do. Thank 

you for being here. 

I yield back, Mr. Chairman. 

Mr. ROSKAM. Thank you, Mr. Lewis. 

And I think, following up on that theme that Mr. Lewis articulated, that education is the key, we have got five witnesses that are 

going to give us some insight and perspective to try and help us 

to play the role that we need to play the role in the Tax Code to 

make sure that we are part of that, because I think everybody 

agrees that education is the key. And as Mr. Lewis mentioned, education is a great equalizer. 

So today’s witness panel includes Dr. Neal McCluskey, who is 

the director of the Cato Institute’s Center For Educational Freedom; Sheila Bair, president of Washington College; Jeff Amburgey, 

vice president of finance for Berea College; Dr. Mark Schneider of 

the American Institutes for Research; and Dr. Sandy Baum, a senior fellow at the Urban Institute’s Income and Benefits Policy Center. 

Each of you, we have received your written testimony, and that 

is part of the record. We have reviewed your written testimony as 

well. But each of you have 5 minutes to present to the committee, 

and then our inquiry will begin. 

So, Dr. McCluskey, you are recognized for 5 minutes. 

STATEMENT OF NEAL MCCLUSKEY, DIRECTOR OF THE 

CENTER FOR EDUCATIONAL FREEDOM, CATO INSTITUTE 

Mr. MCCLUSKEY. Thank you, Chairman Roskam, Ranking 

Member Lewis, Members of the Committee. Thank you for inviting 

me to speak with you today. My name is Neal McCluskey. I am the 

director of the Center for Educational Freedom of the Cato Institute, a nonprofit, nonpartisan public policy research organization. 

My comments are my own and do not represent any position of the 

institute. 

6 

I have been asked to provide something of an overview of the Nation’s college price problem. Why do people believe we are in a college cost crisis, as the term often used? Well, as you know, as you 

have already said, the country has seen an unremitting increase in 

college prices for about the last 35 years and with it, greatly increasing student debt. 

There are three common explanations for this problem. The first 

is ‘‘cost disease.’’ Industries relying on labor see their costs rise because they cannot replace labor with technology while their workers must get paid more, lest they move the job where more pay, 

enabled by greater productivity, is available. If you want to perform Beethoven, you need the same number of players as in Beethoven’s day. 

There is a problem with this. While putting on a live performance may require the same inputs as in Beethoven’s era, getting 

music to people has become much easier with records, tapes, Internet. Technology has massively increased productivity. Colleges, like 

orchestras, are heavily dependent on skilled labor, but like musicians, the reach of any given professor could be hugely expanded 

via the Internet especially. 

The second major explanation for the price problem is that 

schools must raise prices to make up for cuts to State support. 

Over the last 25 years there have been decreases in inflation-adjusted, per-pupil State and local appropriations to public colleges. 

State and local governments have, however, actually increased 

total appropriations. 

What explains the per-pupil drop is big enrollment increases. 

When per-pupil appropriations are compared to per-student revenue through tuition and fees, we can get an idea how much public 

schools might have raised prices to make up for lost appropriations. 

Smoothed trend lines suggest that for every 53 cents lost in appropriations, the average State schools brought in about a dollar 

through tuition and fees. 

Tuition and fee lines are also smoother than appropriations, suggesting that much of the pricing is on kind of automatic pilot. Further hurting the State-funding explanation is that private institutions have also seen major price increases. 

The last major explanation is that student aid, especially from 

D.C., lets colleges raise prices. Proving this is difficult, in part because it is hard to know to what extent necessary expenditures are 

driving prices or colleges are just maximizing revenue. At least 13 

studies have indicated that student aid leads to various effects that 

reduce the value of aid to students. 

On the demand side, colleges supply costly amenities and programs because heavily subsidized students demand them. Of 

course, schools do not have to raise prices, but people in colleges 

always feel there is something useful they can do. This is the basis 

for what is called Bowen’s Law, named after former Grinnell College and University of Iowa President Howard Bowen, which says 

essentially, that in pursuit of prestige and other goods, colleges will 

take every dollar they can get. 

The solution is, I think, actually to phase out Federal aid, making people pay with their own money or funds they get voluntarily 

7 

from others. That said, there does not currently seem to be much 

appetite for this. 

So let’s look at four proposals that appear to be feasible in the 

near term. The first is requiring greater endowment payouts. Why 

should colleges stockpile money and charge high prices? I think the 

first problem with this is that endowment funds are often restricted and may not be easily directed to financial aid. More important, few institutions have very large endowments. Among 4,627 

degree-granting postsecondary institutions, only 95 have endowments exceeding $1 billion. Endowment earnings would also be an 

unpredictable source of funding, because they go up and down. 

Then there is free college proposals. Washington would essentially incentivize States with matching funds to increase their subsidies to public colleges. While such proposals might lower prices, 

it is likely that large Federal expenditures would be needed to 

goose large State expenditures. Free college would also likely exacerbate higher education’s huge noncompletion problem. 

There are also income share agreements in which investors 

would fund students for a percent of their income over a set 

amount of time. Investees earning little would not be burdened 

with unaffordable payments, because they earn more, and they and 

their investors would make a lot. From a borrower’s perspective, it 

is like an income-based loan repayment, but an investor can earn 

more than a traditional lender. 

Where ISA is a government program open to anyone to cover any 

price, as essentially the case with Federal loans, they would have 

no price-dampening effect, moving third-party money to students. 

And as long as Federal loans with generous terms existed, ISAs 

would struggle for students who expect substantial earnings. 

Finally, we have skin-in-the-game proposals. Many people propose that colleges pay a percentage of their graduate’s debt if their 

default rates exceed a certain level. There are big challenges to 

this. First, institutions that take the highest-performing students 

would be in no jeopardy, while schools taking students on the margins may do yeomen’s work, but would be open to serious penalties. 

And schools going out of business could cost students on the margins to go to the schools where there are enough high-earning students and high-achieving students to hide them, but those students 

may do no matter. 

Rational pricing requires consumers paying with their own 

money or funds received voluntarily from others. Requiring greater 

endowment payments or other proposals do little to address this. 

Thank you, and I look forward to your questioning. 

[The prepared statement of Mr. McCluskey follows:] 

8 

f 

Mr. ROSKAM. Thank you. 

Ms. BAIR. 

STATEMENT OF SHEILA BAIR, PRESIDENT, WASHINGTON COLLEGE, CHESTERTOWN, MARYLAND (FORMERLY CHAIR OF 

THE FEDERAL DEPOSIT INSURANCE CORPORATION) 

Ms. BAIR. Chairman Roskam, Ranking Member Lewis, Members 

of the Committee, it is a pleasure to be here. 


23192.026
9 

About a year ago, I became the president of Washington College, 

a private, nonprofit liberal arts college in Chestertown, Maryland. 

Of our 1,481 undergraduates, 90 percent of them receive some form 

of scholarship assistance. But like college students nationwide, it 

is never enough to cover the cost of their college education. 

For those who must borrow, the national average debt load upon a 4-year graduation is $28,950. Though this level of borrowing can 

be justified based on the increased earnings potential that comes 

with a 4-year degree, it is still too high. I am very proud that we 

were able to reduce our 2016 seniors’ average Federal debt level by 

10 percent through increased scholarship funding during the first 

year of my presidency. 

This hearing on college endowments and their relationship to the 

affordability issue is timely as students around the country are returning to campus and we are in the middle of College Savings 

Month. To any new parents in the chamber, I say start saving now. 

The cost of higher education has increased more rapidly than 

that of food, shelter, and medical care for the current generation 

of college students. Tuition at private 4-year colleges has increased 

an average of 4.7 percent a year since 2000, far outpacing the average inflation rate of 2.2 percent. 

One recent analysis showed that real wages for the typical college graduate have risen only 1.6 percent over the past 25 years 

while their average student debt over a 4-year graduation has 

grown by a whopping 163.8 percent. 

The committee invited me to appear today to talk about what we 

are doing at Washington College about affordability. We have 

adopted a multipronged approach. 

First, we are increasing philanthropy. Earlier this summer, we celebrated a record year for fundraising, bringing in almost $23 

million dollars. With our encouragement, most of our major gifts 

last year were for scholarship, and all of our unrestricted smaller 

gifts went to financial aid. 

I like to say that giving to endow a scholarship is more endearing 

than giving to bricks and mortar. We need both, but we always 

need more scholarships. 

Financial aid is especially vital for first-generation college students, whose families often require the most assistance in paying 

for their education. That is why our second initiative is George’s 

Brigade. This is a full scholarship program for high-performing 

first-generation students whose families would otherwise not have 

the resources to pay for a private liberal arts education. Members 

of George’s Brigade have their full financial needs met, including 

tuition, room and board, and fees. If students wish to borrow for 

incidental expenses, the program requires that they limit their 

loans to $2,500 per year. 

Dam the Debt, another program in our arsenal, reduces the debt 

of all Washington College graduating seniors holding federally subsidized loans in their final semester. As a result of Dam the Debt, 

119 qualifying seniors from 15 States received enough money to 

erase the federally subsidized loans they had taken out in the 

spring of 2016. This average reduction was $2,630. 

Our Savers’ Scholarship, which was recently announced, will 

match the amount that families withdraw and use from a 529 colVerDate Sep 11 2014 00:39 Jul 13, 2017 Jkt 023192 PO 00000 Frm 00013 Fmt 6633 Sfmt 6602 I:\WAYS\OUT\23192.XXX 23192
10 

lege savings plan or an educational savings account up to $2,500 

per year to pay for their student’s tuition. We recognize that not 

all parents have the capacity to save, which is why we have initiated other programs like George’s Brigade. But for those who can 

save, we think that type of advance financial management and 

planning should be rewarded with a Savers’ Scholarship. 

Finally, we froze tuition, which is a rare trend, unfortunately, 

among liberal arts colleges. We are among a very small fraction of 

colleges that did so, and we are product to have frozen our tuition, 

which helped all of our students. 

In addition, we are looking at income share agreements. I am 

really inspired by the president of Purdue, Mitch Daniels, who has 

been a leader in college affordability for public universities. He has 

compiled an amazing record, and including launching recently an 

income share agreement arrangement. 

I think if we want to access college financing to be broadly accessible, we need to move away from a debt financing model to an equity financing model. And I would disagree, ISAs are not debt, they 

are equity. It is very different. And perhaps we can get more into 

that discussion when we get to the Q&A. 

And finally, last but not least, certainly, I think the committee 

is very right to be looking at college endowments. I can think of 

no better purpose for endowment income than scholarships. I would 

love to have a billion-dollar endowment, I am jealous here, but we 

don’t. A 5 percent draw would be $50 million, that would be 80 percent of our budget, and I would slash tuition accordingly. Regrettably, we only have about $200 million. But we do adhere 

to a 5 percent spend rate. Actually, our policy has been a 5.5 percent over the last few years. And I am proud to say that 60 percent 

of our endowment draw is dedicated to scholarships, and I hope 

that percentage will increase even more during my presidency. 

Thank you very much. 

[The prepared statement of Ms. Bair follows:] 

11 


23192.008

~~-?;;;: k'h11W•FFEE 

TESTIMONY OF SHEILA C. BAIR, PRESIDENT 

WASHINGTON COLLEGE 

BEFORE THE HOUSE WAYS AND MEANS COMMITTEE 

SUBCOMMITTEE ON OVERSIGHT 

September 13,2016 

Chairman Roskam, Ranking Member Lewis, and members of the Committee, it is a pleasure to 

be here. About a year ago, I became the President of Washington College, a private, nonprofit 

liberal arts college in Chestertown, on Maryland's East em Shore. Of our 1481 undergraduates, 

90 percent of them receive some form of need-based financial aid or merit-based scholarship 

assistance, but like college students nationwide, is never enough to cover the cost of their college 

education. For those who must borrow, the national average debt load upon graduation is 

$28,950. Though this level of borrowing can be justified based on the increased eamings 

potential that comes with a four-year degree, I am very proud that we were able to reduce our 

2016 seniors' average debt levels by I 0% through increased scholarship funding during the first 

year of my presidency. 

Since accepting the presidency of Washington College, I have been monitoring the growing 

problem of student loan debt in our country, which now exceeds $1.3 trillion. Unfortunately, I 

see many parallels to the sub-prime mortgage crisis. Lack of undenvriting standards means 

that we're not considering whether the borrower can repay. With negative amortization, some 

repayment plans have students falling farther behind because their payments aren't enough to 

cover the compounding interest; growing loan default and non-payment rates force taxpayers 

to pick up the bill. Government programs intended to increase college access and affordability 

have not achieved their purpose. 

This hearing on college endowments and their relationship to the affordability issue is timely as 

students around the country are returning to c-ampus, and we are in the middle of College 

Savings Month. To any new parents in the chamber, start saving now! 

The cost of higher education has increased more rapidly than that offood, shelter, and medical 

care for the current generation of college students. Tuition at private four-year colleges has 

increased an average of 4.7% a year since 2000. This far outpaces the average inflation of2.2% 

over this time period. 

When compared to wage growth, the differential is even more startling. I want to put in 

perspective just how much college tuition has increased using the entering class at Washington 

College as the example. At the time these freshmen were bom, median college tuition at private 

non-profit colleges was S 15,380. Now the median is $32,405. 

Median family income was $40,816 when our entering freshmen were in diapers. If income kept 

pace with tuition, their parents would be making $85,998 today. Unfortunately, the 2016 

comparable income is far short of that-only $53,657. The comparison is even more stark when 
12 


23192.009

looking at real wage growth for college graduates compared to the rise in student debt levels. 

Drawing from research by the New York Fed and data published by the US Department of 

Education, one recently published analysis in the Buffington Post showed that real wages for the 

typical college graduate have risen only by 1.6% over the past25 years, while average student 

debt for four-year graduates has grown by a whopping 163.8%. 

Student Debt Significantly Outpacing Wage Growth 

Median wages have Increased 1.6%0'11!( the last 25 years while median debt has 

riS(!O 163.8% 

$4St000 $4l,l42 

$40,000 

sn~ooo 

uo.ooo 

$U,OOO 

$201000 

SU,OOO 

$1,000 

tHO 

o$31,941 

199, 2000 2004 2001 2012 2015 

Student Debt Rising As Wage Growth Stalls 

Since 1990, median debt has nearly tripled as a share of the typical recent college 

grad's annual wages 

10~ 
13 


23192.010

Tuition vs. Median Income Over Time ~ 

--- $1 .. $70« 

-

-

-

S30I< 

-

SIO. 

so 2010 

Tuition increases have outpaced the price increases for cars, houses, rent, movie tickets, food, 

clothing, you name it. More and more families perceive that they are being priced out of the 

college market, and many actually are. Yet a college degree is more indispensable for today's job 

market than ever before. College graduates outnumber high-school educated workers in the 

workforce for the first time in our history. And since the recovery, only jobs for college 

graduates have rebounded. Jobs for high school graduates that were eliminated in the recession 

have not come back.

1 

Some argue that America and the world are on the verge of a third industrial revolution in which 

a college degree will be essential. While as many as 47 percent of jobs in our country will be 

taken over by computers and robots within the next 20 years, just as many new types of jobs will 

be created. 

2 ln health care, diagnostics tasks are already being computerized. Computerization is 

entering the realms of legal and financial services. Advances in user interfaces enable computers 

to respond directly to a range of human requests. Think Siri. 

But while technological advances are contributing to declining costs in robotics, robots are still 

unable to match the depth and breadth ofhun1an perception. To succeed in this marketplace, the 

new workforce. must have the ability to think critically, and analyze complicated problems, and 

communicate clearly-all skills we teach at liberal arts colleges like Washington College. 

1 ''America's Divided Recovery: College Haves & Have Nots," Anthony P. Camevale, Tamam Jayasw1dera, Artem 

Gulish, Georgetown Center on Education and the Workforce, 2016. 

2 "The Future of Employment: How Susceptible Are Jobs to Computeri7.ation?" Carl Benedikt Frey, Michael A. 

Osbome, University of Oxford, September 2013. 

http I/IV\I~V .eng.ox.ac.uk/aboullnews/new-st11dy-shows-nearly-ha.l [-of-us-jobs-at-risk -of-computerisation 

(hllp://www.nigcltodman.corurnte _Future_ of_ Employment.pdQ 

3 
14 


23192.011

Generalist work requiring a high degree of social intelligence- jobs in business, management, 

finance, education, healthcare, and the arts- are at a very low risk of being computerized. (Frey, 

p. 40). We don't want to limit choice, which is the strength of our higher education system; some 

of the free tuition proposals would do just that. 

In order to grow the middle class, our economy needs many more students earning college 

degrees so that they can perform the jobs our economy requires. Yet its cost is moving beyond 

the reach of too many families. Study after study has shown that the cost of collegeaffordability- is the top deciding factor for almost every student. 

In research conducted for Washington College by Hanover Research in 2016, 81 percent of the 

respondents surveyed said that cost is either very or extremely important. Affordability is far and 

away more important than campus atmosphere, location, quality of athletic programs, or studentfaculty ratios. 

Sallie Mae just released a national study, "How America Pays for College," that came to the 

same conclusion.

3 

The Committee invited me to appear today to talk about what we are doing at Washington 

College about affordability. There is no single solution to the problem; we've adopted a multipronged approach. 

First, we are increasing philanthropy. Earlier this summer, we celebrated a record year for 

fundraising, bringing in almost $23 million and increasing alumni participation in annual giving 

by four percentage points. That's a pretty big deal, and we hope to repeat that jump this year. 

With our encouragement, most of our major gifts last year were for scholarships, and all of our 

smaller gifts to The Washington Fund are used for financial aid. If a gift is unrestricted, it is used 

for scholarships. !like to say that giving to endow a scholarship is more enduring than giving to 

bricks and mortar. We need both, but we always need more scholarships. Buildings require 

maintenance and upkeep, which is expensive and can also drive up costs and conswne 

endowment spending. 

I believe scholarship giving is the most prestigious form of college pl1ilantbropy. 

Every year, Washington College provides more than $25 million in grants and scholarships, with 

90 percent of students on the receiving end. Financial aid is especially vital for first-generation 

college students, whose families often require the most assistance in paying for their education. 

This is why we started George's Brigade. 

This initiative-a full scholarship program for high-performing, ftrst-generation students whose 

families would otherwise not have the resources to pay for a private liberal arts education-is 

intended to improve college accessibility and tackles the problems of high student loan debt and 

college affordability at the same time. Members of George's Brigade will have their full 

financial needs met, including room and board. If students wish to borrow for incidental 

expenses, the program requires that they limit their loans to $2,500 per year. This will allow 

them to receive an excellent education and to launch their careers without the burden of large 

amounts of debt. I think this loan restriction is important because one of the worst outcomes for 

any student is to borrow a lot of money and not complete a degree. 

3 "How America Pays for College," \V\V\V.sallictme.com/plan-for-collcgclhow-america-pays-for-collcge/ 2016. 
15 


23192.012

An exceptional feature of George's Brigade is that it allows students to apply and be admitted in 

small groups from the same conuntlllity or school so that they have companions to share their 

transition to college life. The initiati ve includes special programming, events, mentoring, and 

career counseling for the enrolled students. The first group of George's Brigade-16 students 

from across the country (including seven from Baltimore)- are part of the Class of2020. 

Since its inception in late 2015, George's Brigade has received support from a variety of sources. 

Of the $4 million committed so far, $2.85 million is endowed. With each successive year, as we 

raise additional scholarship dollars, George's Brigade will continue to grow in strength and 

numbers. 

Dam the Debt, another program in our arsenal, reduces the debt of all Washington College 

graduating seniors holding federally subsidized loans in their fmal semester. The program is 

unlike any other debt reduction initiative in that students will not have to pay taxes on the money 

they are given. As a result of Dam the Debt, 119 qualifying seniors from 15 states received 

enough money to erase the federally subsidized loans they had taken out in Spring 20 16. 

Amounts varied depending upon the students' loans, but the average reduction was $2,630. It is a 

back-ended scholarship, a reward for graduating. Students told me this was vastly more useful 

than the typical graduation gift of a paperweight or a pen. 

Savers' Scholarship. Just two weeks ago, Washington College launched the Savers' Scholarship 

to make college more affordable. This pilot program will reward families who have saved money 

for their children's education. Our scholarship will match the amount that families contribute 

from a 529 college savings plan or an Educational Savings Account, up to $2,500 per year, to 

pay for their student's tuition. I know that 529 plans are typically used by upper middle-income 

fami lies, and I think that is ok. I know from personal experience that when a family has to save 

for two or three kids going to college, it really takes financial planning. This program is a way to 

reward that foresight and behavior. 

Tuition Freeze. Finally, we are freezing tuition-a rare trend among liberal arts colleges. We 

are among a very small fraction of colleges that do so. And we are currently evaluating our 

budget and projections to limit the need for future tuition increases. This year, we are welcoming 

one of the largest, most academically gifted, and most diverse entering classes ever. With a four 

percent increase in the percentage of freshmen students returning for their sophomore year, I 

have to think that the freeze and our otber affordability programs have something to do with 

tbose successes. 

Income Share Agreements 

I am inspired by the President of Purdue, Mitch Daniels, who has been a leader in college 

affordability for public universities. He has compiled an amazing track record, having frozen 

tuition for five consecutive years. He bas also launched a new program of income share 

agreements, or ISAs. I believe ISAs hold great promise as a pathway to a truly debt-free 

education and hope that Congress would seriously consider adoption of an !SA program as an 

alternative, if not a replacement, for the current debt-driven federal system. 

If we want access to college financing to be broadly accessible, we should move away from a 

debt fmancing model to an equity financing model as represented by ISAs. Currently, federal 

loans are granted with no underwriting. As a result, many students and their families receive 
16 


23192.013

loans they have no realistic hope of repaying. We are not doing these young people any favors by 

giving them loans that they cannot afford, that they cannot discharge in bankruptcy, and that 

could be a drag on their financial well-being even into retirement. It would be much better to 

move to an equity financing model, where students are required to pay a small percentage of 

their income up to a certain cap, over longer period of time, instead of a frequently unaffordable 

fixed payment loan amortized over the current ten-year period. 

Under the equity financing model, graduates are always guaranteed an affordable payment and 

are given the benefit of time to progress in their career with accompanying higher income levels 

to make it easier to give taxpayers a reasonable return on their investment. Graduates entering 

higher-paying professions will pay back more and pay it back faster than graduates entering 

lower-paid professions- both with the certainty as to when their obligations will end. To its 

credit, the Administration has launched various income-based repayment options for students 

who cannot afford the standard ten-year repayment term on a federal loan, however, these are 

still debt obligations and frequently require a significant ponion of disposable income as a 

monthly repayment. The options are confusing and complex, and some involve negative 

amortization features. The nonpayment rates are high even when students are given these 

alternatives. 

I would encourage Congress to at least consider authorizing a pilot program allowing students to 

opt out of their loans and into IS As. I would also encourage building JSA payments into the 

payroll tax system so that they are automatically made each pay period. This would greatly 

reduce the high rate of defaults and non-payments we currently see in the federal loan programs. 

An ISA would reduce stress for students, eliminate servicing issues, and eliminate a substantial 

risk to the taxpayers. 

As exemplified by Purdue, colleges are also moving forward with ISAs on their own, and I 

support legislation to clarify legal, tax, and consumer protection issues surrounding this novel, 

affordable approach to college financing. 

Increased scholarship funding, promoting ISAs, and limiting tuition increases-these are policies 

and strategies to keep a college education within the reach of the typical American family, even 

without the federal government picking up the tab. 

Such initiatives are particularly important to the future of small liberal arts colleges like ours. It 

is essential to preserve the liberal-arts tradition, which differentiates the American higher 

education system from others and is one of the reasons why our system is the envy of the world. 

This is not an inexpensive way to educate young people-we offer small class sizes, low facultyto-student ratios, experiential learning, and international exchange opportunities- but these are 

essential to the education of students who can think critically, communicate, and adapt to the 

ever-changing world economy that we live in. I am proud of the leadership role we have played 

in defending the liberal-arts tradition, while at the same time pioneering ways to make it more 

affordable. 

IF I HAD A BILLION-DOLLAR ENDOWMENT 

The Committee is right to be looking at college endowments. I can think of no better purpose for 

endowment income than scholarships. I would love to have a billion-dollar endowment. A 5% 

draw of$50 million would cover 80% of our budget and we would slash tuition accordingly. 

Regrettably, our endowment is considerably smaller-just $200,319,335. We adhere to a 5% 

6 
17 

f 

Mr. ROSKAM. Mr. Amburgey. 

STATEMENT OF JEFF AMBURGEY, VICE PRESIDENT FOR 

FINANCE, BEREA COLLEGE, BEREA, KENTUCKY 

Mr. AMBURGEY. Thank you very much for giving Berea College 

the opportunity to participate in the hearing this morning. 

Berea College is an independent college located in Kentucky that 

does not collect tuition from any of its students. And its financial 

model, accordingly, is completely unlike that of other the schools. 

The college serves approximately 1,600 students of limited financial means, and it replaces tuition revenue with a combination of 

investment income, annual fundraising, and other sources. 

One of the main aspects of Berea College is the board of trustees 

in 1920 developed a policy for all unrestricted bequests to become 

a part of the endowment. Berea continues to follow that today. 

Berea’s tuition model would not be possible without this endowment, overseen by its trustees. About 45 percent of Berea’s endowment is actually board designated or quasi-endowment that Berea 

conceives as its ‘‘Tuition Replacement Fund’’ thanks to the bequest 

policy. 

More importantly, about 75 percent of Berea’s unrestricted educational and general operating budget is funded by the spendable 

return, the income from the endowment. 

Founded in 1855, the college admitted female and male, Black 

and White students, making it the first non-segregated, coeducational college in the south. Because the college chose to focus on 

interracial education in the Appalachian region, it soon became apparent that its funding would have to be different from other 

schools as the students served could not afford to pay tuition. 


23192.014
18 

In 1892, the college stopped charging tuition and required each 

student to work for the college. Berea College emphasized learning, 

labor, and service as the foundation for educating the whole person. 

This is still Berea’s policy. 

Berea provides from its endowment and other sources a Tuition 

Promise Scholarship for every admitted student each year, meaning that no student ever pays tuition. In addition to academic requirements for admission, there are also financial eligibility requirements for admission since the college seeks to serve academically promising students who cannot afford the cost of higher education. 

The average Berea student comes from a family income of $27,600 for a family of four. Nearly 70 percent of the annual endowment spendable return is used to fund these Tuition Promise 

Scholarships and other direct financial aid to the students. Students attending the college receive on average scholarships and 

grant aid adding up to more than 92 percent of the $34,000 of the 

annual cost of attendance. 

The college’s heavy endowment dependence requires it to take 

special measures to protect its ability to carry out the educational 

mission. During the 1990s, when the equity markets were driving 

up gains in college and universities endowments, Berea made decisions about endowment spending that will have long-lasting impacts on the quality and the future viability of its institutional mission. Berea restricted the growth in its operating budget intentionally in order to create two reserve funds to help fund the physical plant needs of the school and to help the college operate 

through tough financial times. 

Such a time came in 2008–2010, when Berea’s endowment declined significantly. Berea was able to continue funding its programs by reducing its operating budget. In other words, we reduced 

our internally paid tuition, and further, by moving reserve endowment income into its operating budget. 

Like other institutions, one goal of Berea’s endowment is to 

maintain intergenerational equity to students of multiple generations so they will have the likelihood of receiving the same inflation-adjusted educational experience. In other words, Berea’s 

spending rate must not exceed its real after-inflation rate of compound return over long periods of time. 

There are always embedded tensions in this goal. The college 

must provide reasonable increases in its annual operating budget 

for competitive salaries and other expenses, fund the bricks and 

mortar needs of the campus, while maintaining the purchasing 

power of the endowment. Over the last 23 years, Berea has experienced real growth, net growth, above the rate of inflation in its endowment. However, over the last 16-year period, the endowment 

has not kept up with the growth in the Consumer Price Index. 

In conclusion, the college’s endowment is the financial lifeblood 

that funds the extraordinary mission of access and affordability 

that Berea College provides to the lowest economic tier of students 

attending postsecondary education in the United States. 

Berea’s uncommon educational mission has become more and 

more reliant upon endowment income while it strengthened its 

overall physical plant in times of endowment plenty and also has 

19 

been able to provide the high-quality educational program in times 

of endowment income shortages. 

Berea’s administrative leadership hopes no actions will ever be 

taken to reduce the dollars available to fund Tuition Promise 

Scholarships for its students. 

Thank you. 

[The prepared statement of Mr. Amburgey follows:] 

20 


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BEREA COLLEGE WRITTEN STATEMENT 

COMMITTEE ON WAYS AND MEANS liEARfNG 

1100 LONGWORTH HOUSE OFFICE BUILDING 

SEPTEMBER 13, 2016 

Offke of Finandal Affairs 

CPO 2214 

Bell!a, KY 41)404 

Pho"': 859.9853()82 Fax: 859.9853915 

Berea College is an independent college that does not collect tuition from any of its students, and its 

financial model, accordingly, is completely unlike 1hat of other schools. The College serves approximmely 

1,600 students of limited financial means, and it replaces tuition revenue with a combination of investment 

income, annual fund-raising, and monies from other sources. Adhering to a policy adopted in !he early 

1920s by 1he Board of Trustees, the College has built a $1 billion-plus cnd0\\1nent by committing all 

unreslricted beques•s and tn1st legacies to long-term investmenl. Berea's tuition-free model would not be 

possible without this endowment, careful stewardship, and sound investment practices that are actively 

overseen by its Board of Trustees. Abom45 percent of Berea's endowment is actually board designated or 

quasi-endowment that Berea conceives as a ''Tuition Replacement fund'' thanks to the bequest policy. 

More impo11antly. about 75 percent of Be1-ea's unreslricted educational and general operating budget is 

funded by the spendable return (income) from the endowmeut. 

TI1e College's mission is more complex than that of many schools, and the only way to capture the guiding 

principles ofits work is through its Great Commitments. first formulated in the 1960s and only occasionally 

rearticulated since then, a copy of the Great Commitments is attached at the end of this statement. 

Founded in 1855 by the abolitionist Rev. John G. fcc, Berea College admitted female and male and black 

and white students in a fully integrated curriculum. making it the first non-segregated, coeducational college 

in the South aud one of a handful of coeducational institutions of higher leaming in the mid-nineteenth 

century. The College began as a one-room schoolhouse that also served as a church on Sundays. Fee named 

the new community and set of schools after the biblical Berea and preached a gospel of impartial love built 

upon the two Great Commandments, which are to love God and to love your neighbor as yourself. 

Because Berea College and the Berea Schools (all sixteen years of schooling were available until 1968 

when Berea became a college only) chose to focus on interracial education in the Appalachian region, it 

soon became apparent that the funding of these schools would have to be different from their counterparts, 

as the students served could not afford tuition. TI1e Berea College Catalog of 1866noted that Berea schools 

sought to serve the freed slaves and "poor white mountaineers" of the mid-South. In 1892, the College 

stopped charging tuition and required each student to work for the College. Berea College and schools 

emphasized learning, labor. and sen•ice as the foundation for educating the whole person. This is still 

Berea's policy today. 

Oe•-ea provides from its endowment, augmented by p•·ivate, state, and federal scholarship funds, a 1itition 

Promise Scholarship for every admiued swdeut each year, meaning that no student ever pays tuition. In 

addition to academic requirements for admission, there are also financial eligibility requirements fo•· 

lnvestino in Lives of Grear Promise 
21 


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Page 2 of4 

admission, since the College seeks to serve academically promising students who cannot afford the high 

cost of private liberal arts education. The average Berea student comes from a fami ly income of$27,609 

for a family of four. Approximately 68 percent of the annual endowment spendable return is used to fund 

these Tuition Promise Scholarships and other direct financial aid to students. Students attending Berea 

College receive on average scholarships and grants from federal, state, and institutional funds adding up to 

more than 92 percent of their $34,380 annual cost for tu ition, mandatory fees, housing, meals, books and 

supplies, and pe1'SOnal and transp011ation expenses. The balance is paid through a student's Expected 

Family Contribution (EFC), based on the Free Application for Federal Student Aid (FAFSA), summer work 

savings, Berea's required work p1·ogram, and loans. Sixty percent of Berea's entering class in 2016 had im 

EFC of$0, and 30 percent of Berea's 2015 graduating class had no loan debt. The average for the graduates 

that did have loan debt was $7, I 00, substantially less than the $35,000 national average, although the mpde 

was much lower. For students who choose to travel intemationally (traveling is optional), the large amount 

oft he few loans can skew the average amount, although it makes it possible for 40 percent of Berea students 

to have a study·abroad experience. 

Following a longstanding mandate from the Board of Trustees, between 70 and 80 percent of incoming 

Berea students are admitted from Kentucky and Appalachian counties in other states, which together 

constitute Berea's Admissions Territory of 339 counties. For example, in Berea's incoming 20 15 class, 

77.8 percent came from this territory, 15 percent from all other states in the U.S., and 7.2 percent from 32 

intemational countries (non-U.S. Citizens, non-pennanent residents, and non·refugees having F-1 visa 

status). Sixty·one percent of the class was first-generation status (neither parent had completed a college 

degree), 11.3 percent were of Latino/Hispanic/Spanish origin, and 20.8 percent of students identified 

themselves as "black or African American'' alone or in combination with another race. One hundred percent 

of international students had an EFC of$0, and 98 percent of domestic students received a Pell Grant. Of 

the 2014 entering class, an impressive 86.3 percent returned for a second year. 

As one of eight federally recognized work colleges, Berea requires every student to work in one of more 

than 120 campus labor departments for at least ten hours a week and the average is nearly 15 hours a week. 

Berea's highly acclaimed academic programs consist of both B.A. degrees in the liberal arts (i.e., 

humanities, social sciences, and natural sciences) and B.S. degrees in professional studies (i.e., nursing, 

agriculture, technology, and education). 

13erea is unique among higher education institutions in the United States in not having tuition as a timding 

source and instead depending on (I) endowment income, (2) state and federal scholarships that students 

bring with them, and (3) annual funds it raises li·om donors. Berea is typical of most colleges or universities 

with large endowments in its increased reliance on endowment income. For example, in 1980, federal and 

state scholarship funds (e.g., Pel I and Kentucky Tuition Grant) provided 20 percent of Berea's operating 

budget income. Today, with the loss of the real-dollar impact of Pell, that percentage is only I 0 percent. 

In 1980, Berea· s annua I fund supported 25 percent of the operating budget, while today it provides only I 0 

percent of the dollars needed annually for its budget. And in 1980, Berea's endowment income provided 

55 percent of the monies needed for the operating budget, and now Berea relies 011 its endowmenttoftmd 

75 percent of its opemtiug budget. Therefore, one can see that Berea is heavily dependent on the 

endowment spendable retum to fund its mission of providing a tuition-free collegiate education to needy 

students. 

This heavy endowment dependence requires the College to take special measures to protect its ability to 

carry out its educational mission. During the 1990s when the stock markets were driving up the gains in 

college and university endowments, Berea made decisions about endowment spending that will have longlasting impacts on the quality and tiuure viability of its institutional mission. Berea restricted the growth 

in its operating budget in order to create two reserve funds to help fund physical plant needs and to help the 

College operate through tough financial times. Berea had over $140 million in deferred renovations of its 

campus facilities (academic, residential, and administrative), with no dollars set aside for these needed 

renovations. To address this issue, its administrative leadership set aside a stream of income from its 
22 


23192.005

Page3 of4 

unrestricted endowment to begin to fund renovations and to service both principal and interest on bonds 

from its newly created Capital and Plant Fund. Since 1994, it has renovated numerous major buildings and 

smaller spaces at a total expenditure of more than $190 million. It has borrowed to fund part of these 

improvements and coincidently had its Moody's debt rating enhanced from Aa to Aaa during that same 

time period. Likewise, it also created a Temporal)' Capital Emergency Reserve Fund (TCERF), the income 

of which the College could spend each year on one-time capital projects and still maintain a stream of 

endowment income to move over into the operating budget during difficult periods of the market. Such a 

time came in 2008-20 I 0, when Berea's endowment lost approximately 25 percent of its value. Berea was 

still able to continue funding its progmms by reducing the operating budget further and by moving TCERF 

money into its operating budget as needed. Had Berea been required to spend a certain percentage of the 

endowment annually, the College could not have addressed its distressed physical plant nor protected the 

institution against the recession of2008-2009. 

Like other institutions, one goal of Berea's endowment is to maintain intergenerational equity so students 

of multiple generations have the likelihood of receiving the same in nation-adjusted educational experience. 

In other words, Berea's spending rate must not exceed its real (afier-innation) rate of compound retum over 

long periods of time. There are always embedded tensions in this goaL l11e College must provide 

reasonable increases in its annual operating budget for competitive salaries and other expenses and fund 

the brick-and-mortar needs of the campus while maintaining the purchasing power of the endowment. 

Over the last 23 years, the College has received $350 million of endowment additions (mostly gifts through 

bequests), $403 million of cash income from endowment investments, $775 million in market value 

appre¢iation, and distributed $836 million from its endowment, per the Board-approved speuding formula, 

to carry out its mission. Over the last 23 years, the average annual compound investment rate of return was 

7.49 pcre¢nt, the net annual compound gr0\\1h in the endowment (investment return plus endowment 

additions less spending distribution) was 4.79 percent, and the annual compound growth in the Consumer 

Price Index (CPI) was 2.25 percent. During this time frame, which included much of the great investment 

returns of the 1990s, Berea experienced real growth (net growth above the rate of innation) in its 

endowment. 

However, if the time period is July I, 2000, through June 30, 2016 (16 years that includes the events of 

9/11 and the Great Recession of 2008-2009), the numbers change significantly. The average annual 

compound investment rate of return was 4.09 percent, the net annual compound gro\\1h in the endowment 

(investment return plus endowment additions less spending distribution) was 1.25 percent, and the annual 

compound growth in the CPI was 2.12 percent. Thus, over the last 16-year period, the endowment did not 

experience a net grow1h rate greater than the CPI growth rate. 

Another consideration in the management of college and university endowments is the Uniform Prudent 

Management of Institutional Funds Act (UPMIFA). Most states, if not all, have adopted some fonn of 

UPMIFA. Effective July IS, 2010, the Commonwealth of Kentucky adopted legislation incorporating the 

provisions outlined in UPMIFA. The statutory guidelines relate to prudent management, investment, and 

expenditure of donor-restricted endowments held by charitable organizations. The legislation specifies 

factors for fiduciaries to consider prior to making a decision to appropriate from or accumulate into an 

organization's endowment funds. The College interprets its fiduciary responsibility for donor-restricted 

endowments under UPMIFA, unless there are donor-specific provisions to the contrary, as preserving 

intergenerational equity to the extelll possible. As noted earlier, under this broad guideline, future 

endowment beneficiaries should essentially receive at least the same level of economic suppo11 that the 

current generation enjoys. Endowment assets are invested to provide growth of the endowment through 

real investment retum that exceeds spending over the long term. The overarching objective is to meet the 

College's goal of preserving and enhancing the real (innation-adjusted) purchasing power of the 

endowment fund in perpetuity. Assets arc invested to provide a stream of earnings to meet spending needs 

and attain long-term objectives without the assumption of undue risks. 
23 


23192.006

Pagc4 of4 

The usc of the spc;ndable retum from donor-,·estricted endowments or true endowment funds are nonnally 

established by the donor and accepted by the institution in an endowment fund agreement. Berea is 

fo11unate that most of its true endowments arc restricted to support the cost of education (known as tuition 

at other schools), or to provide direct financial aid to students to help pay room and board. In othel' cases, 

some endowments arc more J'estrictive. For example, the annual spendable retum from one of Berea's 

endowment funds supports a program on campus that provides a laptop computer to every student. Another 

endowment fund goes beyond the campus community itself by providing outreach support to other non· 

profit organizations in under-served rttral Appalachia. This endowment fund helps the College carry out its 

eighth Great Commitment of serving Appalachia thl'ough education and other appropriate means. 

One exercise that an institution should consider is a review of donor-restricted endowment funds, especially 

very old ones, to determine whether the fund is less restrictive than how it is currently being used. Berea 

has ovel' 5,000 individual endowment funds; approximately 2,000 donor-restricted, and approximately 

3,000 board-designated or quasi endowment funds. The Great Recession of 2008-2009 resulted in a 

significant decline in tile annual endowment spendable l'eturn. Berea conducted a review of several old 

donor-restricted endowment fund agreements and correspondence to determine whether there was any 

nexibility in the use of tile endowment spendable return. Some endowment funds had two or m~e options 

for the use of the spendable return. Through this review, leaders discovered several endowment funds that 

could be used to provide tuition scholarships to students instead of more restricted uses and still honor the 

donor restrictions. 

In conclusion, the College's endowment is the financial lifeblood that funds the extrnordinary mission of 

access and affordability that Berea College provides to the lowest economic tier of students attending 

postsecondary education in the United States. Berea's uncommon educational mission has become more 

and more reliant upon endowment income while it has strengthened the overall physical plant in times of 

endowment income plenty and protected its capacity to continue providing high-quality educational 

programs in times of endowment income shot1ages. Berea's administrative leadership hopes no actions 

will ever be taken to reduce the dollars available to fund Tuition Promise Scholarships for its students. As 

the College mission directs. all of us at Berea are eager to lind ways to make higher education in America 

affordable to all students. 

ncen~Jy yours, 

!fl..~ Vice President for Finance 

Enclosures 
24 

f 


23192.007

BEREA COLLEGE 

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t To nwiut•in • ,..,;J.,,,;.,I campas .. .Ito etKOOr•ll< in .11 .,.,,b of tl.e rormnumly • ny of!;!, c.t.ract.riz.d by pl.in 

1;,;,~. pri 1. ill l.bor .,.,[1 d.,,., z..tlor le•mit~ hi~!.!"'""'''' ;t,ud.nls, '"'' '"'"~ "' for lite .... !faro of olbert 

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25 

Mr. ROSKAM. Dr. Schneider. 

STATEMENT OF MARK SCHNEIDER, VICE PRESIDENT AND INSTITUTE FELLOW, AMERICAN INSTITUTES FOR RESEARCH 

(FORMERLY COMMISSIONER OF THE NATIONAL CENTER 

FOR EDUCATION STATISTICS) 

Mr. SCHNEIDER. Chairman Roskam, Ranking Member Lewis, 

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

today. My name is Mark Schneider. I am a vice president at the 

American Institutes for Research here in Washington, D.C. Along 

with my colleague Jorge Klor de Alva, who is the president of the 

Nexus Research and Policy Center, we have been exploring the size 

of public subsidies to students who attend the best-endowed private 

universities in the Nation. 

We know America’s universities are held up worldwide as models 

of excellence and are heavily represented in any list of the world’s 

best universities. However, this high esteem rests on a highly unequal distribution of wealth, dominated by some first-class public 

flagship universities and a group of private schools, not-for-profit 

universities, with very large endowments. 

Topping the list of the latter are schools with endowments over $20 billion, Harvard, Yale, Princeton, and Stanford, and this elite 

group are joined by another 50 universities with endowments over 

$1 billion. 

Because gifts to endowments are tax free and endowment earnings are not taxed, public subsidies to the students who attend 

these universities are hidden but can be quite large. And the way 

this works, of course, is that the size of the public subsidy increases with the size of the endowment, so that students at Harvard and Princeton and Yale are subsidized to a far greater extent 

than students at public universities and colleges. 

Congress has granted tax-exempt status to these endowments to 

serve the public interest, but because so much wealth is now concentrated in so few hands, there are questions about the extent to 

which the public interest is, in fact, being served by the distribution of these endowments. 

In our research, Jorge Klor de Alva and I have shown the extent 

to which taxpayers are subsidizing rich students in rich universities, and we suggest ways in our testimony in which the incentives governing the use of tax-free university endowments can be 

made more compatible with the public interest. 

In our research, we show that private universities are not necessarily private. In fact, they are getting huge amounts of public 

money. So we looked in-depth at the extent of public subsidies 

through the Tax Code to a set of 10 rich private universities compared to the appropriation for flagship universities, regional campuses, and community colleges near those schools. Students in the 

rich private schools received twice as much public money as students attending public flagship universities, four times as much as 

students attending public regional campuses, and around five times 

as much as students attending community college. 

We also showed that these high endowment concentrations are 

inversely related to the concentration of Pell students. So in the 

richest universities in the Nation only about 15 percent of students 

26 

have Pell Grants compared to 45 percent of students with Pell 

Grants in public institutions, 4-year institutions, and almost 60 

percent of students in community colleges. 

In short, the unequal distribution of endowment wealth and the 

unequal enrollment of low-income Pell Grant recipients leads to a 

pattern where more affluent students attending richer universities 

get far more money from the taxpayer than students attending 

public institutions. 

So what should be done about this? 

One, we should shine a bright light on this pattern, which is part 

of what this hearing is about. We should know the size of public 

money and public investments in these institutions. We suggest 

ways in which the 990 could be changed and clarified in order to 

make that kind of information more available. 

Second, encourage local governments to understand the tax exemptions and how much money property tax exemptions are contributing to this maldistribution of wealth. Granted, local taxation 

is not an issue for the Federal Government, but the lack of information is something that the Federal Government should be concerned about, and we suggest that the committee ask the NCES, 

National Center for Education Statistics, to do a study on the tax 

wealth and the PILOTs. 

Third, and certainly the most controversial, is that we believe 

that the endowments should be taxed. In our proposal in our testimony, we describe a system of taxation that would apply only to 

the very richest universities using a low tax rate to which private 

foundations are already subject, and we discuss a means by which 

this money could be transferred to community colleges to help support the students that this Nation needs. 

Thank you very much. 

[The prepared statement of Mr. Schneider follows:] 

27 


23192.027

Testimony of 

Mark Schneider, Ph.D. 

Before the 

Subcommittee on Oversight 

Committee on Ways and Means 

U.S. House of Representatives 

September 13, 2016 
28 


23192.028

Introduction 

Chairman Roskam, Members of the Subcommittee, thank you for inviting me to testify today. 

My name is Mark Schneider. I am a Vice President at the American Institutes for Research here 

in Washington DC. Along with Jorge Klor de Alva, President of the Nexus Research and Policy 

Center, I have been exploring the size of public subsidies to students who attend the best 

endowed universities in the nation.1 

America's universities are held up worldwide as models of excellence and are heavily 

represented in any list of the world's best. However, this high esteem rests on a highly unequa l 

distribution of wealth, dominated by some first-tier public Oagships and a group of private notlor-profit universities. Topping the list of the latter are schools with endowments over $10 

billion: Harvard ($36 billion), Yale ($26 billion), Princeton ($23 billion), Stanford ($22 billion), 

and MIT ($13 billion)-joined by another 50 or so with endowments over $1 billion. 

Because gifis to these endowments are tax deductible to the donors and the earnings these 

endowments generate are tax free, the public subsidizes these universities. These subsidies 

increase with the wealth of the university so students at Harvard or Yale are subsidized to a far 

greater degree than students at public colleges and universities. 

Congre.ss has granted endowments tax-exempt status to promote the public welfare. But because 

so much wea lth has accumulated in so few institutions, questions arise about the degree to which 

the inequality in taxpayer subsidies serves a public purpose. It is in1portant to note just how large 

the inequality in endowment wea lth is: Ofthe approximately 1,600 not-for-profit private 

universities that report endowment data to the federal government, only I 02 have endowments 

over $500 million and only 56 (less than 4%) have endowments more than $1 billion. The 

concentration of wealth is even greater at the top: only seven private institutions have 

endowments topping $1 0 billion. But these seven alone hold well over 40% of the endowment 

wealth of America's super rich universities. 

2 
29 


23192.029

This highly unequal distribution of endowments has led to arguments that many universities have 

far more money than they need and that they are not managing their endowments in alignment 

with the public interest.2 One factor contributing to this "endowment hoarding" is that university 

presidents are rewarded for large endowments. Empirically, we found that 2013 compensation 

levels for a set of almost 400 presidents3 increased with the size of the endowment but declined 

with increases in Pell enrollment and was unrelated to six year graduation rates. In short, 

university boards of trustees, which set presidential compensation levels, are rewarding 

endowment hoarding far more than they are rewarding presidents who are more attuned to 

student success or the public interest in seeing them succeed. 

These data suggest that a bright light needs to be shined on the size and use of endowments. 

Below we show the extent to which taxpayers are subsidizing students in rich universities and 

suggest ways in which the incentives governing the use of tax-free university endowments can be 

made more compatible with the public interest. 

The Hidden Public Cost of"Private" Not-for-Profit CoUeges 

Since endowments are not taxed, students at well-endowed private schools enjoy public 

subsidies that are far greater than those for students at the public two-and four-year schools 

responsible for educating most working- and middle-class Americans. While these subsidies are 

all too often hidden from public view, they are nonetheless very real and very expensive.4 

Table I shows that the per-student value of subsidies that flow through tax exemptions can far 

surpass the level of direct government appropriations to public colleges and universities. 

5 The 

table is based on: (I) the average difference between 2012 and 2013, 2013 and 2014, and 2014 

and 20 IS endowment data, 

6 used as a proxy for investment gains, 7 (2) the average effective 

'See for example hnp:l/www.nber.on!lpaperslwt586l.pdf'?oew window= I 3 The compensation data come from the Chronicle of Higher Education's most recent report on presidential 

compensation. Available at http:/lchronicle.com!interactives/executive-compensation#id-table private 2013 

• These tax exemptions are "offbudgef'-but they translate into taxpayer subsidies that, from a public policy 

~erspec ive, should be treated as the equivalent of direct appropriations. 

An appendix detailing tbe calculations is available upon request. 6 NACUBO. (20 14). U.S. and Canadian institutions listed by Fiscal Year 2013 endowmem market l'alue and change 

in endowmem market >'aluefrom Fl' 2012to Fl' 2013. Retrieved from 

hup:l/www.nacubo.org/Documents/EndowmentFiles/20 13NCSEEndowmentMarket%20ValuesRevisedFeb 1420 14.p 

df 

NACUBO. (20 15). U.S. and Canadian instill/lions lis red by Fiscal Year (FY) 1014 endo~· em market mlue and 

change in endowment market mlue fr·om FY20 13 to FYZ0/4. Retrieved from 

3 
30 


23192.030

combined state and federal long-tenn capital ga ins rates for 2013,

8 and (3) the latest three 

academic years' (A Y 2011-12,2012- 13, and 20 13-14) enrollment and government 

appropriations figures9 

Table I shows the estimated average government subsidy- through direct appropriations and tax 

exemptious 10- per full-time equiva lent (FTE) student attending 10 not-for-profit universities 

with the highest endowments in I 0 states. It also shows the corresponding govermnent 

investment in students attending a public institution in each of the following categories: the state 

flagships, regional campuses, and community colleges located in the same state as the elite 

private campus. 

Across these I 0 rich private institutions, using a weighted average of enrollments, taxpayers 

spent nearly $26,000 per student per year, almost twice the average direct taxpayer subsidies to 

students attending public flagship campuses in the same state as the private institutions. Table I 

also shows that, on average, the level of per-student support given to the I 0 regional campuses in 

our study is about half what is given to students attending flagships. And while nearly half of 

students beginning their postsecondary education attend community colleges,ll taxpayers support 

these students at the lowest levels. Each receives only about one dollar for every five dollars that 

taxpayers send per student to the elite private schools we studied. 

h!!P.:flwww.nacubo.Of<'JDocwnenls/EndowmcnlFiles/2014 Endowment Markel Values Revised_pdf; NACVBO. (2016). 

U.S. and Canadian institulions listed by Fiscal year (FY) 2015 endowment market value and change in endowment 

market value from FY2014 to FY2015. Retrieved from 

hllp://www.nacubo.ore.idocumcnlSicndowmenlfiles/2015 NCSE Endowment Market Values.pdf 1 Because lhe !PEDS data on income (for schools that use Government Accounting Standards Board (GASB]) and investment 

re.tum {for schools U$ing Financial Accounting Standards Board (FASB]) do not distinguish b<.twct.n recognized and 

unrecognized gains from inveslmenls, we searched for lhe b<sl proxy possible for realized gains. After substantial consultation, 

we sen led on the della between annual endowment results. This solution is nol perfect, but other allcmalivcs we explored-in lbe 

absence oflhc relevant data- were found 10 be 100 speculative for this study. this is why one of our retQmmendations is for 

reoter transparency in reporting of endowment refllrns. 

Sec Table I in: Tax Foundation. (2013). The high burden of state one/ federal capital gains taxes. Retrieved from 

hnp://taxfoundation.org/articlelhigh·burden·state-and-federal-ca ital·2ains·ta.xes 9 National Center for Education Statistics. (n.d.).IPEDS Data Center. Retrieved from bnp://nces.ed.govlipedsldatacenter/ 10 Note that property 1a:x exemptions, discussed below, are nol included in our sum of taxpayer subsidies. 11 Community College Research Center. (n.d.). Community college FAQs. Retrieved from 

h!!P.:f/ccrc.lc.coluntbia.edu/Community-Collcge-FAQs.hlml. The suppon per student is lowest al community colleges for several 

reasons, including lower tuitions and degree auainm<nl rates, and the shoncrlenglh of many of their ed c~tion l programs. 

4 
31 


23192.031

Table I : Total F'<'deral, State, and Local Appropriations and Tax Subsidies* per FTE 

Student, by Institution Type: Three-Y<'ar Average 

Private Not· 

State for .Profit Public Flagship Public Regional Community College 

CA Sian ford UC.Berl<.eley CSU Fullerton Fullerton 

$39,600 $8,800 $4,200 $7,500 

CT Yale UofCT Central CT Tunxis 

$45,1 00 $23,600 $7,000 $6,500 

IL U of Chicago U of IL Urbana Westemll Waubonsee 

$7,300 $7,100 $11,900 $8,100 

IN Notre Dame IU Bloomington IN State Ivy Tech 

$17,1 00 $6,100 $7,100 $3,200 

MA Harvard U MAAmherst Bridgewater Massasoit 

$26,200 $10,000 $5,000 $4,300 

NC Duke UNC Chapel Hill UNC Charlotte Central Piedmont 

$11,500 $23,400 $8,600 $5,100 

NJ Princeton Rutgers Montclair Essex County 

$72,1 00 $13,600 $4,600 $2,400 

NY Columbia Stony Brook CUNY Queens Queensborough 

$9,600 $18,100 $5,400 $5,500 

PA U of Penn Penn State IN U of Penn Westmoreland 

$15,900 $9,400 $3,700 $2,600 

TX Rice UT Austin TXState Austin 

$13,700 $16,900 $4,400 $6,500 

AVERAGE $25,800 $13,700 $6,200 $5,200 

• Does not include subsidies based on property lax exemptions. 

The Size of Endowments and Pell Participation Rates 

We noted above tbat presidential compensation levels were negatively related to the 

concentration ofPell students but positively related to endowment size. The data in Figure I 

5 
32 


23192.032

shine more light on this relationship, showing that high endowment wealth is associated with low 

concentrations of low-income Federal Pell grant recipients. Only 13% of the students in 

universities with endowments between $5 and $10 billion are Pel I recipients, and at even 

wealthier universities only 15% of students receive Pell grants. Meanwltile, only private colleges 

with endowments below $500 million have concentrations ofPell students comparable to the 

percentage of Pell recipients at public four-year colleges. And, as could be expected, community 

colleges, which receive tile lowest levels of govermnent or endowment support, serve the highest 

percentage of Pell students. 

Figure I: Median Percentage of Federal Pell Grant Participation at Private Colleges and 

Universities by Endowment Size and at Public Colleges and Universities 

70 

60 

58 

50 46 45 

Oi 

~ 40 c: 

.. 

~ 30 .. 

"' 18 18 

20 13 

10 

0 I I I 

IS 

I 

Less than Between Between 1 Between 5 More than Public 4· Public 

SOOmillion 500 million and 5 billion and 10 $10 billion year schools community 

and 1 billion billion colleges 

Endowment 

Source: IPEDS and 2015 NACUBO·Commonfund Sludy of Endowmenls.12 

In sum, the unequal distribution of endowment wealth and the unequal enrollment oflow-iucome 

Federal Pell grant recipients lead to a pattern: the rich schools get more than their less affluent 

12 National Crnter for Education Sl<!tistics. (n.d.). /P£DS Dora O!nrer. Retrieved from hup://nc<s.ed.gov/ipc4s/datac<ntcr/; 

NACUBO. (20 16). U.S. and Canadian instill/lions lisred by Fiscal Year (FY) 2015 endowmenr market ••alue and change in 

endoMneJII marker value from Ft'l0/4 10 FY20 I 5. Retrieved from 

i!!!J!Jiwww.nacubo.org/DocumenlsiEndowmcntFiles/20 15 NCSE Endowment Market Valucs.pdf. 

6 
33 


23192.033

private and public counterparts, who are educating the lion's share of America's working-and 

middle-class students. 

What Should Be Done? 

First, Make Hidden Subsidies Public. 

The data presented here suggest a domain in need of a bright light. Many of our best-known 

private colleges are supported by taxpayers to an extent that is far more generous than the 

support received by the public colleges and uni versities that most students attend. State and local 

appropriations, allocated by elected politicians, pale beside the goverument subsidies to the 

richest universities made possible by hidden tax policies. Rather than leaving tax-based subsid.ies 

hidden, we need to bring to the surface data about the nature and size of these subsidies, the 

extent of their distribution, and the policies that promote their concentration in the wealthiest 

schools. 

One mechanism for increasing transparency is through improving the fRS 990 Fonn that taxexempt universities must file ammally. The 2016 joint letter to the 56 richest universities 

identified many areas in which taxpayers should have more information. We suggest that 

Congress consider revising the 990 fonn so that this information is reported in a clear manner 

accessible to both the public and policymakers. Among the areas most in need of being 

addressed, in light of this hearing, is Schedule 0, Part V, which concerus endowment funds. In 

particular, we suggest the following revisions: 

I.e., realized earnings and losses must be clearly distinguished from endowment gains 

(i.e., total increase in the endowment minus contributions). 

l.d., grants and scholarships should distinguish between cash awards and in-kind 

contributions (e.g., free tuition). 

• I .f., Administrative expenses should detail total cost for the management of the 

endowment (including fees paid to third parties). 

• 2. Rather than percentages, exact amounts should be used for the endowment 

categories (quasi, pennanent, and restricted). 

• 2.a Board designated quasi-endowment funds should distinguish between those 

reserved for financial aid (scholarships and grants), those reserved for other 

educational purposes, and those reserved for other expenditures. 

• 2.b. Pennanent endowment funds and 2.c. temporarily restricted endowment funds 

should likewise make the same distinctions. 

7 
34 


23192.034

Second, Encourage Localities and States to Revisit the PrOJlerty Tax Exemption 

Private colleges are also exempt from paying property taxes, which adds, sometimes 

substantially, to the level of taxpayer subsidy they receive.ll Since property taxes are set by local 

governments within the constraints of stale laws, the federal government's role is inherently 

limited. However, because the low level of information about the size of property holdings of 

different campuses and how much these holdings cost taxpayers is something that could be used 

by local and stale governments, the federal government can help by requesting this lax 

information in the 990 IRS form. 

Reliable comparable numbers on the property holdings of tax -exempt colleges and universities 

would pern1ii all to see exactly how much this tax break is costing local taxpayers. Given the 

paucity of data in this area, we believe ll1e Congress should also ask the National Center for 

Education Statistics (NCES) to undertake a systematic study of these property holdings and the 

payments made in lieu of taxes (the so-called PILOTs).

14 

Third, Tax Large Endowments. 

It is clear from the facts cited here that the current system of tax exemptions granted to large 

endowments no longer serves the public interest. We suggest that the Congress consider levying a 

moderate tax on these endowments. The questions are what should that lax look like and how 

should the revenues generated by the tax be best used to support the success of students and the 

public interest. 

As presented in Table 2, we propose a laxation scheme in which qualifying endowments are very 

large (more than $500 million) and the proposed excise tax range is small and similar to the tax 

rate that private foundations are already subject to (0.5 percent to 2.0 percent). 

To help minimize the impact of these assessments on ibe institutions subject to the tax, we 

recommend that, first, tax deductions for gifts given to these colleges remain in place. Second, to 

13 There are other avenues for tax subsidies we have not measured, including exemption from stale income and excise 1axes, state 

and local sales ta.~, and lliX-exempt bonds. Researchers allhe Tellus lnslitUie have proposed a broad framework for identifying 

and classifying all these expenditures, but we lulve chosen a more limited exercise across a wider range of schools. See: Tellus 

Institute. (2012). Public inl'eslmenl in pri\·are higher educalion: £srimaring I he value of nonproji1 college and uni>·ersio· lax 

exemptions. Rttrieved from hup:/hellus.org/publicationslfilcslcollegc-tax-excmplion.pdfSee also Povich, E:. S. (20 15). Should 

nonprofirs hare 10 pay foxes? Retrieved from hup://www.ocwuusts.org/enfresc:arch.andanalysislblogslstateline/20 15/3!05/should-nonprofits-have-to-pay. ~txes 14 Note, Schneider served as Commissioner of Education Statistics from 2005-2008. 

8 
35 


23192.035

assure the proposed tax does not inadvertently disnapt the amount affected schools set aside for 

financial aid and to encourage even higher allocations in aid to low- and middle-income students, 

we suggest the proposed tax be offset annually by the amount the school appropriates for 

financial aid to its Pell-eligible students. 

Table 2: Proposed Annual Excise Tax Rates, Number of Colleges Affected and Expected 

Tax Revenue Based on 2015 Endowment Size 

Number of Total Expected Tax 

Size of Private Colleges Endowment Revenue 

Endowment Affected Tax Rate (in Millions) (in Millions) 

>$3 Billion 21 2.0% $222,468 $4,449 

>$2+ Billion 7 1.5% $15,528 $233 

>$1 Billion 28 1.0% $39,714 $397 

>$0.5 Billion 46 0.5% $33,172 $166 

TOTAL 102 1.01% $310,882 $5,245 

Source: 2015 NACUBO-Commonfund Study of Endowments 1$ 

This excise tax should not only encourage the taxed institutions to allocate a larger share of their 

endowments to financial aid for their low-income students, but also provide billions of dollars 

annually for the improvement of the education of hundreds of public institutions serving millions 

of low-income and middle-class sn1dents. 

To do so, we reconunend that the revenue raised from the excise tax be used solely for the 

benefit of students attending community colleges- institutions that are seriously under-resourced 

yet responsible for training much of the nation's workforce. Our proposal thus resembles the bill 

Senators Chris Coons (D-Del) and Johnny Isakson (R-Georgia) plan to introduce this fall, one 

holding four-year colleges more accountable for graduating students, especially those from lowincome families. The bill, according to Politico,

16 would take some federal money away from 

IS NACUBO. (2016). U.S. and Canadian institmions listed by Fiscal Jw r (FY) 2015 endowment market I'Oiue and change in 

endowment market •·alue from FY2014 to FY20 15. Retrieved from 

h!!P.:/Iwww.nacubo.orWDocuments/Endowmentriles/2015 NCSE Endowment Market Values.l!!!f 16 Stratford. M. (201 6, July 26) Sanders, Clinton ere unity Ol'er debt-free college. Retrieved from 

hup://www.politiro.cornltipsheels/moming.Wucation/2016107/sanden;-clinton·cve-unitv-ovcr-dcbt-free·collcge5526# X7.Z H7~ H. 

9 
36 


23192.036

"wealthy and high perfonning colleges" that do not "serve a minimum number of qualified lowincome students" and target it to "under-resourced colleges that are great on access but are 

struggling to succeed with completion." Do note that this proposed bill differs from proposals 

that would target additional revenues solely to students within the same school.t7 

We believe that tllis tax can be implemented in a revenue-neutral manner that inccntivizes 

corporations to strengthen their support of local community colleges. To accomplish this, we 

propose that you consider a new charitable tax credit that builds on the tax legislation that 

created several types of tax credit bonds under the Internal Revenue Code. 

The proposed taxing arrangement is revenue neutral because the revenue ti'om the excise tax 

would match tbe amount offset by the lax credit gained by participating individuals or 

corporations. ln effect, a taxpayer giving, say, $1 million to a community college could get an 

extra percentage of credit against taxes owed. The total amount of extra tax credit allowed by the 

program would offset the amount of revenue raised by the excise tax on large endowments. In 

turn, the value of the tax credits would match the annual flow of money to be made available to 

community colleges for qualified purposes. A competitive grant process could be used to assure 

that selected community colleges applied the funds to support practices proven effective in 

promoting student success. 

As was the case with previous qualified tax credit bonds administered by the Treasury 

Department and used to support various educational and energy initiatives, these charitable tax 

credits could provide an attractive opportunity for corporations or others seeking to reduce their 

tax burden in a socially responsible manner. 

Just as Treasury issued tax credit bonds to support only activities that met criteria set by mles, 

regulations or legislation, this tax credit would not be available to all. A panel of experts could 

be established to judge the applications and make awards based on the application's 

confonnance to the established criteria. 

" The Education Trust's recent proposal that wealthy schools be required to spend 5% of their endowment annually in order to 

increase finandal aid for their students would benefit, by their calculations, fewer than 2,500 students across a lithe schools with 

endowments above SSOO million. Our proposal could affect hundreds of thousands oflow-income students (on numbers of 

students and percentages oflow-income etl!'ollees at community colleges see 

http://ccrc.tc.columbia.edu/Communitv-College-FAQs.html). 

10 
37 

f 


23192.037

In effect, the proposed tax credits can build on these past procedures to support the 

implementation of practices proven to benefit community college students. The following 

outlines possible implementation steps: 

• First, Treasury would estimate the annual yield of the excise tax on endowments over SSOO 

million. 

• Second, Treasury would fix the amount to be offset through the tax cre-dits to equal that yield. 

• Third, the U.S. Department of Education would establish a panel of experts to determine the 

qualifying criteria and evaluate the proposals from community colleges. The Education 

Department would then publicize a request for proposals from community colleges. The call 

would specify that only activities with evidence that they are associated with student 

success- measured by indicators such as increased student progression, retention, 

completion, or job placement- would qualify for financial support. 

• Fourth, interested conmmnity colleges would help identify taxpayers interested in the tax 

credits. This effort would promote links between colleges and corporations that are critical to 

resolving the current gaps between what is taught and the workplace skills and competencies 

industries need. 

Periodic evaluation of the effectiveness of the program would assure that it would he continually 

improved for continuous success. 

The problems faced by higher education, such as low completion rates, cannot he ignored, and 

fixing them is expensive. In response to these challenges, and with the hope bipartisan support 

will make some version of it a reality, we hope you consider this excise tax- a tax whose time 

bas come. 

II 
38 

Mr. ROSKAM. Thank you. 

Dr. BAUM. 

STATEMENT OF SANDY BAUM, SENIOR FELLOW, INCOME AND 

BENEFITS POLICY CENTER, URBAN INSTITUTE 

Ms. BAUM. Thank you, Chairman Roskam, Ranking Member 

Lewis, Members of the Committee. Thank you for the opportunity 

to testify today. My name is Sandy Baum. I am a higher education 

economist at the Urban Institute. I was formerly a professor of economics at Skidmore College in Saratoga Springs, New York, and I 

coauthored the College Board’s annual reports ‘‘Trends in College 

Pricing and Trends in Student Aid.’’ The views that I will express 

in this testimony are my own and not those of any organization 

with which I am affiliated, its trustees, or its funders. 

We have heard already a lot of comments about endowments. I 

want to reiterate how highly concentrated endowment assets are. 

Five private nonprofit research universities hold one-third, approximately, of the endowment assets in the private sector institutions 

and about a quarter of all of the endowment assets in public and 

private institutions combined. 

In other words, when we talk about endowments, there are few 

institutions that have a lot of resources and a fair amount of opportunity to do a lot, constructively, with those resources, but the vast 

majority of higher education institutions, including private nonprofit institutions, do not have those resources. The median private institution has about $33,000 in endowment 

wealth per student, which could add, meaningfully, but only about 

$2,000 a year to their budgets, and at public colleges, of course, it 

is much less. 

There are a few things to think about when comparing the endowments of institutions. One is that looking at total endowment 

can be misleading. You have to really look at endowment per student. So Harvard has almost two times as much endowment as 

Princeton, but Princeton has a much smaller student body and, 

therefore, has the highest endowment per student. So that is a 

really important distinction. 

Also, endowments are not just there for undergraduate students. 

These are universities that educate graduate students, that have a 

research function and other public service functions. They operate 

hospitals. So thinking about the endowment in terms of the number of undergraduate students can be misleading. 

And it is very important these endowments are there, both to 

subsidize the education of existing students and to provide longterm stability for the future. And, therefore, all institutions have 

spending rules limiting how much of their endowments they spend 

so that they preserve the value of those endowments. 

A big part of the concern about endowments has to do with what 

is happening to college prices. We have already noted that college 

prices are going up rapidly. They have been going up faster than 

the rate of inflation for a long time. 

But it is very important to note that in public institutions, where 

most of our students, particularly undergraduate students are educated, an important driving force that we have already heard about 

is that State appropriations per student have fallen dramatically in 

39 

inflation-adjusted terms over the past decade, and it is not that 

public institutions are rapidly increasing their expenditures, it is 

that more of those expenditures are being met by tuition revenues 

rather than by State appropriations. 

Also, it is terrifically important not just to look at the sticker 

price that institutions charge, but to look at the net price that they 

charge. And we talk frequently about the net price that students 

pay with the help of institutional grant aid as well as Federal and 

State grant aid, but also just institutional revenues are much less 

than you would think if you just look at the sticker price. 

So public research universities now give institutional grants to 

more than half of their students, private research universities to 

over 70 percent of their students. Private colleges discount about 

half of their tuition and fees back to students. So you hear the 

sticker price, it is not the amount that the institution is actually 

charging students. 

And many institutions, when they lowered their sticker prices actually also decreased their student aid, and therefore students, particularly low-income students, may not be paying less. So we have 

to be careful about focusing on what is happening to sticker prices 

in terms of thinking about how to make college affordable for students. 

Institutions and the Federal Government give about the same 

amount in grant aid each year. A lot of the Federal Government’s 

aid, by the way, is now through aid to veterans in the Post-9/11 

GI Bill. It is certainly not just Pell Grants. 

So those have different impacts on sticker prices. We can discuss 

at greater length the research on whether or not Federal grant aid 

really explains much about rising prices. I wouldn’t say zero, but 

I certainly wouldn’t say that is the most significant factor. 

I commend the committee for investigating factors contributing 

to increases in college prices, their impact on students and potential students, and looking for solutions. The system is complicated. 

It is diverse. Solutions are not that simple. 

We need to think about private colleges relative to other organizations that are tax exempt in this society, which also do various 

things that may or may not always be in the public interest. We 

need to not focus on the small number of institutions that are so 

visible, but on how to provide a quality education to the students 

who need it most in this Nation. 

Thank you. 

[The prepared statement of Ms. Baum follows:] 

40 


23192.015

:URBAN 

INSTITUTI · ILIYATI · THI • DIIATI 

COLLEGE ENDOWMENTS, COLLEGE PRICES, AND FINANCIAL AID 

Statement of 

Dr. Sandy Baum• 

Senior Fellow, Urban Institute 

before the 

Committee on Ways and Means Committee, Subcommittee on Oversight 

United States House of Representatives 

HEARING ON TAX-EXEMPT COLLEGE AND UNIVERSITY ENDOWMENTS 

September 13, 2016 

'The views expressed are my own and should not be attributed to the Urban Institute. its trustees, or its 

funders. 

2100 M Street NW 

Washington DC 20037 

urbonof8 
41 


23192.016

Chairman Roskam, Ranking Member lewis, and members of the Committee, thank you for the opportunity 

to offer this testimony about college and university endowments. I appreciate your attention to the issues o 

college access and affordability. 

I am a higher education economist at the Urban Institute in Washington, DC, and a former professor of 

economics at Skidmore College in Saratoga Springs, New York. I am also the coauthor of the College Board'! 

annual reports Trends in College Pricing and Trends in Student Aid. The views expressed in this testimony are 

my own, not those of any organization with which I am affiliated, its trustees, or its funders. 

I will begin by discussing some facts about the endowment assets held by colleges and universities in the 

United States. I will then discuss some of the evidence about college tuition prices, the factors driving them 

upward, and the impact on students. 

Endowments 

A few colleges and universities in the United States have very large endowments that can contribute sizable 

amounts to their operating budgets. But this is not the case for the vast majority of postsecondary 

institutions in this country. Five private nonprofit research universities hold about one-third of all the 

endowment assets of the more than 1,600 institutions in that sector- and about one-quarter of the assets 

held by public and private institutions combined. In other words, a very small number of institutions have 

the asset levels that can make a real difference in the resources available to educate students. 

Figure 1 below, from the College Board's report, Trends in College Pricing 2015, shows the distribution of 

endowment assets across private nonprofit colleges and universities. The doctoral universities in the top 

decile have more than $1 million in endowment assets per student. But those in the next decile have less 

than half that amount. The vast majority of colleges and universities in the sector have much lower 

endowments. The median institution in the sector has about $33,000 per student-an endowment that can 

generate less than $2,000 per student per year to add to the budget. In the public sector, the median 

endowment per student is about $8,000. Only a handful of public universities have endowments that can 

make a measurable difference in their spending patterns. 

Appendix table 1 shows the data behind figure 1, as well as similar information for public colleges and 

universities. 
42 


23192.017

Figure 1: Endowment Assets per Full-Time-Equivalent (FTE) Student at Private Nonprofit Four-Year 

Institutions by Decile, 2012-13 

• Highest Decile • 2nd 8 3rd .4th • sth 6th • 7th 8th • 9th • Lowest Decile 

Private Nonprofit Four-Year 

$1,100,000 

$1,000,000 

~.000 

ssoo.ooo 

$700,000 

$600,000 

ssoo.ooo 

$400,000 

$300,000 

$200,000 

$100,000 

so 

Doctoral Master's Bachelor's 

(Median = $70,900) (Median = $12,700) (Median= $36,200) (Mean % $2t4,300) (Mean % $19,300) (Mean = $94,200) 

Source: Jennifer Ma et al., Trends in Coll~e Pricill8 2015 (Washington, DC: The College Board, 2016), figure 20. 

Most institutions with significant endowments have rules that allow them to spend between 4 and 5 percent 

of the value of their endowments each year. That calculation is generally based on an average value over 

several years, since endowments fluctuate quite a bit along with financial markets. By law, endowment 

assets must be preserved, so only earnings beyond inflation are available. Many funds in the endowment are 

restricted and can be used only for the purposes prescribed by donors. Endowments serve a dual purpose: 

supplementing revenues from tuition and other sources to provide subsidies to current students and 

providing a sustainable financial model for the future. 

During the Great Recession, when endowment values fell dramatically, the institutions with the largest 

endowments raised their endowment draw rates. In other words, they prevented spending from the 

endowment from falling as much as the value of their endowments fell. As figure 2 shows, the spending rates 

of institutions with large and small endowments diverged for a few years, but they have converged again as 

endowments have regained a significant portion of their pre-recession values. 
43 


23192.018

Figure 2: Average Reported Spending Rates for College and University Endowments 

by Endowment Size, 2000-01 to 2013-14 

4.0% 

M\4--.---,--,---,..--,--,---,..--,--,---,..--,-----,..--,-

2~1 1(01-02 1001.00 ~ 005 ~ J a:llJ.II axH 3llHO a!ll·ll ~H2 ~11·13 ZJIH4 

INerS18llon 

mlMiionto 

SlBi ~n 

SIIIMiionto 

m!Mlion 

SIIMiionto 

SIOOMihln 

SIJMiionto 

mMiion 

IJI:derS25 

Mif~a 

Source: Jennifer Ma et al., Trends in Colleze Pric.il18 2015 (Washington, DC: The College Board, 2015), figure 218. 

Another way of seeing the skewed distribution of endowments is to compare the incomes available to 

different institutions from their endowments. Aside from the difference between private nonprofit research 

universities and other types of institutions revealed in figure 3, the difference between the mean and the 

median is important. Looking at what we usually call averages- the mean, or the total endowment income 

divided by the number of students overall-suggests that the private nonprofit universities have an average 

of about $10,000 per student in annual income from the endowment to supplement other revenues. But the 

median is about $3,000. 1n other words, half of private nonprofit research universities have less than $3,000 

per student each year to help them meet their goals. 

The key takeaway from looking at the distribution of endowments is that a few institutions have a Jot of 

options, but very few students will be affected by changes in endowment spending. The top 10 research 

universities have endowment incomes averaging about $50,000 per year per student, including both 

graduate and undergraduate students. But if we take out Harvard, Yale, Princeton, Stanford, and MIT, the 

next five average about half that much. And endowments diminish very quickly as we move down the list. 

The top 10 research universities enroll about 111,000 students- less than 1 percent of the 15 million full· 

time-equivalent postsecondary students in the nation 
44 


23192.019

Figure 3: Average Available Income from Endowments, 2014 

$12,000 

$10,000 

$8,000 

$6,000 

$4,000 

$2,000 

$0 __ I=L--- -

public research public masters public 

associates 

private 

nonprofit 

research 

private 

nonprofit 

masters 

private 

nonprofit 

bachelors 

• Mean 

• Median 

Source: The Urban Institute, data from U.S. Department of Education, Integrate Postsecondary Education Data System. 

Why Is Tuition Rising So Rapidly? 

No one is happy about how last tuition and lees are rising at colleges around the country. But there is a lot of 

misunderstanding that can interfere with our ability to address the issue. First, it is critical to distinguish 

between public and private colleges. Public colleges depend on state and local governments lor a portion of 

their funding. There has been a long-term downward trend in per student funding from that source. The 

$6,505 per student in fiscal year 2014was almost 30 percent lower than the $9,529 (in 2014 dollars) 10 

years earlier (figure 4). Some of the reduction arises from declining state dollars lor higher education during 

the recession, but much of it is the result of rapidly rising enrollments. 

Circumstances diller quite dramatically across states, but the national averages point to a very real problem 

with a major impact on public college tuition levels. The issue is much less one of rising institutional 

expenditures and much more one of the percentage of those expenditures covered by taxpayers in general 

as opposed to students and families. 

Figure 4: State and local Appropriations for Public Higher Education in 2014 Dollars 

--State and local public higher education appropriations per public FTE student (FY 2014dollars) 

$11,391 

$6,505 

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 

Source: The Urban Institute, calculations based on data from State Higher Education Executive Officers. 
45 


23192.020

As large as the variation in prices at public colleges is, the variation at private nonprofit colleges is much 

greater. According to the College Board, 65 percent of full-time students at public four-year colleges in 

2015-16 faced sticker prices between $6,000 and $12,000 per year (figure 5). But about 20 percent of 

those in private nonprofit college faced sticker prices of $21,000 or lower while, at the other end of the 

spectrum, about 20 percent attended colleges charging $45,000 or more. Notably, despite public 

impressions to the contrary, only about 7 percent of full-time four-year college students attended 

institutions with sticker prices this high. 

Figure 5: Distribution of Full-Time Undergraduates at Four-Year Institutions by Published Tuition and 

Fees, 2015-16 

Public ud Private Ntnproit Fo•r·Year COII•i.ntd 

(Mtdiao • $11,1141 

Oft 

OA 

O.C':. 

lr.IO 

Ptblic Fou,.Year 

(MediM • $9.809) 

Pri-vate Nonproit four·Ytar 

(Medill • S33.71tl 

Source: Jennifer Ma et al., Trends in Colle3e Pricing 2015 (Washington, DC: The College Board, 2015). figure 3. 

Rising college prices are not a new phenomenon. In fact, prices rose less rapidly over the decade from 2005-

06 to 2015-16 than in previous decades (figure 6). This does not mean the price increases are not a 

problem. It does mean it is reasonable to look beyond recent patterns to understand them. 
46 


23192.021

Figure 6: Average Annual Percentage Increase in Inflation-Adjusted Published Prices 

by Decade, 1985-86 to 2015- 16 

• 1985-86 to 1995-96 • 1995-96 to 2005-06 • 2005-06 to 2015-16 

5% 

41%4.3% 

4% 

3% 

2% 

1% 

0% 

Private Nonprofit Public Public Private Nonprofit Public 

Four-Year Four-Year Two-Year Four-Year Four-Year 

Tuition and Fees Tuition and Fees 

and Room and Board 

Source: Jennifer Ma et al., Trends in Co/lese Pricil18 2015 (Washington, DC: The College Board, 2015), figure 5. 

Even more important to understanding the impact of rising tuition on students is clarifying the difference 

between sticker prices and the net prices students pay after taking financial aid into consideration. The 

revenues institutions take in from tuition are much lower than multiplying the number of students by the 

published prices might suggest. Both public and private nonprofit four-year institutions discount their prices 

quite a bit for many students. Between 2003-04 and 2013-14, the share of first-time full-time students at 

public research universities receiving institutional grant aid increased from 36 percent to 52 percent. The 

increase at private research universities was from 64 percent to 71 percent. These private institutions 

awarded more than $16,000 per student in discounts in 2013- 14- lowering the average net tuition price 

they were actually charging to $16,000 less than the published price.1 

These institutional discounting practices make for a very complicated pricing scheme that is difficult for 

students, families, policymakers, and almost everyone else to understand. It might be simpler to charge 

everyone the same price and publicize that price. And some private colleges do give discounts to every 

student. But the current pricing model allows institutions to charge different prices to different students. 

Although some of the aid is based on factors other than financial need, lower-income students pay much 

lower average net prices than more affluent students. If all students were charged the same price, that price 

might be lower than the current sticker price, but it would make it more difficult than it already is for 

institutions to provide meaningful access to the students with the most limited financial means. 

1 Based on data from the Department of Education's Integrated Postsecondary Education Data System (I PEDS). 

7 
47 


23192.022

Figure 7: Average Published and Net Prices in 2015 Dollars, Full-Time Undergraduates, Private Nonprofit 

Four-Year Institutions, 1995- 96 to 2015-16 

$45,000 

$40,000 

$35,000 

$30,000 

$25,000 

$20,000 

$15,000 --~---~, , ,,-~--- '-,_ ----~' _ ..... ---""' Net Tuition and Fees ---- ....... $10,000 

$5,000 

so 

95·96 97-98 99·00 01·02 03·04 05·06 07-08 09·10 11·12 13·14 15·16 

Source: Jennifer Ma et al, Trends in Colleye Pricins 2015 {Washington, DC: The College Board, 2015), figure 13. 

As figure 7 shows, the combination of institutional discounts, federal grant aid, and aid from states. private 

sources, and employers makes the path of the net prices students have paid over time to attend private 

nonprofit colleges and universities look quite different from the path of published prices. The increases in 

Pel! grants in 2009-10 and 2010-11 dramatically affected the prices students paid and the educational 

opportunities available to them. The trend in net prices at private colleges has turned upward again, but in 

2014-15, when the average published tuition and fees at private four-year nonprofit institutions was 

$32,400, the average price students paid to enroll in these institutions, after taking grant aid from all 

sources into consideration, was less than $15,000. 

In 2014-15, undergraduate students received about $45 billion in federal grant aid (including veterans' 

benefits) and about $40 billion in institutional grant aid. There has been considerable discussion of the 

impact of federal grant aid on the prices colleges and universities charge. But the empirical evidence 

8 
48 


23192.023

suggests that outside the for-profit sector, federal grant aid does not explain much about rising prices. Most 

important, the availability of that grant aid makes it possible for millions of students to go to college. 

Some institutions have announced cuts in their published tuition prices, but cuts frequently involve 

simultaneous reductions in student aid, so students don't necessarily pay any less after the price reductions 

than before. If institutions increase their spending on financial aid, they are by definition redirecting funds 

from other sources. For some of the wealthier institutions, this might just mean slower endowment growth. 

But at most institutions it is more likely to mean some combination of higher tuition prices to increase 

revenues and reduced spending on maintenance of plant and equipment, faculty salaries, science labs, or 

curricular innovation. Most of us might be happy to hear that the trade-off is between financial aid and 

expanded sports facilities, fancier dormitories, or other apparent luxuries. But the reality is that when 

students choose their colleges, those who have options and are not limited to the local public institution 

tend to place disproportionate weight on amenities. So it can be counterproductive for institutions to stand 

on principle and focus only on investments that will have the largest impact on educational opportunities. 

Some of the common wisdom about increased spending on campuses is misleading and might suggest easier 

fixes than actually exist. For example, it is certainly true that professional staff engaged in computer 

services, academic support, and related areas have replaced lower-paid support staff over time. But in terms 

of numbers of employees, the percentage who are not instructors has, as figure 8 shows, actually been 

declining. 

Figure 8: Distribution of Full-Time-Equivalent Staff at Postsecondary Institutions, Fall1993 to Fall2013 

Faculty Graduate 

assistants 

Public 

n all1993 • Fall2003 • Fall2013 

Other staff Faculty 

Source: NCES, Digest of Education Statistics 2015, table 314.10. 

Graduate 

assistants 

Private Nonprofit 

63% 

Other staff 

9 
49 


23192.024

Student Debt 

Concerns over student debt are driving much of the conversation about college prices and institutional 

spending policies. Student debt is an important and misunderstood issue. My recent book, Student Debt: 

Rhetoric and Realities of Higher Education Financing from Palgrave Macmillan, provides detailed data on the 

issue, as well as analysis of both the real and perceived problems and of potential policy solutions. 

In brief, in considering policies to address issues of college affordability, it is important to be aware of some 

of the less-known realities of student borrowing: 

Only about 10 percent of students who borrow for undergraduate education incur as much as $40,000 

in debt. Forty-three percent of graduate borrowers accumulate debts this large. 

Almost half of outstanding student debt is held by households in the top quarter of the income 

distribution. This is not surprising since people who were in college or graduate school long enough to 

incur significant debt tend to have relatively high incomes. 

Student loan default rates are highest on small debts and lowest on large debts. Borrowers who did not 

complete degrees or certificates default at almost three times the rate of those who did complete 

credentials. 

Older students, those who enroll in for-profit colleges, and those who take longer to finish their 

programs are more likely than others to accumulate high levels of debt. 

Conclusion 

The Committee should be commended for its investigation into the factors contributing to increases in 

college prices, the impact on students, and potential solutions. The federal government certainly has 

responsibility for ensuring that financial barriers do not prevent individuals from investing in themselves, 

benefiting from the outstanding U.S. higher education system, and completing postsecondary credentials. 

But the system is very complicated and diverse. A small number of very visible institutions educating a tiny 

fraction of postsecondary students have more than ample resources. Most of these institutions do make 

considerable efforts to enroll and subsidize low- and moderate-income students. But they could always do 

more. 

Unfortunately, the vast majority of colleges and universities are not so well resourced. There is always room 

for efficiency improvements, but sharp declines in state funding for public institutions and strained 

economic circumstances for most of the non-elite private nonprofits explain much of the pressure on 

tuitions and limit how well these colleges and universities can both reduce costs and provide high-quality 

educational experiences to a diverse student body. 

Policies for increasing educational opportunity should focus on affordability, but they should also focus on 

ensuring that institutions have the necessary resources to provide educational experiences that will enrich 

students' lives. 

10 
50 

f 

Mr. ROSKAM. Thank you. 

All five of you are very impressive with your background and 

your study and your personal experience. And my sense is that if 

we put a microphone in front of any one of you, you could go for 

about 2 hours giving us this incredible insight. 

We will transition now in terms of the hearing and allow our 

members to make some inquiries. And I will recognize Mr. Meehan. 

Mr. MEEHAN. Well, thank you, Mr. Chairman. 

And thank you, panelists, not only for your presence here today, 

but your collective efforts at looking at this complex issue. 

As a parent who is educating three children simultaneously in 

college today, but I know I speak for so many of my colleagues and 

friends and others, this problem is overwhelmingly more impactful 

than anybody appreciates. Whole generations of parents are just 

taking their entire requirements and turning them over to universities. This bubble has yet to hit. And children are borrowing at a 

rate that dramatically exceeds the ability for them, in many cases, 

to anticipate how they are going to pay it back. Parents are on the 

hook for that as well. 

So I appreciate your efforts at looking at this challenge and how 

we come up with some answers. 


23192.025
51 

One thing, Ms. Baum, you just testified, Mr. McCluskey, I 

thought you testified as well, just about the State issue. And you 

suggested that there were increases that are growing by virtue of 

a lack of State investment, the cutback. 

Mr. McCluskey, you seem to indicate that for every 53 cents lost, they actually increased tuitions and generated $1 for every 53 

cents they have lost. Can you explain that? 

Mr. MCCLUSKEY. Sure. I think one of the differences is Dr. 

Baum was talking about a 10-year span. I was talking about a 25- 

year span. And I essentially smooth the rates on a per-pupil basis. 

And that is very important. There have been significant cuts on a 

per-pupil basis in State and local appropriations to public colleges. 

In the aggregate, it is actually over the last 25 years, from the start to the end, it has gone up about $10 billion adjusted for inflation. So at the per-pupil level, it is certainly the case that it has 

gone down, but not in the aggregate. 

And then what we have seen is, if you look at revenue per pupil 

that public institutions have brought in through tuition and fees, 

they have gone up faster than you have seen a decrease in appropriations. 

Now, it is also important to note that varies greatly from State 

to State. So some States have seen bigger drops on a per-pupil 

basis in appropriations than they have seen increases in tuition 

and fee revenue. But if you average out the States, you get that 

53-cent drop in appropriations and $1 increase in tuition and fees. 

I think it is also important to note, there is some evidence that 

State legislators may not appropriate as much to their schools if 

they think student aid, and particularly Federal aid, will cover 

that. 

Mr. MEEHAN. Thank you. 

Ms. Bair, I was struck by an op-ed you wrote in The Washington 

Post talking about price discipline and actually paralleling the 

mortgage crisis to the education crisis. Could you explain to me 

what the essence of that was? 

Ms. BAIR. Well, yes. I think it is not the exclusive driver, but 

I think the ability to freely borrow has made it easy for schools to 

raise tuition, because students are going to just keep borrowing 

more to pay for it. So your usual supply and demand is out of 

whack. You are increasing the price, but you are not necessarily reducing demand and getting that price discipline because of the easy 

availability for credit. 

That is what feeds an asset bubble. That is the same dynamic 

we saw during the subprime crisis. It was very easy to get credit, 

virtually no underwriting on subprime mortgages. And it fed a 

housing bubble, because you greatly expanded the ability of borrowers to buy houses, multiple houses in that case. 

Mr. MEEHAN. But we also had at that point in time an inability 

for many of those homeowners to pay back that borrowing, and the 

same dynamic is very much at play now in the educational field. 

Is it not? 

Ms. BAIR. Well, that is right. I would say in terms of default 

rates, the problem is much worse—well, nonpayment rates. I think 

with all the various different repayment plans, it is very difficult 

to get good data about just how student loans are actual perVerDate Sep 11 2014 00:39 Jul 13, 2017 Jkt 023192 PO 00000 Frm 00055 Fmt 6633 Sfmt 6602 I:\WAYS\OUT\23192.XXX 23192
52 

forming. But, yes, I think that the percentage of students in distress on their student loans is significantly higher than we saw 

during the subprime crisis and subprime borrowers, yes. 

Mr. MEEHAN. Thank you. 

Mr. Schneider, a closing question for you. I have put a lot of 

work into the idea of transparency in college expenditures and how 

they actually use the money that they obtain through tuitions and 

otherwise. I tried going through Form 990, just in colleges, and 

they are overwhelmingly complex documents. So that the average 

person trying to make decisions will not be able to, in my mind, 

read that. 

What can we do to improve the 990 so that a consumer would 

have a better idea of how universities are not only generating 

money, because I think your point about the tax benefits associated 

with large endowments are different from small colleges, but also 

how they are spending it? 

Mr. SCHNEIDER. So I believe that this is a fundamental problem, because the 990 is unbelievably complicated already. And we 

are talking about a very difficult—I worked in a university. The 

president of the university often complained about not even being 

able to understand exactly what was going on in her own university. 

I think there are a couple of things. So the first thing, we have 

some proposals about getting better information onto the 990s so 

that, in fact, the flow of money into the universities and the calculation of the public subsidy can, in fact, be better. 

I think, quite frankly, at that point we are going to have to do 

an education campaign using the media, using newspapers, using 

advocacy groups to help the people understand exactly what is 

going on. 

Some of the numbers are quite simple, right? I mean, the size 

of the public subsidy for students at Princeton University is infinitely larger than what we are giving to students in community 

colleges. I think that is a simple message that needs to be broadcast. 

Mr. MEEHAN. Thank you, Mr. Chairman. I yield back. 

Mr. ROSKAM. Mr. Lewis. 

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

I spend a great deal of time when I am not here in the Congress 

traveling around America, speaking at colleges, universities, meeting a lot of wonderful, smart, gifted young people, college graduates. But they all complain about debt, paying back student loans. 

And two of you are college presidents. And I agree with Mr. Meehan that parents, grandparents are investing in their children, 

their grandchildren. 

What can we do to keep people, when they leave college, leaving 

a university, they are saddled down with debt? I even hear some 

of my colleagues in the Congress that are still paying off their student loans. What can we do? The two college presidents maybe. 

Ms. BAIR. So, Congressman, I do think, as I get into more detail 

in my written testimony, that we should get away from a debt 

model to what I call an equity model. They are generally called income share agreements. There is private sector interest in this. I 

am really talking more of a government program. 

53 

If we want to make financing broadly available to students up 

to some sensible level, I think there needs to be some sensible overall cap, you are, by definition, going to be making loans to people 

that won’t necessarily repay, because there is no underwriting. In 

a way, you kind of have reverse underwriting now, because the eligibility is based on need, which makes sense from a policy perspective, but there is no connection between that and whether the student is going to be able to repay the loan. 

So shift to an equity model, just put everybody into an income 

share based on a very, very small percentage of what they actually 

make when they graduate, paid off over a very long period of time, 

so that they can benefit over the years from increased earning potential as they advance in their career. 

I think if you built it into the tax system, you would eliminate 

defaults. Just make it easy, put it in withholding, make it part of 

a payroll tax or what have you. You would make it easier for students. You would get rid of all these servicing problems. I mean, 

I am sorry, as a former bank regulator, I see some of the things 

going on with servicing of student loans, and it makes the hair 

stand up on the back of my neck. 

So have an automatic payment system that is built into the tax 

system, make it a very small percentage of income, make it over 

a long period of time. I think that is really the way, if we want to 

make financing generally available to everyone, again, up to some 

commonsense cap, it is better to use that equity model as opposed 

to a debt model. 

And that way, if they don’t get a job, or if they make very low 

incomes, they don’t have to pay anything. They are always guaranteed a very low payment. If they go work for a hedge fund or a tech 

company, make a lot, they are going to pay back more, they are 

going to pay it back faster. But everybody will have an affordable 

payment, everybody will have a protection against student loan distress, which is what we have now, which is rampant. 

Ms. BAUM. Could I just add that I agree with much of those 

comments in terms of the importance of making payments depend 

on people’s incomes and of having the collection be automatic. But 

calling debt something other than debt isn’t going to change the 

fact that students owe money and they have to give a portion of 

their future incomes to repay debt. 

So the question of whether the Federal Government should be 

doing this or the private market should be doing this, I think there 

would be severe disagreement about. I mean, it is most important 

to provide liquidity to those students to whom the private market 

would not be kind in terms of the terms on the loans, because they 

are the students who are most at risk. 

So these solutions are important, but it is also very important to 

note that we have some very real student debt problems in this 

country, some students who are borrowing for programs and institutions that will not serve them well. But the typical student who 

goes to college and earns a bachelor’s degree is not drowning in 

debt. They are borrowing money as part of an investment in their 

futures, and that investment pays off very well. 

Mr. LEWIS. Mr. President, do you care to? I have visited your 

college, a great school, Berea. 

54 

Mr. AMBURGEY. Let me give you a little information about the 

debt load at Berea. Our initial financial aid package does not include any loans. So a student can go there and never have to take 

out a loan. However, if they choose to do so, they can international 

study abroad, they will borrow money for that. 

So our average student that graduates that does have debt, many of them graduate with zero debt, is about $7,100 on average. So it 

is manageable. 

I think it is very important for us in higher education to educate 

the student’s on debt and the obligations that go with that when 

they do leave the institution. It is not a grant. If it is a loan, it 

needs to be paid back. 

I would like to add also that 98 percent of Berea’s students receive some form of Pell money. So the very needy students financially. Expected family contribution of our entering class, about 60 

percent of our entering class this fall has an expected family contribution of zero. So if the expected contribution is zero, that means 

the family cannot pay any expected towards that. If the expected family contribution is $1,000, and the family does 

not contribute, obviously the student, we cannot over-award, and 

they may need to borrow to finish it out. 

So from Berea’s perspective, our students graduate, luckily, because of the endowment, with very little debt to take with them 

into the workplace. 

Mr. LEWIS. Thank you. 

I yield back, Mr. Chairman. 

Mr. ROSKAM. Mr. Smith. 

Mr. SMITH. Thank you, Mr. Chairman. And happy birthday, Mr. 

Chairman. 

Mr. ROSKAM. Thank you, sir. 

Mr. SMITH. Mr. Amburgey, very impressed with work colleges. 

We have a work college in southwest Missouri, College of the 

Ozarks, Point Lookout, and impressed with how many students 

graduate owing very little. 

As maybe the only member of this panel that is still currently 

paying student loans, I understand. Okay, well, I have a partner 

over here with Mr. Reed. But it is extremely important that we get 

to the bottom of this. 

You said that at Berea 98 percent of students use Pell Grants. 

Is that correct? 

Mr. AMBURGEY. 98 percent of our domestic students receive 

some level of Pell. That is correct. 

Mr. SMITH. Okay. What does the rest of the model at Berea consist of? 

Mr. AMBURGEY. The financial model, like I said before, the unrestricted educational and general operating budget, 75 percent of 

that is funded by the endowment. Ten percent comes from the annual fund, annual fundraising. Another 10 percent comes from part 

of the Pell money we receive, Federal, State grant aid. A lot of that 

money goes directly to help pay the students for room and board, 

books and supplies. And then other income is the other component 

of that. 

So when, for example, in 2008–2010 timeframe there was some 

serious discussion around the leadership table when our endowVerDate Sep 11 2014 00:39 Jul 13, 2017 Jkt 023192 PO 00000 Frm 00058 Fmt 6633 Sfmt 6602 I:\WAYS\OUT\23192.XXX 23192
55 

ment was declining significantly in market value, but we did not 

have that tuition lever to pull, it was very difficult to get through 

those times, but we had mechanisms in place to help us get 

through that. 

So, in summary, the endowment is the main component, annual 

fundraising is about 10 percent, and other resources make up the 

other. 

Mr. SMITH. How large is the endowment at Berea? 

Mr. AMBURGEY. A little over $1 billion. About $1.1 billion currently. 

Mr. SMITH. Okay. And it has been since 1892 that you basically 

haven’t been charging students. Is that correct? 

Mr. AMBURGEY. That is correct. 

Mr. SMITH. All right. Impressive. 

President Bair, at your university, you mentioned that you recently have frozen tuition. What is the tuition per credit hour? 

Ms. BAIR. So per credit hour, the sticker price—and as we have 

discussed before the discount, we discount about 50 percent of the 

sticker price—is around $44,000. 

Mr. SMITH. We have a lot of the universities that say that when 

they have an endowment, some of these universities have an endowment of $1 billion, that they find it as a victory to only increase 

tuition by 5 percent a year. 

Ms. BAIR. Yeah, I know. 

Mr. SMITH. And you have frozen it. Can you tell you us how you 

have done that whenever so many others say it is impossible? 

Ms. BAIR. Right. Well, we tightened our belts a bit. We had a 

surplus last year, and I think the board, in our discussion, sensibly 

asked: Well, why are we raising tuition if we are running a surplus? So we did freeze for 1 year. I don’t know if we can freeze forever. I would like to. But we are certainly looking very hard about 

how we can hold the line on future tuition increases. 

And it is, again, I think Washington College, again, I have only 

been there a year, I think they have done probably as good a job 

as any of trying to hold the line on tuition increases. But it has 

been typical throughout both the public and private sector, and I 

think everybody needs to just get smarter about how you spend 

your money, try to focus resources on the faculty side, hold the line 

on nonfaculty spending, administrative spending. The government 

can help a bit. Some of the regulatory costs have gone out significantly as well. 

Mr. SMITH. Something that has always been implanted in my 

mind, whenever I was a State lawmaker in the State of Missouri, 

I had a constituent who was a former professor at one of our universities that came to my office with some research that he had 

provided over several years. And just by cutting the faculty salary 

as nonteaching faculty and above, deans, presidents, and above, by 

half, it would have meant that every student at that university 

would have a reduction by more than half of their tuition. And that 

has always stuck with me, and I just think that is something to 

look at. 

Thank you, Mr. Chairman. I yield back. 

Mr. ROSKAM. Mr. Davis. 

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

56 

I am pleased to note that Illinois has a wonderful work college, 

Blackburn College. I have worked closely with Blackburn, Berea, 

and other work colleges over the last decade on education and tax 

issues. So I am pleased that our subcommittee could hear about the 

wonderful things Berea and the work colleges are doing to help 

low-income students. 

I feel very strongly that our laws should incentivize colleges and 

universities to do more for their low-income students. It gives me 

pause that many of the institutions with the largest endowments 

have small percentages of low-income students and also restrict access to AP credits that help students graduate more quickly. 

Further, the revenue foregone from the top endowments exceeds 

the endowments at a vast number of other schools combined. For 

example, at the Historically Black Colleges and Universities, over 

70 percent of students are low income, yet, only seven HBCUs have 

endowments that exceed $400 million, and many have endowments 

that are less than $2 million, like my alma mater, the University 

of Arkansas at Pine Bluff. 

Yet, I am not certain that the Tax Code is the most direct route 

to incent institutional investments in low-income students. Endowments are a tremendously useful resource to institutions, and I believe strongly that institutions deserve their tax exemptions. 

Endowments are complex by themselves and within the Tax 

Code. Trying to adjust the endowment benefit for educational institutions could unintentionally harm other endowments, such as 

those of private foundations. 

For this hearing, my staff asked two wonderful private schools 

in my district, DePaul and Loyola Universities, about their endowments. These universities do amazing things for low-income students, amazing in both content and number. Yet, the vast majority 

of their endowments are restricted, with one school having 95 percent of its endowment restricted. 

I think there are other elements of the Tax Code that can more 

directly help students. For example, my bill with Representative 

Black last session included two critical pieces to help low-income 

students afford college by better coordinating the AOTC and Pell 

Grants and by making Pell Grants nontaxable. 

Due to poor coordination between the Pell Grants and the Tax 

Code, an estimated 1 million low-income college students do not receive any benefits from the AOTC. 

Ms. Baum and Mr. Schneider, are there other elements of the 

Tax Code that could more directly help low-income students afford 

college? 

Mr. SCHNEIDER. In our testimony, we outlined a very particular kind of system, that resembles other work that has been 

built into the Tax Code in terms of tax credit bonds, that could, in 

fact, generate about $5 billion a year that could be sequestered— 

not quite the right word—but it could be targeted at students in 

community colleges. 

We always have to be cognizant of the fact that there could be 

unintended consequences that follow from tax laws, obviously, but 

the private foundations already pay between 0.5 and 2 percent of 

a tax on their endowment. 

57 

And what we are suggesting is that we could use that same kind 

of tax rate, that same kind of model, on extremely high concentrations of wealth and set up a system in which the money is used 

to support students in community colleges for practices that are 

proven effective in improving students’ success. And this is, for us, 

a very direct way of supporting low-income students using the Tax 

Code. 

Ms. BAUM. I support the idea of providing incentives to the Tax 

Code for community colleges, for low-income students, but I think 

your point about the tax credits and Pell grants is very important. 

The tax credits, even with the refundability of those tax credits, 

don’t help many low-income students because the Pell grant is paying their tuition. But it is also very important to note that for lowincome students, they need the money in their pockets to pay the 

bills, and getting a tax credit a year later doesn’t actually serve the 

same purpose as Pell grants for low-income students. 

Mr. RANGEL. Thank you very much. Mr. Chairman, I yield 

back. 

Chairman ROSKAM. Mr. Reed. 

Mr. REED. Thank you, Mr. Chairman. And thank you to our 

panelists. This is something I care deeply about. I have spent some 

time on here, and I have obviously got some attention on some proposals we put out there. And I come at this issue from somebody 

who cares, from a parent whose first child went to school this year, 

and we had to send her to not her first choice because of cost. 

Sixty-five thousand dollars was the annual tuition cost she was facing versus a school she ended up at at $23,000 a year. I come at 

this from a personal perspective, $110,000 worth of student loan 

debt when I completed my studies. I know firsthand the adverse 

consequences and life impacts that has in making choices available 

to somebody who wanted to pursue potentially other course of careers. 

And I also come at it from across the district hearing time and 

time again from parents who are just saying this has to stop, especially for working parents who are over that threshold where that 

cliff kicks in, and they are told by the institution there really isn’t 

anything here for you. We haven’t set up our programs to benefit 

the working families, in my opinion. 

So I am going to ask you, the panelists, can you define, I want 

to put a spotlight on some of the spending that is going on in this 

arena. Mr. Schneider, to your point about the 990s. We spent a lot 

of time combing through 990s, and they are very difficult IRS 

forms to get information from. But we have seen things like the 

University of Illinois has paid its fired coach Ron Zook $1.3 million. 

University of California paid its fired coach, Jeff Tedford, $1.8 million for a year’s worth of non—for no service. Ralph Friedgen up 

at the University of Maryland, $2 million while he fished and 

golfed. Steve Spurrier, well-known football coach, said this is a phenomenon that is like hitting that lottery ticket for these individuals. 

We have also seen things like this for, in the University of Missouri, for expenses in regards to infrastructure. The University of 

Missouri charges $41,000 for out-of-state residents per year. They 

have constructed an indoor beach club complete with palm trees, 

58 

lazy river, water slide, and a grotto, modeled after the Playboy 

Mansion. 

We have seen the stories about college coaches. We have also 

seen the stories about college presidents and administrators. Columbia University, compensation in 2013 for its president was $4.6 

million. But when you dig deeper, the investment manager was 

paid $6 million for his services. The vice president of investment 

management was paid $5.4 million a year. Are those reasonable 

costs in a not-for-profit world to be incurred by the institution? 

Anyone want to defend those costs on this panel? 

I didn’t think so. So I think a spotlight is part of the reform that 

we need to put on here. 

But I also want to target some of the positive things that are 

going on. Berea College has been able to be put in a position where 

its students aren’t being charged tuition. And from your testimony, 

I think you said one thing that was interesting to me, unrestricted 

gifts was a big step, I think, in order to get to where you need to 

be. What makes you capable of utilizing your endowment to have 

a zero tuition cost environment for your students? 

Mr. AMBURGEY. Excellent question. I think there is several factors that help there. The unrestricted bequests, and we started 

that in the 1920s, putting that into the endowment. It is a very disciplined approach. Believe me, in the 2008, 2010 timeframe, when 

we saw the really financial crunch on us, very tempting to say let’s 

peel off 5 percent of that new money coming in and use it for the 

operating budget, but we stuck to our guns, so to speak, and had 

the discipline to stick to that. So that very rigorous—there have 

been exceptions, and it takes board approval to make exceptions to 

that policy—by putting that money in the endowment. That is one 

thing. 

The other aspect of it is our great commitments. I think Berea, 

we have eight great commitments that are guiding principles. That 

is part of my written testimony that you have in front of you. One 

of those, No. 7, includes the language plain living. So we do not 

have high-paid coaches. As a matter of fact, we are struggling to 

pay some of the coaches, okay, but many of our sports are free to 

come to. We would like for you to be there if you can, is the approach. 

So I think our core mission is staying true to that mission, and 

the people that work there, both staff and faculty, knowing that 

this is our guiding principles and it is our core. That is what we 

do. So all being committed to that, helps also. 

Mr. REED. And in closing, I recognize endowments are a bridge 

to getting the college costs issues under control. I don’t see it as 

a single magic bullet and a panacea for it. And any ideas you 

have—and my time is expired—that the panelists have for how we 

can get college costs containment policies put in place that universities have to adhere to, I am very interested in finding out what 

platform you would recommend for us to pursue on that front. 

With that I yield back. 

Chairman ROSKAM. Mr. Rice. 

Mr. RICE. Thank you, Mr. Chairman, and thank you for this interesting hearing. I have certainly learned a lot today, although as 

59 

a former Gamecock, I don’t appreciate the reference to Steve Spurrier. 

A couple things that just give me pause and make me wonder 

about this. Ms. Bair, in your testimony you have a reference to the 

average loan by student graduating, I think it is $32,000 roughly. 

Ms. Baum, in your testimony, I think you said that only 10 percent 

of students have loans over $40,000. Is that right? 

Ms. BAUM. That is correct for—— 

Mr. RICE. There is a disconnect there somewhere. If the average loan is $32,000, and only 10 percent have over $40,000, I am just 

curious about where the disconnect is? 

Ms. BAUM [continuing]. For students who borrowed for undergraduate education, that is correct. It is very rare to graduate with 

more than $40,000 in debt. Many people who go to graduate school 

accumulate much more debt than that. And you also need to look 

at all of the students who are going to college and going to a private, nonprofit four-year college, you are likely to accumulate more 

debt then if you go to a public college or to a two-year college. 

Mr. RICE. Ms. Bair, you may not have looked at the statistic, but 

do you agree that only 10 percent of students graduate, undergraduate students, with more than $40,000 in debt? 

Ms. BAIR. I take at face value what she said. I haven’t seen her 

research. But I do think the distribution is troubling, and you are 

right; graduate schools can drive up that debt. But sometimes lowincome students will borrow far more than they should. I think you 

also need to look at debt levels and in aggregate and as they have 

grown, which I mentioned in my testimony, and the percentage of 

students who are actually, I believe over 50 percent of students 

now are not in the standard 10-year amortized loan, which is the 

repayment, the basic repayment they default into. 

So they have actually had to proactively go to the Department 

of Education and get some kind of relief to get into a different type 

of repayment plan. So I think that in and of itself suggests that 

students are struggling. I think you also need to put this in context 

of what their wages will be when they graduate. So a $30,000 loan, 

amortized over 10 years, you are probably looking at $350, $400 a 

month, which can be a pretty significant chunk of take-home pay. 

Mr. RICE. Do you provide counseling to students on their career 

paths and the debt load? 

Ms. BAIR. We do, and I would like to do more of that and—— 

Mr. RICE. Do you steer people toward an area where they may 

get a job? 

Ms. BAIR [continuing]. Yes. We put a very high priority on job 

placement. Some of our students want to go to graduate school. We 

make sure that is the right choice for them and help them if that 

is what they want to do. 

Mr. RICE. I am sorry, Ms. Bair. Ms. Baum, also in your testimony you said that the highest levels of debt have the lowest defaults and vice versa? 

Ms. BAUM. Yes, that is correct. The highest levels of debt are 

generally people who went to graduate school, people who at least 

got a Bachelor’s degree. The people defaulting on their student 

loans tend to be many people who did not complete what they 

began. They may have gone to college for a year. They may have 

60 

$5- to $10,000 in debt, and those people are much more likely to 

default. And if you are working at the minimum wage because you 

went to college for a few months, then paying back any amount of 

student debt can be a problem. 

Mr. RICE. I am a numbers guy, and your statistics are just interesting to me. Do you know the national average default rate on student loans by any chance? 

Ms. BAUM. It changes dramatically and it ranges—recently 

about 24 percent of the people who did not complete a credential 

defaulted, and about 9 percent of people who did complete a credential defaulted. 

Mr. RICE. Well, I have three sons. I have a 31-year-old, a 29- 

year-old, and a 27-year-old, so I felt the pain, and I was glad when 

my youngest graduated. And we absolutely need to do something 

about it. 

It appears to me the tuition costs have just spiraled completely 

out of control, and I have seen where these endowments pay for 

these really lavish things off the normal college budget. I love your 

idea, Mr. Schneider, about more disclosure from universities about 

where this money is going, but I would love to hear from the panel 

about any other ideas that we have that we can shine more light 

on this problem, because I think one thing is people don’t know 

about it. 

Yes, sir, Mr. Schneider. 

Mr. SCHNEIDER. Debt by itself is not the issue. It is debt in relationship to the earnings. And so, I work with many States in 

which we help States and universities calculate at the program 

level what the debt level is and what expected earnings are. 

Mr. RICE. You had suggested as one of your solutions that endowments should be taxed? 

Mr. SCHNEIDER. Yes. 

Mr. RICE. From zero up. 

Mr. SCHNEIDER. Only large endowments. 

Mr. RICE. Please explain. 

Mr. SCHNEIDER. So what I am concerned about is how much 

money—Harvard has $36 billion in endowment, and it attracts 

huge donations; so there is a cumulative inequality here. I think 

someone else noted that it is only a very small number of campuses 

that have—— 

Mr. RICE. Sir, would you recommend that the amount that is tax 

free be capped at a per student basis or something like that? 

Mr. SCHNEIDER [continuing]. I believe that large endowments 

themselves should be taxed at between a zero and a 2 percent rate, 

but it is what we do with that money that is also of concern. 

Mr. RICE. But what about the Berea colleges of the world who 

are giving free tuition to their students? 

Mr. SCHNEIDER. Yes. In our program, in our plan, we have deductions for support to students and financial aid so that schools 

are not penalized for doing exactly what Berea is doing, but if they 

are spending their money on lazy rivers, then, in fact, they should 

be taxed. 

Mr. RICE. Thank you. 

Chairman ROSKAM. Mr. Holding. 

61 

Mr. HOLDING. Thank you, Mr. Chairman. Mr. Chairman, I 

would like to add to the accolades that are being given to Berea. 

Although I did not attend Berea, I would give Berea credit in a 

large degree for my opportunity to sit here today because my favorite and most influential professor in law school went to Berea, and 

I think if I hadn’t run across her in my law school career, I probably wouldn’t be here. So thank you Berea. 

I am concerned about the rising administrative spending at colleges and universities and the effect of increased government regulation as it ties into that administrative spending. So, Mr. 

Amburgey, how do you manage to pay for all the administrators 

necessary to run a college? I imagine Berea pays more attention to 

costs than other colleges, and how do you address the administrative overhead? 

Mr. AMBURGEY. Excellent question. Go back to 2008 and 2009. 

We actually made a 15 percent reduction in our budget, so we actually had some reserves to go through those times, and we actually, 

if you want to call it a tuition cut, because since we are paying 

most of our tuition internally, we actually had to reduce our costs. 

We have no incentive whatsoever to increase tuition. To manage 

those costs, we are just a very good, prudent, very active board. We 

stay on top of cost increases. We do modeling, looking forward, and 

this investment return that seems a low investment return environment today, we do realize that our budget is going to be restricted somewhat, but we have to live within our means. If we are 

going to trace true to our model and carry out our mission, we will 

make it happen. 

Berea’s model, having said that is very, very fragile. It is a financial model that is based on a lot of external forces, mostly the capitalism of the United States and the world. So we are impacted by 

things that are beyond our control, but we have put in place safeguards, so to speak, to help us get through those times. 

So we manage our costs knowing that we are the ones, the school 

of endowment is going to have to carry the biggest load, and can 

it afford to do that. 

Mr. HOLDING. So the Department of Education has said that 

administrative positions at colleges and universities grew 60 percent between 1993 and 2009, so I am assuming that Berea does not 

reflect that average? 

Mr. AMBURGEY. I do not think we are near close to that. 

Mr. HOLDING. President Bair, could you address how administrative costs are affecting Washington College, and have you seen 

a similar increase in the number of administrative positions during 

the period of time that the Department of Education referenced? 

Ms. BAIR. Well, I have only been there a year, so I am sorry I 

can’t give you a very good historical perspective. But I do think we 

see it certainly in the compliance area, as well as in the financial 

aid area. The Wall Street Journal op-ed that was referenced earlier 

also made an issue about the complexity of FAFSA. To the Obama 

administration’s credit, they have tried to simplify it, but it is still 

over 100 questions. Especially for low-income students, it is extremely challenging. It really requires interpersonal sitting down, 

helping them. It just seems to me it could be dramatically simplified. 

62 

So I think financially in particular it is more complex than it 

needs to be, and that would be a potential area for administrative 

savings. 

Mr. HOLDING. Mr. McCluskey, could you speak to the effect of 

government regulation on the rise in tuition? 

Mr. MCCLUSKEY. Well, I think it is difficult actually to pinpoint the amount of regulation in particular as we learned the last 

few years. There is regulation that goes with running a college. 

There is a lot of regulations that colleges talked about that go with 

running research, and so it hasn’t been my observation that regulation is what is driving the cost. Not to say there isn’t overregulation. I hear from colleges and college presidents where they say 

they just can’t keep track of all the regulations they are supposed 

to comply with, but I don’t think that there is good research evidence that regulation is what is driving the prices. 

Often what seems to be driving the prices, including the water 

parks, is demand for a lot of things. Students will go to a college 

that gives them more programs, that gives them nicer dorms, you 

know, the water parks. And part of that is because so much of 

what they consume is paid for with third-party money. 

Mr. HOLDING. Thank you. Mr. Chairman, I yield back. 

Chairman ROSKAM. Mr. Rangel. 

Mr. RANGEL. Once again, Mr. Chairman, I thank you for your 

insight in using the Oversight Committee to help us wrestle with 

some serious national problems. 

I am so sorry I was torn away on a legislative issue, but as you 

know, we are wrapping up, and we all have conflicts. But for this 

panel, where my community where I was born and raised in Harlem, New York, I don’t know any African Americans my age that 

went and graduated from college without the assistance of the GI 

bill. That would mean people older than me that were in the socalled great war, not just the Korean War, and of course that 

meant the stability of the family meant that they could, they had 

the knowledge to send their kids to school. 

As I look forward to the future of our great country, it seems to 

me that our workforce has to be competitive if we are going to succeed and that it is not just a question of intellectual ability, but it 

is a question of national security. 

Does anyone on this panel believe that the education of our 

workforce is not directly connected with the security of the United 

States of America? Because I am constantly reminded by our leadership that the founders of the Constitution did not include education to be one of the mandates, and it is a State responsibility. 

And I told our President in no uncertain terms there was nothing 

in there about health care either, being a State responsibility, and 

yet I don’t really believe, as we talk here today, that our country 

is prepared to leave our national security to the States. 

I have universities that have campuses all over the world. Are 

you telling me, Mr. McCluskey, that my national security is going 

to be tied up because university presidents want to make an appeal 

to families that want their kids to go all over the world on trips 

and whatnot? I don’t believe that. 

There has to be a basic minimum commitment that our young 

men and women are going to be productive no matter where they 

63 

come from. Has anyone spoken to that? Because you can just refer 

me to the document that I can pick up and not take time. But I 

don’t want to talk about education in terms of the will or the needs 

of private schools. This is my country, and uneducated people are 

not productive people, and they are sucking the lifeblood out of us 

in many communities, white and black, all over the country. Anybody want to make any short comment on that issue? 

Ms. BAUM. I would like to address it. I think you are absolutely 

right to be pointing to the need to provide education for many people in this country who can’t afford to pay for it. When we talk 

about the demand side and we talk about third-party payment, the 

reality is that there are a significant number of families in this 

country who have enough money to pay the highest college prices 

on their own. Those are the people who are demanding the kinds 

of things that many of us question. 

Mr. RANGEL. Let me interrupt because I am for national health 

insurance, but that doesn’t mean to me that wealthy people can’t 

kick it up to any notch they want for any other type of medical attention that they can afford. I am saying you shouldn’t have to be 

in the military to be evaluated as to what contributions you make 

to this great country with access to a proper education, and that 

doesn’t mean going to Europe in order to get a degree. 

Ms. BAUM. No. And that is exactly right. And the fact is if we 

say people need to pay with their own money, then what do we do 

about all the people who don’t have the money to pay, and those 

are the people you are talking about who are critical of—— 

Mr. RANGEL. Mr. Chairman, you help me because I am dedicating my retired life to helping kids who have the dream but they 

don’t have the access. And whatever work has been done on this 

subcommittee, I want to assume it as a part of my expertise. And 

I thank you for the opportunity. 

Mr. MCCLUSKEY. Can I respond since I was mentioned? 

Mr. RANGEL. Certainly. 

Mr. MCCLUSKEY. I think education is absolutely important. I 

don’t disagree. But we have to look at what we have actually gotten as a result of huge subsidies, including through the Federal 

Government in terms of education. So we talk about education 

often, and we think, well, it is sending people to school, but we 

don’t actually have good evidence that people have learned a whole 

lot, and in particular commensurate with what we have spent in 

higher education. 

In fact, in my written testimony, I talk about the evidences. Over 

the last several decades we have had decreases in the amount of 

time spent studying. We have had decreases in the literacy of people with college degrees. So I don’t know that the subsidies actually 

lead to more education. And it is also I think important to note, 

also in my written testimony, in 1970, 6 percent of dependent 

members of the lowest quartile income families obtained a Bachelor’s degree by 24. After all our subsidies, that has now risen to 

just 9 percent. Meanwhile, from the upper quartile, we have gone 

from 40 percent with a Bachelor’s degree to 77 percent, so I am just 

not sure all these programs are actually doing what we want them 

to do in terms of providing more education. 

64 

Mr. RANGEL. I never mentioned subsidies. That is a dirty word, 

and I know it. 

Chairman ROSKAM. Mrs. Black. 

Mrs. BLACK. Thank you, Mr. Chairman. I first want to knowledge my subcommittee chairman, Mr. Davis, for the working group 

that we chaired on the tax subcommittee in simplifying the Tax 

Code so that people would be able to use the Tax Code to their benefit on the educational tax credits. 

We actually did produce a bill, and it was passed here in the 

House. Unfortunately it did not get taken up by the Senate, but 

that doesn’t mean that we don’t continue to work on that, and I 

am very proud to have had him as my co-chair on that. 

Mr. McCluskey, you did help us out and came to our hearings 

and testified on at least one if not more of those hearings, so thank 

you. 

I want to turn to 529 plans, that haven’t been talked about yet. 

Obviously they can be set up by educational institutions. They can 

be set up by States that allow family and friends or actually anyone to set aside money for a specific student’s higher education. 

The investment returns on that money won’t be taxed so long as 

the money is used to pay for the student’s educational cost. 

President Bair, I want to give you the opportunity to talk a little 

bit more about this. I would like to ask you a few questions about 

how families are using these 529 plans, and as a matter of fact in 

your testimony, you talk about your Saver’s Scholarship. We know 

that less than 3 percent of families in the United States are using 

this tax advantage college savings plan. Why don’t you think more 

families are using this opportunity? 

Ms. BAIR. Well, I think a lot of it is education. That was one of 

our goals, and it is for ESAs as well as 529s to try to bring attention to this tremendous benefit and encourage parents to start saving—parents who do have the financial capacity to save, to do so. 

There are a lot of families who are cash strapped, and it is very 

difficult to put money away, but there are some that can and 

should. And you are right; this is a great way to do it given the 

tax benefits. 

I would say though on the back end, and there are again the 

synergies between the tax rules and the education rules about who 

qualifies for need-based aid. But 529s, you are still penalized a little bit for Federal aid. I think it is 4 and a half percent or something. But you are still penalized a bit. And then I think as a 

grandparent, it is a contribution of grandparents 529, it is taxable. 

There are some really complex rules that can trip people up and 

scare them off, and that might be something this committee would 

want to look at further. 

I had 529s. My son is here. Yes, we were full pay at Swarthmore, 

which only has a 3 and a half percent draw on its endowment by 

the way, but who is naming names? He got a great education. But 

I think there are some things you can do there as well. 

But, yeah, simplifying the rules, maybe that would be a good corroborative effort with the education oversight committee, so that 

529s and ESAs are not penalized under Federal aid programs. It 

just doesn’t make any sense. 

65 

Mrs. BLACK. That was going to be my next subject, is that they 

are dis-incentivized by doing that and what your thoughts are 

about how we can get these 529 plans to be a better vehicle for 

families to actually save for their children or grandchildren? 

Ms. BAIR. Well, I would say, this may sound radical to some, but 

I would for loan programs, not grant programs, but for loan programs, Federal aid loan programs if we are going to stick with a 

loan model, why have all these rules about what you can contribute 

and what you can’t? Why not just simplify it. I mean, we are building in such complexity to make sure somebody who has actually got 

some money isn’t going to get more aid than they should need, and 

it really scares off the low-income kids and their families. 

We had this new program for first-generation program called 

George’s Brigade. FAFSA is absolutely daunting for them. So I 

think you just need a little bit of cost benefit analysis, the complexity, and the elaborate nature of this application process to try 

to calibrate what need is against what are you really getting from 

that, and why not just let everybody borrow up to a certain 

amount, a commonsense cap of some sort, and dramatically simplify this and make it easier for everyone, and then you don’t have 

to worry about disincentives. 

I mean, kids even a summer internship will penalize their ability 

for aid the next fall. It is just all the wrong signals and all the 

wrong incentives. 

Mrs. BLACK. Mr. McCluskey, do you have a follow-up on that 

when you see 529s and how we can do a better job with helping 

families to plan for their future for their children and grandchildren? 

Mr. MCCLUSKEY. Well, I pretty much just echo what you said, 

which was that for one thing, they are very complicated. But I will 

go a little farther than that. When the Obama administration proposed eliminating 529 plans, I actually thought it was a good idea. 

I think it is a good idea because that sort of skews toward wealthier people. I think if we are going to have aid programs, we should 

focus them as much on the low-income people who really need it 

as is necessary, so I look at 529 plans. I look at Parent Plus loans. 

I look at lots of aid that skews higher income, and it seems to me 

that we should begin to phase out that sort of aid so we can focus 

most on the people who need it the most. 

Mrs. BLACK. Well, I have run out of time, but I think this is 

an interesting subject, and going back to Mr. Reed’s comment 

about his family and how his family will not get the same benefits 

that other families may get even though they have a desire to go 

to a certain school. 

It is a dis-incentivizing program to say I am going to save and 

do the kinds of things that need to be done, and the universities 

also, and how they may benefit from this. But I think this is one 

we may need to dig into a little deeper. 

Thank you. I yield back. 

Chairman ROSKAM. Mr. Renacci. 

Mr. RENACCI. Thank you, Mr. Chairman. I thank you for holding this hearing. I appreciate the witnesses being here. 

This has been a great learning experience for me, as all hearings 

are, because I really listen intently. I got to tell you, there are four 

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things that I took out of this in listening to your testimony. Number one, student aid and loans increase college costs. Mr. 

McCluskey, you mentioned that. Ms. Baum, you mentioned that 

private universities hold one-third of the total endowments. That 

was a pretty shocking statistic. 

Mr. McCluskey, you talked about shining a bright light on endowment uses. I would love to figure out a way, how to shine a 

bright light on non-educational, non-uses for academics, on that 

form 990, so we have got to figure out a way to do that. And then 

I want to roll back to what was discussed a lot, which was student 

loans versus outcomes. It is kind of interesting, when I went to college, which just seems like just 3 years ago, which was 30 years 

ago, I still remember my parents didn’t have very much money. In 

fact, they didn’t have any, and I had to figure out a way to go to 

school. 

So I had to borrow and I had to work. And, Ms. Bair, you talked 

about equity. My equity was I worked 3 jobs. That was my equity 

contribution. And my debt. And I also remember looking at my 

debt. My cost of college was $2,500 a semester back then. So I said 

$20,000 a year. I cannot spend—I have to make sure my debt is 

in line to the job I was getting. And back then I still remember the 

day I was going to be a police officer and I knew the salary was 

8- or 9- or $10,000, and I thought I can’t let my debt get out of 

hand. 

Today I have people that I hear that their debt is they buy, one 

instance where a family’s daughter has three brand new cars because she wrecked two of them, all on student debt. So currently 

the amount of outstanding student debt stands at $1.2 trillion. My 

debt had to be for books and for tuition. It couldn’t go to cars and 

everything else. I had to figure out ways. And, again, I look at my 

debt. I wanted to go to law school. I realize my debt was already 

too high. I couldn’t go to law school. I had to get my job first, and 

then I attempted to go to law school, which ended up going in a 

different direction. 

But maybe if we can touch on, Mr. Amburgey, and President 

Bair, what responsibilities do colleges and universities have to 

avoid saddling students with debt they can’t pay back? 

Ms. BAIR. Well, I think they should. I think we do counsel our 

students. We do keep an eye on it. Our George’s Brigade, we are 

capping it at $2,500 a year, and I think there again, the Department of Education in terms of giving, making it clear that schools 

have flexibility to say, no, you can’t, even if you are entitled under 

the Federal programs, we don’t want you to borrow that much. I 

think in certain areas it is not completely clear, so that might be 

an area where Washington could help. But, yeah, just capping it 

and certainly better disclosure, I think, and financial education and 

counseling up front. 

When we had our Dam the Debt Program, I got all of our seniors 

together announcing the program that we had some money to pay 

down their borrowing for the last semester. And I went through a 

little exercise with them. So I said, you know, we are paying down 

$2,700 of your principal. Who can show me why it is actually more 

than $2,700. And unfortunately nobody raised their hand, so we got 

67 

into a talk about compounding interest and since we were reducing 

the principal, they wouldn’t have to pay interest on that amount. 

But I look at every opportunity to do this, and I think it is incumbent on schools to do so. But, again, I think having clarity 

around the authority of a school to just say, no, even if these Federal programs allow you to do this, we don’t think it makes sense 

for you to do so. I think that would be helpful. And you are right. 

It is not always—these Parent Plus loans are really something, and 

we have very little control over that and what they are used for. 

There again or maybe a more direct way, is to have some type 

of overarching cap on the total amount of federally backed borrowing anybody can do per student. Maybe it is $50,000, I don’t 

know, but something to keep this within reason. If they want to go 

beyond that, then they have to work. They may have to go to the 

private market where there is going to be a lot more discipline. We 

need consumer protections there, too. But we don’t have the proper 

controls in place to make sure the borrowing makes sense and that 

it is used for the right purposes. 

Mr. SCHNEIDER. I do a lot of work with State governments. 

The State of Texas in particular is very interested in this issue and 

has a strategic goal of making sure that student debt is at a level 

commensurate with the wages that are expected for any career or 

any program, and so we should look at some of the State work that 

is going on to help students understand the level of debt in relationship to earnings because that is really what really matters. And if you borrow $30,000 for a $75,000 a year job, that is great. If you borrow $75,000 for a $30,000 a year job, you are going to 

be in trouble. And States, especially the State of Texas, is working 

very hard to communicate that kind of information and shine a 

bright light on that particular problem. 

Mr. RENACCI. Thank you. I yield back. 

Chairman ROSKAM. So look at your watches. 11:30 a.m. You are 

before the most efficient subcommittee in Congress. All of our hats 

are off to you all. Give me a couple minutes because I want to sum 

up and raise a couple of points. 

First of all, thank you for your testimony. You get the sense from 

all of us that we are curious. We want to learn. We want to learn 

more. There is an incredible opportunity I sense for us to do a lot 

of good all the way around. 

I can’t resist, you know, Mr. Rangel mentioned this idea of these 

really lush programs, and Mr. Reed mentioned a couple of them 

that just seem kind of indulgent and too luxurious. And I am reminded of a cross country trip that we took when I was a young 

boy, and we were disobedient in the car, and it was not going to 

end well. And my father pulled into a restaurant. He was completely disgusted with all of us. We thought we were going to order 

a great breakfast and have all this stuff. He turned to the waitress 

and he said they will take pancakes and water, and they will be 

happy. 

And, you know, my sense is that we could go to Rangel University. You would go in there, and there is the science building and 

there is the liberal arts building and there is the gym, and call it 

a day. I think that there is some counter-pressure that can be put 

on higher education so that they are not indulging in this. And we 

68 

are not going to get to that today, but there is an issue there that 

needs to be spoken about and needs to be dealt with. 

Another issue, a theme that I have heard today, is this increased 

level of transparency, whether it is 990s or the FAFSA form, I will 

tell you I would rather have dental work than fill out one of those 

FAFSA forms. It is the most unpleasant, difficult thing. You are 

schlepping for boxes here of records here. You are anticipating sort 

of, well, I think this is what is going to be happening because 

maybe the taxes aren’t done at the time when the FAFSA form is 

due, and it is a very daunting enterprise for the most sophisticated 

among us, and I can’t imagine what it is like for somebody that 

doesn’t have much background in those things. 

I think it is an interesting thing, and I have not talked about 

this publicly, but it would be an interesting thing for us to be 

thinking through, well, what would it be like if we were to 

incentivize donors to contribute towards scholarships? What would 

that be like? And it is not unprecedented in the Tax Code. We have 

Section 170(e)3 of the Internal Revenue Code right now that creates an incentive for companies to contribute inventory donations 

that get an extra benefit—it is cost plus 50—if the organization 

that is receiving it is benefitting the needy as that defined in the 

code. That is interesting. 

What would a donor look like—what would the disposition of a 

donor be if one gift were to go to a building, and that is treated 

as a normal whatever, but another gift says, no, no, no, we are 

going to create more of a value to you, donor, on this enterprise. 

I think we need to do some more exploring. I am not necessarily 

proposing it, but I am saying that it would be a level of inquiry 

that could be pretty interesting because it doesn’t matter where 

you are on the political spectrum, everybody is agreeing that that 

sort of direct giving towards enhanced student aid and scholarships 

is a good thing. 

We also need to get a better, better feel for this bubble because 

it is here. It is going to burst, and it is really interesting. I think 

it is manifesting itself in my area where my kids, I have got three 

kids out of college, one in college right now. And so we have gotten 

a lot of the direct mail over the past few years, and there was a 

postcard that came in that got my attention, and it was a student 

and a picture on the front of the postcard that says I am going to 

the University of Illinois, dot, dot, dot, and then you turn it over, 

and it says and I am starting at the College of DuPage, which is 

our local community college. And I am hearing from a lot more 

folks at home who 10 years ago would have not really thought 

about that route, but now they are saying it just makes no sense 

for me to spend X amount, tens of thousands of dollars, for these 

2 years of schools when I can go to the community college, which 

are doing a fabulous job in our area, go to the community college 

and so forth. So some of the market discipline is beginning to happen, and I am starting to see it. 

The other thing we have got to figure out is how do we make 

sure that kids don’t get whipsawed in this process? So you are a 

student in Harlem. You are a student on the west side of Chicago. 

You are a student who you might think is in Harlem or you might 

think is the west side of Chicago, but you are in the 6th District 

69 

of Illinois; you are in my constituency, and you need some level of 

direct aid. You know what I mean? I mean, to your point, Dr. 

Baum, a tax credit doesn’t do you any good. You need the capacity 

of having cash to pay the bills. So all these things that we are 

thinking about we can’t put that student at risk or make sure that, 

you know, we need to protect them from being whipsawed. 

This other discussion that we didn’t have today, but I think there 

was an allusion to it in Mr. Lewis’ opening statement, and that is 

he was raising the point of what I am characterizing, and maybe 

there is some other term of art about this, but what I am characterizing as an indirect benefit as opposed to a direct benefit. So we 

have largely been talking about direct benefits for students, and 

that is a good thing for us to talk about. 

We also need to understand what are the indirect benefits that 

are coming from universities that help us all, the research side of 

things and so forth. So there is no level of anxiety about a contribution that is made to just a straight up research institution. We admire that, and we think endowing that is even a good thing. We 

need to be more sophisticated in our thinking to tease out and distinguish between a direct benefit, and maybe the direct benefit 

needs to have a higher incentive. Great. Let’s look at that, but let’s 

not lose sight of indirect benefits, particularly coming from higher 

educational institutions. 

And then finally, I want to echo what Mrs. Black was speaking 

about, and that is 529 plans, 529 contributions, that perversely disincentivize other grants and so forth. And that just makes no sense 

at all. 

Let me make one final pitch. It is a quick personal reflection, but 

I think it is worthy of people’s attention, this idea of investing in 

people and how the investment in people can pay disproportionately forward. We know how important buildings are. You need 

buildings, and we need all these physical things. But just a quick 

60-second story. My dad grew up in a very adverse situation. And 

there was an Iowa farm couple who lost their only son—his name 

was George Jenkins—in the Normandy Invasion. And Mr. and Mrs. 

Jenkins, through a wild set of circumstances decided that they 

were going to honor George’s memory, and they paid my father’s 

tuition, room, board, books, fees, spending money. They bought him 

this class ring. They put him through college. And they literally 

took him from a trajectory of this direction, and they put him on 

a pathway of this direction. They literally changed his life. One life. 

Fast forward 30 or 40 years. My dad ends up with other like-minded business people starting a not-for-profit organization, converting 

inventory donations into scholarships, interestingly enough, and 

they end up putting 10,000 kids through college. And that is just 

one life. That is the investment in one life. 

So maybe it is that what our committee can be doing is to be 

thinking through how do we make sure that we are putting a priority on that sort of direct investment in students, not taking away 

from indirect benefits, but recognizing that there is nothing more 

precious, nothing more significant, than investing in an individual. 

So I know I speak on behalf of our whole subcommittee that we 

are deeply appreciative of your time. You can count on us to continue to be in dialogue and discussion. 

70 

And I want to thank my colleagues for actively participating and 

asking thoughtful and inquiring questions. Thank you. The meeting is adjourned. 

[Whereupon, at 11:44 a.m., the subcommittee was adjourned.] 

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