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37–861—PDF 2006

S. HRG. 109–981

REPORT CARD ON TAX EXEMPTIONS AND

INCENTIVES FOR HIGHER EDUCATION:

PASS, FAIL, OR NEED IMPROVEMENT?

HEARING

BEFORE THE

COMMITTEE ON FINANCE

UNITED STATES SENATE

ONE HUNDRED NINTH CONGRESS

SECOND SESSION

DECEMBER 5, 2006

(

Printed for the use of the Committee on Finance

COMMITTEE ON FINANCE

CHARLES E. GRASSLEY, Iowa, Chairman

ORRIN G. HATCH, Utah

TRENT LOTT, Mississippi

OLYMPIA J. SNOWE, Maine

JON KYL, Arizona

CRAIG THOMAS, Wyoming

RICK SANTORUM, Pennsylvania

BILL FRIST, Tennessee

GORDON SMITH, Oregon

JIM BUNNING, Kentucky

MIKE CRAPO, Idaho

MAX BAUCUS, Montana

JOHN D. ROCKEFELLER IV, West Virginia

KENT CONRAD, North Dakota

JAMES M. JEFFORDS (I), Vermont

JEFF BINGAMAN, New Mexico

JOHN F. KERRY, Massachusetts

BLANCHE L. LINCOLN, Arkansas

RON WYDEN, Oregon

CHARLES E. SCHUMER, New York

KOLAN DAVIS, Staff Director and Chief Counsel

RUSSELL SULLIVAN, Democratic Staff Director

(II)

(III)

C O N T E N T S

OPENING STATEMENTS

Page

Grassley, Hon. Charles E., a U.S. Senator from Iowa, chairman, Committee

on Finance ............................................................................................................ 1

Baucus, Hon. Max, a U.S. Senator from Montana ................................................ 5

WITNESSES

Golden, Daniel, deputy bureau chief, Boston bureau, The Wall Street Journal,

Boston, MA ........................................................................................................... 7

Long, Dr. Bridget Terry, associate professor of education and economics,

Harvard University, Cambridge, MA ................................................................. 9

Duderstadt, Dr. James Johnson, president emeritus and professor of science

and engineering, University of Michigan, Ann Arbor, MI ................................ 11

McGuire, Patricia, president, Trinity (Washington) University, Washington,

DC .......................................................................................................................... 12

Dynarski, Dr. Susan M., associate professor of public policy, Kennedy School

of Government, Harvard University, Boston, MA ............................................. 14

Brostek, Michael, Director, Tax Issues, Strategic Issues Team, U.S. Government Accountability Office, Washington, DC .................................................... 17

ALPHABETICAL LISTING AND APPENDIX MATERIAL

Baucus, Hon. Max:

Opening statement ........................................................................................... 5

Prepared statement .......................................................................................... 45

Brostek, Michael:

Testimony .......................................................................................................... 17

Prepared statement .......................................................................................... 47

Responses to questions from committee members ......................................... 86

Duderstadt, Dr. James Johnson:

Testimony .......................................................................................................... 11

Prepared statement .......................................................................................... 91

Responses to questions from committee members ......................................... 106

Dynarski, Dr. Susan M.:

Testimony .......................................................................................................... 14

Prepared statement with attachments ........................................................... 110

Responses to questions from committee members ......................................... 166

Golden, Daniel:

Testimony .......................................................................................................... 7

Prepared statement .......................................................................................... 168

Grassley, Hon. Charles E.:

Opening statement ........................................................................................... 1

Letter of December 4, 2006 from Drake University ...................................... 173

Letter of December 1, 2006 from Meridian National, Inc. ............................ 176

Lumina Foundation for Education article entitled ‘‘Engines of Inequality’’ 178

Long, Dr. Bridget Terry:

Testimony .......................................................................................................... 9

Prepared statement with attachments ........................................................... 203

Responses to questions from committee members ......................................... 225

McGuire, Patricia:

Testimony .......................................................................................................... 12

Prepared statement .......................................................................................... 228

Responses to questions from committee members ......................................... 241

Page

IV

Smith, Hon. Gordon H.:

Prepared statement .......................................................................................... 243

COMMUNICATION

Sloane, James R.W. ................................................................................................. 245

(1)

REPORT CARD ON TAX EXEMPTIONS AND

INCENTIVES FOR HIGHER EDUCATION:

PASS, FAIL, OR NEED IMPROVEMENT?

TUESDAY, DECEMBER 5, 2006

U.S. SENATE,

COMMITTEE ON FINANCE,

Washington, DC.

The hearing was convened, pursuant to notice, at 10 a.m., in

room SD–215, Dirksen Senate Office Building, Hon. Charles E.

Grassley (chairman of the committee) presiding.

Present: Senators Thomas, Bunning, Baucus, Bingaman, Lincoln,

and Schumer.

OPENING STATEMENT OF HON. CHARLES E. GRASSLEY, A U.S.

SENATOR FROM IOWA, CHAIRMAN, COMMITTEE ON FINANCE

The CHAIRMAN. Today we are holding a hearing, what we call an

oversight hearing, on tax benefits for higher education. We will

look at both the incentives we provide families and students to help

pay for education, and also the significant amount of tax breaks

that we provide colleges and universities because they are taxexempt organizations.

The Joint Committee on Taxation, as you know, are the people

who spend their lifetimes, in a professional way, looking at the impact of taxation on the economy and the amount of money it brings

in or does not bring in. That committee has estimated that the tax

benefits to individuals to assist with higher education for 2006

through 2010 will be approximately $49 billion.

The tax breaks provided to colleges and universities are also significant for these institutions because they are allowed to issue taxexempt bonds, and are exempt from income tax, and benefit from

deductions allowed for charitable organizations.

Unfortunately, it appears that far too many colleges’ and universities’ response to efforts to make college affordable by the Congress and by the private sector—particularly our Nation’s elite institutions—has been a bad triple play: big tuition increases, expanding endowments, and now very, very high salaries for college

presidents, although one of the issues in my State of Iowa is

whether or not we are offering to pay enough to fill a vacancy at

one of our State universities.

The Finance Committee considered some of these issues in April

of 1997, when we considered the Clinton administration’s proposal

for the HOPE scholarship, as well as other tax breaks at that time

to help pay and save for college.

2

Many members at that hearing expressed concern about rising

tuition costs. There was even discussion about how incentives for

education savings and other tax changes could possibly reduce the

rampant increase in tuition costs.

We will hear testimony today about research that considers

whether additional tax breaks have been a factor in increasing tuition and reducing institutional financial support.

However, one thing is clear: the tax incentives we passed have

certainly done nothing to limit the rapid growth in tuition that was

investigated by this committee back in 1997.

Since 1976, college tuition and fees have risen by more than

twice the economy’s overall price level. Imagine that! The burden

on families and students has risen by twice the rate of inflation.

So, members of this committee have been very, very concerned,

when we would apply that same principle to high medical costs in

this country, and we ought to do something about it. I think it is

legitimate to raise the issue about the costs on families of going to

college.

In our 1997 hearing, we had discussion of what Senator Moynihan, then Ranking Member, termed as ‘‘Baumol’s disease.’’ The

committee looked at this theory as a justification for ever-increasing tuition, basically the point being that because colleges are so

labor-intensive, they cannot benefit from improvements in productivity that occur in the rest of the economy.

However, it does not have to be that way. Many colleges and universities are working hard to keep costs under control and to make

sure that working families are not overwhelmed by the costs of college.

Two examples in my own State, Drake University and a small

college in northwest Iowa called Northwestern College, have taken

steps to get a handle on tuition increases. It can be done. I will include in the record a letter from the president of Drake, as well as

an extensive discussion of the work Drake has done in this area.

[The letter appears in the appendix.]

The CHAIRMAN. I would suggest to my colleagues that efforts to

stop the galloping inflation of college costs failed when we tried to

address it on the demand side. I think it is time for us to consider—and I do not have any thoughts beyond considering, but that

is what this hearing is all about—what incentives or requirements

might make sense for colleges and universities that receive these

billions in tax breaks, particularly our elite institutions with massive endowments, for best practices to keep tuition costs in hand

and to assist working families to attend and pay for college.

Should we expect better information and transparency of what

colleges are doing to control costs, who they are admitting, and

other important information? Should colleges with big endowments

be required to pay out funds and dedicate some of those funds to

keep tuition costs in check for working families? Maybe these universities already figure they are doing a great deal of that.

Should some tax breaks for colleges be dependent on their keeping tuition inflation under control? Are tax breaks such as taxexempt bonds actually encouraging behavior such as increasing tuition and reducing the number of students accepted from working

families?

3

Now, you could add a lot of questions to what I just asked, but

these are some of the questions and some of the ideas—and there

are many more—that we need to be thinking about.

The information prepared for today’s hearing by the Congressional Research Service and Joint Tax is very informative, and I

commend it to the attention of members and staff. I particularly

note the issues that CRS and Joint Tax raised regarding these

massive endowments at some universities that have no requirement to provide a penny to help students pay for college.

I know that looking at colleges and universities is a very tough

task, and tougher than the easy journey of just voting for more tax

breaks for tuition. I have supported and have helped to champion

those tax breaks in the past, and hopefully to get them reauthorized right away.

Of course, I look forward to working with Senator Baucus to extend these proposals in this Congress, and, if we do not get it done,

then doing more maybe even in the next Congress.

That is why it is all the more unfortunate that some on the other

side have decided to make political points off of what has been a

bipartisan matter for years. If you look at the rhetoric and ads in

the last campaign from the other side—meaning the Democratic

Party, a lot of times, not maybe specific members of Congress—you

would believe that none of these recent education tax relief proposals came out of a bipartisan effort of this committee.

In fact, the truth is that all of these measures were very bipartisan and enacted during Republican congressional control. However, I am very fearful that additional tax breaks for education

without encouraging best practices by colleges and universities will

not even be helping working families keep up with the rising costs.

The need for this committee to train its eyes on tax breaks for

education has received important support from Mr. Charles Miller,

who was chairman of the Secretary of Education’s Commission on

the Future of Higher Education, which recently released a report.

I would enter his letter of December 1 in the record.

[The letter appears in the appendix.]

The CHAIRMAN. He makes several points about the importance of

holding colleges more accountable, and also emphasizes the need to

clean up the confusion and complication of tax breaks that assist

families to pay and save for college.

Reform of the tax code in this area is also an important part of

this hearing. We have proposals from Joint Tax and the President’s

Tax Reform Panel to reform the maze of tax laws when it comes

to paying and saving for education. We will hear more about what

can be done in this area to make these incentives more effective.

It is very discouraging that many students and their families are

not taking full advantage of the tax incentives that we have provided because of confusion and uncertainty. We need to make simplification in this area a priority, and my hope is that the administration will put forward a credible proposal.

Last, we will be hearing about a new issue in this committee,

which is a significant number of enrollment spaces at our Nation’s

elite colleges that are reserved for children of alumni, children of

teachers, and the children of multi-millionaires whom the universities hope might give more money down the road.

4

* For further information on this subject see also ‘‘Present Law and Background Relating to

Tax Exemptions and Incentives for Higher Education,’’ Joint Committee on Taxation staff report, December 4, 2006 (JCX–49–06); and ‘‘Higher Education Institutions: A Discussion of Organizational Status,’’ Congressional Research Service, December 1, 2006.

All this means fewer spaces for children of working families. The

reality is that, for a smart high school student from Waterloo, IA,

the number of spaces available at a top college is a lot fewer than

might meet the eye.

We need to think about whether reserved spaces at our top colleges is a public policy that should be subsidized by the tax code,

as is currently the case, and also whether it is in keeping with the

requirements that charities, colleges, and universities operate in

the public interest.

I look forward to this testimony and encourage other interested

parties to submit their views and comments on how to deal effectively with these issues.*

Before I ask Senator Baucus to speak, I would simply like to

make a tribute to him as Ranking Member over the last 4 years,

cooperating with me. This will probably be the last hearing that we

will have that I will chair, so it gives me an opportunity to express

to him my gratitude for the great deal of cooperation.

More importantly, and something I do not think he, I, or this

committee gets proper attention from the public for, or particularly

people who are naı ̈ve about how Congress operates, that everything

in this Congress is in conflict; every Republican is punching every

Democrat, and every Democrat is punching back.

In this committee, there has been a great deal of cooperation

and, at least over the last 2 years, I can think of only one issue

that did not get out of the committee that we had any disagreement on, and that was a friendly disagreement.

Then we had maybe one bill get out of committee that did not

have bipartisan support, and that was a friendly disagreement. So

this committee acts the way the Senate has to act if anything is

to get done, and that is in a bipartisan way.

For people who might not understand why it takes bipartisanship in the Senate to get anything done, it is because of the filibuster and the protection of minority interests, the only institution

of our political system where that is done, in the Senate of the

United States. So, nothing gets done if just Republicans stick together and Democrats stick together. So if you want to get something passed, we get it passed.

I think that Senator Baucus is probably in the same vein of

thought as a famous Senator from his State by the name of Mansfield, who thought the Senate ought to work and have product. I

do not know whether that is where he gets his inspiration or not,

but I know that that was a good pattern to follow.

Whether he recognizes it or not, I think he follows in that pattern, and we get a great deal done, with a great deal of cooperation. I guess I owe it to you to thank you for that cooperation, and

wish you well over the next 2 years, hopefully. [Laughter.]

Senator BAUCUS. It has been a real pleasure.

5

OPENING STATEMENT OF HON. MAX BAUCUS,

A U.S. SENATOR FROM MONTANA

Senator BAUCUS. Mr. Chairman, you kind of beat me to the

punch here. I was going to compliment you right off the top. I do

not know that the Senate has had a better Chairman, frankly, in

many, many years that has been so cooperative. It has been just

a joy to have this partnership, the two of us working together.

This is probably going to be your last hearing of this Congress,

but I want you to know that we are going to have the same partnership in the next Congress. ‘‘Joy’’ is the word. It has just been

a real reward for me to work with you in the vein that you just

described. It means a lot to me. And it will continue in exactly the

same way.

The CHAIRMAN. Thank you very much.

Senator BAUCUS. Mr. Chairman, I am excited that we are having

this hearing on education. We all know the importance of education. I am going to spend a lot of my time in this Congress—what

is left of it—and in the next Congress helping to advance the cause

of education in our country. It is critical.

Aristotle once said that legislators should spend their time helping to educate youth. He was right. We all know today that we

must as well.

I have introduced legislation to try to advance education in our

country. It is a bit ambitious. It is meant to be a bit controversial,

because I think we have to stir up a little controversy to, frankly,

get our country focused much more, and more effectively, on education than we have in the past.

One small anecdote. It really does not mean a lot, but maybe it

means something. I took a bunch of Montana businessmen over to

India earlier this year. When we were in Bangalore, I spent some

time at the Jack Welsh Technology Center. That is a GE research

center there in Bangalore.

At the end of the tour, I asked the manager, ‘‘Why are you here?

Why are you here in Bangalore?’’ He said, ‘‘The greatest talent pool

is here.’’ I said, ‘‘Well, in what country is the next greatest talent

pool?’’ ‘‘China.’’ ‘‘Well, where are we, the United States?’’ ‘‘Well, you

are down there a little bit.’’ ‘‘Well, what do we have to do to get

up there?’’ He said, ‘‘Education. Education and health care costs.

Your health care costs are too high, and you do not spend enough

time on education in your country.’’

I know he is right. With the world getting increasingly globalized, complicated, interrelated, clearly a comparative advantage we

might have in America is brain power, education.

Other people are just as smart as we, but we just have to take

advantage of the creative opportunities in this country, the creative

juices, the innovation in our country to tap into developing a worldclass education system so that our kids and our grandkids can have

the same quality of life that we have been able to have in our lives.

I think it is bedrock, it is so important.

My legislation is just an idea, a start to advance the ball a little

bit here, to give voluntary universal pre-kindergarten education for

all Americans. Voluntary pre-kindergarten education for all Americans. States contribute, but I think you have to start young, really

young.

6

Second, do not add that much more for elementary or secondary,

except to suggest 100,000 scholarships for teachers who want to go

into math, science, engineering, and into teaching. If they get more

people more involved in teaching, particularly in the core subjects,

that makes a lot of sense.

I also suggest in the legislation to give free tuition, college-level,

for anyone who majors in math, science, or engineering so long as

that person gives back 4 years working at a company, an institution in that field, or teaching in that field, a little bit like the Peace

Corps concept. I am just trying to figure out ways to help encourage people to train in those subjects.

Increasing the Pell grant up to $6,000 is another idea I had.

There are some after-school provisions, because people tend to fall

through the cracks a little bit and need some help in that regard.

Also, to simplify the tax code when it comes to education. I think

there are two many different things. There is the HOPE scholarship, lifetime, and so forth. It gets a little complicated for people,

I think, sometimes.

But simplify that and make it very significant so that people who

do have income can get a tax deduction. But on the other hand, you

have to increase the Pell grant because a lot of people just do not

have the income.

In my State of Montana, for example, 80 percent of college students get financial aid. Eighty percent. I think the national average

is about two-thirds. We really need to help them get to college. I

am really happy that we have all six of you on this panel here this

morning because one of your focuses was on access, how to get to

college.

I know it is an extremely complicated subject, but I just, Mr.

Chairman, want you to know that I am going to spend a lot of my

time on this subject, because I think it is just so important for our

country.

We have to start thinking more strategically in America. We

react too much here in the Congress with this issue, that issue, on

almost a daily basis. I hope that our country can, next year, start

again thinking a little more strategically, spending more time laying the foundation to help our country be more competitive.

Education is clearly key, but it is also in energy, health care

costs, and so forth. Let us start tackling the basics and think more

strategically, plan a little more with some outcomes, some metrics

to see how we are doing, kind of measure how we are doing, like

a good businessman.

In a certain sense, we in the Congress are charged with being

kind of a CEO of the country. We have to start building some plans

here, figuring out what is working, what is not working, so that our

kids and our grandkids have the same opportunities on down the

road that we have.

Otherwise, I am afraid we will kind of slowly fritter away, just

slowly, slowly, slowly fritter away in this country. We have super

opportunities. The big advantages we have in America are our ingenuity, our creativity, and our free enterprise, which help make

that happen.

7

Mr. Chairman, I again thank you for this hearing. I want to end

where I began: I just cannot thank you enough for your partnership and the relationship we had working together.

The CHAIRMAN. Thank you. It has been very enjoyable, and will

continue to be enjoyable.

[The prepared statement of Senator Baucus appears in the appendix.]

The CHAIRMAN. Before I introduce the panel, if I slip out just for

a few minutes, I am going to ask Senator Baucus to chair, because

I have to go down the hall here to ask questions at the appropriate

time of one of the witnesses before the Judiciary Committee.

The first witness is Mr. Daniel Golden, deputy chief, Boston bureau, The Wall Street Journal; then Dr. Bridget Terry Long, associate professor of education and economics, Harvard Graduate

School of Education; Dr. James Johnson Duderstadt, president

emeritus and professor of science and engineering, University of

Michigan.

Then we have Patricia McGuire, president of Trinity University

in Washington, DC. Ms. McGuire has served on the Red Cross Review Board. I mention that today because I am going to be introducing legislation based on the work of that board. Obviously, as

I thanked you over the phone, I thank you publicly now for your

hard work in that area and taking a very responsible approach.

Then Dr. Susan Dynarski, associate professor of public policy,

John F. Kennedy School of Government, Harvard; and, last, Mr.

Michael Brostek, Director, Tax Issues, Strategic Issues Team, U.S.

Government Accountability Office.

Mr. Golden? By the way, for all of you, your longer statements

will be put in the record, so you will not have to ask for permission

to do that.

STATEMENT OF DANIEL GOLDEN, DEPUTY BUREAU CHIEF,

BOSTON BUREAU, THE WALL STREET JOURNAL, BOSTON, MA

Mr. GOLDEN. Thank you. Good morning, Mr. Chairman and

members of the committee. My name is Dan Golden. I am the deputy chief of The Wall Street Journal’s Boston bureau, where I cover

education.

I am also the author of the recently published book, ‘‘The Price

of Admission,’’ which reveals the extent of admissions preferences

for wealthy and well-connected applicants at the Ivy leagues, Duke,

Stanford, Notre Dame, the University of Virginia, and other leading colleges. Thank you for inviting me to testify.

My research demonstrates that elite colleges and universities use

admissions to generate revenue, enhancing their massive endowments. Their favoritism toward the wealthy undermines equal opportunity and upward mobility in our society.

I found that four major preferences favor affluent candidates in

admissions to selective private and public universities. I estimate

that nearly one-third of the students admitted to some elite colleges receive special consideration due to what I call ‘‘preferences

of privilege’’ far more than those who enjoy an edge due to affirmative action.

The first such preference is for alumni children, who make up

about 10 to 25 percent of the student body at elite colleges. LegVerDate 11-MAY-2000 10:21 Oct 22, 2007 Jkt 095484 PO 00000 Frm 00011 Fmt 6633 Sfmt 6633 37861.000 SFIN1 PsN: SFIN1
8

acies, as they are called, gain admission at 2 to 4 times the overall

rate. I estimate that legacy applicants enjoy a 50- to 75-point advantage on the old 1,600-point SAT scale over students who do not

receive any preference, and more if their parent is a major donor.

The second preference of privilege favors what are called ‘‘development cases.’’ That is a euphemism for applicants recommended

by the fundraising or development office because, if they are admitted, their non-alumni parents are expected to provide money or visibility. The preference for these children may amount to as much

as 300 to 400 SAT points out of 1,600.

The third preference of privilege helps athletes in blue-blood

sports. Viewers of college basketball and football on television assume that college sports are racially and economically diverse.

What they do not realize is that colleges also give admissions

breaks to athletes in many prep school sports that most American

children rarely have a chance to play, such as crew, horseback

riding, sailing, squash, and even polo. Athletes in many of these

sports also enjoy full scholarships, despite their wealth.

The last preference of privilege benefits children of university

faculty and administrators. At many institutions, these children receive both an admissions break and free tuition.

These advantages are linked. College admissions officers often

lower standards for these children because they do not want to

incur the wrath of fellow administrators and faculty members

forced to pay full tuition elsewhere. Children of a college’s own faculty and administrators often comprise 2 to 3 percent of the student body at these national institutions.

The preferences for the privileged directly exclude highly talented candidates who are not wealthy or connected. When colleges

lower the bar to admit privileged children, they make room by

turning away outstanding middle-class and working-class applicants, predominantly white and Asian-American.

As Notre Dame’s admissions dean told me, ‘‘The poor schmuck

who has to get in on his own has to walk on water.’’ Colleges contend that these admissions preferences are needed to elicit donations to support laboratories, scholarships, faculty salaries, and

other expenditures.

Certainly I believe these are worthy causes, but I wonder how

much more money colleges need with Harvard’s endowment at $29

billion or so, Yale’s at $18 billion, and so on down the line.

I also believe that raising money by compromising the admissions process is not the only way for elite colleges to maintain quality. In my book, I profile three excellent institutions: the California

Institute of Technology, Berea College in Berea, KY, and the Cooper Union for the Advancement of Science and Art in New York

City, which admits students purely on merit, yet they have

amassed ample endowments on the basis of innovative fundraising

and compelling missions.

Public universities clearly have an obligation to provide educational opportunity to students of all backgrounds, but the nonprofit, tax-exempt status of America’s elite private colleges also

confers on them a social responsibility to broaden access.

Reflecting this mission, such colleges describe themselves as

‘‘need blind,’’ meaning that admissions decisions do not take into

9

account a candidate’s need for financial aid. But the finding of my

research is that, even if colleges are ‘‘need blind,’’ they are not

‘‘wealth blind.’’ That is, they offer advantages to the wealthy and

well-connected in admissions, to the detriment of young people of

outstanding talent born to less well-off or prominent parents.

I would encourage America’s elite universities to eliminate these

preferences of privilege and open their doors to the best applicants,

regardless of wealth. Thank you.

The CHAIRMAN. Thank you.

[The prepared statement of Mr. Golden appears in the appendix.]

The CHAIRMAN. Now, Dr. Long?

STATEMENT OF DR. BRIDGET TERRY LONG, ASSOCIATE PROFESSOR OF EDUCATION AND ECONOMICS, HARVARD UNIVERSITY, CAMBRIDGE, MA

Dr. LONG. Good morning, Mr. Chairman and committee members. Thank you very much for allowing me to speak to you this

morning.

I have been doing research on issues of college access and affordability for over 10 years now, and I am going to share some of the

results of that research, along with other colleagues.

First, to put in perspective, the types of institutions we have just

heard about really only cater to about 3 or 4 percent of students;

the top institutions that have those large endowments that we see

in the press really only cater to about 1 percent of students. So, I

am going to speak more generally about what we see in terms of

college behavior.

So as we consider tax breaks and financial aid, let us first consider how colleges set their tuition prices. A major question is

whether or not colleges are reacting to Federal financial aid and

raising their tuition prices in response.

The concern is obvious. If we are creating these policies and colleges are then bidding up their prices, the discount in benefits to

students are going to be bid away. So, there are very important implications in terms of student affordability, as well as how we efficiently decide to use our tax revenues.

So how do we know if colleges are responding to prices? Well,

clearly, tuition prices have increased dramatically in the last several decades. But just because tuition prices have increased at the

same time that financial aid revenues and expenditures have increased does not mean that one is causing the other.

We must take this analysis a step further to isolate what is the

impact of financial aid versus the many other factors that impact

college tuition pricing, such as declining State appropriations and

increased expenditures on technology and student academic supports.

So what part of the puzzle is due to Federal financial aid and

what part is due to other reasons why we might expect tuition to

increase over time, regardless of whether there is financial aid?

What does the evidence say?

To summarize, there is no smoking gun in terms of evidence that

says colleges are reacting to Federal student aid by raising their

prices. Most studies show little to no response by institutions.

10

So, for example, I completed a study in 2004 that looked specifically at the higher education tax credits. I found that public 4-year

institutions and private institutions were not responding at all.

In terms of the community colleges, there was some mixed results. Some results pointed to positive results. Other results,

though, pointed the other way, that community colleges may have

actually been reducing their prices in response to the credits.

So while most studies find little to no response in terms of college behavior, studies that find some evidence often have conflicting results that are very weak, that are not robust, and that

no researcher would use to state definitive claims that colleges are

reacting.

I would like to say, though, as we consider this issue, it is much

more important that we shift our focus from the list tuition prices

that colleges have in their catalogues to the net tuition prices that

students actually face.

So in my slides, if you will look at what has happened to prices

at public 4-year institutions over time, if we look at their catalog

prices, they have increased 49 percent from 1996 to 2006, but when

we look at net price, the increase has only been 29 percent. As the

bar graph shows, the price that is listed in the catalog is much

higher than the prices that students actually pay. This is also true

for private institutions.

So we need to push our analysis further and our discussions further, not focusing on that list price, but instead that net price. It

is a much better indicator of college behavior and how they might

be reacting to financial aid policy.

In fact, one study by Michael MacPherson and Morton Schapiro

in 1991 shows that, when Federal financial aid was increased, private institutions actually increased their institutional aid as if to

further reduce the costs for students.

We certainly need more information on net price so we can have

a better handle on what colleges are doing, but it gives us a better

sense of their behavior, as well as true affordability for students.

So if aid is not driving up college tuition prices, why have tuition

prices increased so much in recent decades? Well, I already briefly

mentioned State appropriations. As my slides show, we can see

that as State appropriations have fallen, tuition has very closely

mirrored the increase. Public institutions have had to make up the

difference in other ways.

There are also increasing costs for faculty as the faculty ages and

are now baby boomers at the peak of their earnings capacity. There

have been plenty of new expenditures on technology and student

services.

We also should not forget that those huge expenditures on institutional aid are also part of the reason why tuition prices have

gone up, so we need to identify best practices and how colleges are

trying to keep prices low, but realize that there are valid reasons

why tuition prices have gone up.

So to close, as we do reconsider financial aid, there again is no

smoking gun to suggest colleges are raising their tuition prices due

to Federal aid, but there is very good data, very good numbers to

say there is a large unmet need. We need to simplify our policies

11

and refocus on students who need our help in order to be able to

attend college.

Thank you.

The CHAIRMAN. Thank you, Dr. Long.

[The prepared statement of Dr. Long appears in the appendix.]

The CHAIRMAN. Now, Dr. Duderstadt?

STATEMENT OF DR. JAMES JOHNSON DUDERSTADT, PRESIDENT EMERITUS AND PROFESSOR OF SCIENCE AND ENGINEERING, UNIVERSITY OF MICHIGAN, ANN ARBOR, MI

Dr. DUDERSTADT. Thank you, Mr. Chairman and members of the

committee.

For the last year, I served as a member of the Secretary of Education’s National Commission on the Future of Higher Education in

America, and I thought I would put two or three of our most significant findings on the table that relate to the matters before this

committee.

First, we found that, while in today’s global knowledge-driven

economy a college education is more important than ever, too few

Americans have that opportunity.

There is ample evidence that qualified young people from families of modest means and minority groups are far less likely to attend college than their affluent peers. Today’s students from the

highest income quartile are over 10 times more likely to attend,

and graduate, from 4-year colleges than those from the lowest

quartile.

Second, the manner in which we finance higher education in

America is under increasing strain as institutional costs continue

to rise, State support for public universities continues to decline,

and the tuition and debt burdens on our students continue to soar.

Third, our financial aid programs at the Federal, State, and institutional level are not only confusing and complex, but they fail

to address adequately the needs of low- and middle-income students. Key here has been the shift of Federal programs over the

past several decades from an emphasis on need-based grants to

subsidized loans to tax benefits, even as States and institutions

have increasingly emphasized merit-based over need-based financial aid.

Now, many of the answers to these dilemmas lie within the jurisdiction of other committees of Congress, but Federal tax policy can,

and does, play a role in the support of higher education.

Current tax policies both assist parents in saving and paying for

a college education for their children, and they also provide strong

incentives for donors to contribute to a variety of purposes in higher education.

But while most of these tax benefits contribute substantially to

our colleges and to education, some have drifted rather far from the

tax-exempt purposes of education and scholarships.

As some of you know, I have written in the past about my concerns about intercollegiate athletics and argue that tax policy, to

some degree, is fueling an arms race in stadium construction,

coaching salaries, and, indeed, even in student exploitation in bigtime sports programs such as college football and men’s basketball.

12

Now, to be sure, Federal tax policy helps create a balance between public and private support that has been key to the diversity

and the quality of American higher education that is very much

envied by the rest of the world.

But what our tax and student aid policy does not do as well as

it should is to assure that help is directed at students with the

greatest financial need so that they can attend college.

The challenge seems clear. How do we make sure we provide the

right tax structure to go along with broader educational policy

changes that will assure the access and affordability for higher

education for the millions of Americans who need financial help?

It is imperative, both as a matter of social justice and economic

competitiveness, that our Nation address and remove those factors

that have created a strong dependence of access and success in

higher education upon socioeconomic status, while at the same

time sustaining America’s leadership in higher education.

Mr. Chairman, as you begin to look at tax policy broadly in the

next Congress, it is important that this committee look at

partnering with the Committee on Health, Education, Labor, and

Pensions, and other relevant Senate committees, in determining

the proper role for tax policy to play in making sure that more

American students can attend and succeed in college.

There are others on this panel with more policy experience than

I have who may be able to suggest creative new ways to use our

tax system so that more Americans can achieve greater skills and

ability through higher education.

But I can state that the higher education community would welcome the opportunity to explore these and other ideas with the

committee. Working together, we can begin to tackle these issues

that will enable all Americans to benefit from educational opportunity and, in the long run, will determine the very future of America’s economic and national security.

Thank you very much.

The CHAIRMAN. Thank you very much.

[The prepared statement of Dr. Duderstadt appears in the appendix.]

The CHAIRMAN. Now, Ms. McGuire?

STATEMENT OF PATRICIA McGUIRE, PRESIDENT, TRINITY

(WASHINGTON) UNIVERSITY, WASHINGTON, DC

Ms. MCGUIRE. Thank you, Senator Grassley, and thank you for

your very kind remarks earlier. It was an honor to serve on the

Red Cross Governance Advisory Board.

Trinity is pleased to be part of congressional history. Our alumna, Nancy Pelosi, is about to become the first woman Speaker of

the House, so we proudly congratulate her.

Trinity has changed a lot since Speaker Pelosi graduated in

1962. Today, we enroll more District of Columbia residents than

any other private university in the Nation. Nearly half of our students are DC residents. Nearly 90 percent of students are black or

Hispanic.

More than 95 percent are low-income students from the eastern

quadrants of the city, who receive substantial unfunded tuition disVerDate 11-MAY-2000 10:21 Oct 22, 2007 Jkt 095484 PO 00000 Frm 00016 Fmt 6633 Sfmt 6633 37861.000 SFIN1 PsN: SFIN1
13

counts. Indeed, our discount is 40 percent, on average. More than

half of our students are eligible for Pell grants. Our full-time tuition this year is $17,700. And, by the way, we

have not raised our tuition more than 3 percent in any year in the

18 years that I have been president, but I do not know of any student who pays $17,700. The typical Trinity student pays about

$2,000 or less out-of-pocket after all aid is awarded.

Like half of all private colleges today, Trinity’s endowment is less than $17 million. Indeed, our endowment is about $10 million. In

many ways, Trinity is no different from the majority of small, private colleges and universities that do some of the most effective

educational work in this Nation.

Regulatory behaviors aimed at a very few elite institutions will

have a much more harmful effect on us. Harvard will barely feel

the pinprick of a policy that could put us out of business, literally.

The Federal tax-exemption for education recognizes the public

good that colleges contribute to this Nation. We are drivers of economic prosperity. In 2004, private colleges and universities employed nearly a million people nationwide and had a cumulative

impact of more than $340 billion on our local economies. The taxexemption is essential to this economic engine for our communities.

Harvard’s endowment is extraordinary, yes, but put that in perspective. At the end of fiscal year 2005, there were more than 1,300

private colleges and universities in this Nation. The median—half

below this—for these institutions was $16.3 million. Only 38 out of

1,300-plus schools reported endowments of more than $1 billion.

Regarding the compensation of presidents, of 670 private colleges

listed on the recent survey in The Chronicle of Higher Education, 60 percent had salaries of less than $300,000, and 27 percent were

less than $200,000, and that includes me, and I have been president for 18 years.

Regarding tuition, of 1,200 private colleges and universities, the average tuition is $22,000, but given the prevalence of tuition discounts, the actual cost to a student at a private college is much

less, on average about $13,000. By the way, students attending private colleges and universities receive 5 times more grant aid from

their institutions than Federal subsidies.

There are deep historical roots to the wealth of Harvard and

similar institutions. I should also note that the creation of wealth

is considered the ultimate expression of good fiduciary duty. It is

the paradox of these hearings that serving fiduciary duty also creates a paradox in terms of access and affordability.

Strong endowments are part of the creditworthiness of institutions. The standards that Moody’s and other credit rating agencies

apply often work in conflict with the values of access and affordability.

Consider this from Moody’s 2006 Private College and University

Medians: key credit strengths of an institution include strong

growth of net tuition per student, which means higher tuition and

less discount, and a challenge includes heightened external scrutiny of higher education tuition affordability, raising concerns

about future continued growth of net tuition per student.

Moody’s takes a dim view of institutional practices that repress

tuition growth, while providing greater access to needy students. At

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Trinity, when we were in the process of securing our first-ever

credit rating, we were advised that our lower tuition price and our

large volume of minority students would have a substantial negative impact on our credit rating.

Charitable gift support is supported by the policy of tax exemption. It is important to realize that charitable gifts are essential to

keep our tuition down. Many students and families do not realize

the tuition they pay covers only part of the actual cost of the student’s education. In the typical private college, tuition pays only

about 50 to 75 percent of the total cost of education.

Now, what can Congress do about all of this? Thousands and

thousands of more low-income students nationally will benefit if

Congress, in its wisdom, will increase the maximum Pell grant,

which has not grown for 5 years. Middle-income families, similarly,

continue to need the support of tax incentives to help offset their

college expenses.

As Dr. Long already indicated and other studies have said, these

kinds of subsidies do not drive up tuition increases. Tuition does

increase for many other reasons, but it is not a factor of Federal

financial aid.

Thank you so much for your attention today.

The CHAIRMAN. Thank you.

[The prepared statement of Ms. McGuire appears in the appendix.]

The CHAIRMAN. Dr. Dynarski?

STATEMENT OF DR. SUSAN M. DYNARSKI, ASSOCIATE PROFESSOR OF PUBLIC POLICY, KENNEDY SCHOOL OF GOVERNMENT, HARVARD UNIVERSITY, CAMBRIDGE, MA

Dr. DYNARSKI. Mr. Chairman and members of the committee, I

am honored to have the opportunity to testify before you today.

First let me say that a college education is an excellent investment. Over his lifetime, a worker with a bachelor’s degree earns,

on average, $1 million more than a less-educated worker.

But college remains out of reach for many. A third of white, nonHispanics earn a B.A., but only 13 percent of African-Americans

and 8 percent of Hispanics earn a B.A. Even among the smartest

kids, income strongly predicts college attendance. If you are a

smart and poor kid, odds are you will not go to college. The odds

are one in three. If you are a smart and rich kid, odds are you will

go to college, three out of four.

I give you these statistics to get us thinking about our goals for

the education tax incentives. Whether they have been a success

after all depends on what goals we are setting for them.

If our goal is to ease the pinch of college costs for upper-income

families whose children attend expensive private schools, then the

tax incentives do a passable job. I would give them a ‘‘C.’’ If you

are familiar with grade inflation at Harvard, you will know that

‘‘C’’ is faint praise from a professor.

But I believe we have somewhat more ambitious goals for the tax

incentives. We want to increase the skills of our workforce. We

want to maintain America’s competitive edge in the global economy. We want to make college a reality for those smart, but poor

kids who believe it is out of their reach.

15

So if these are our goals, then the tax incentives get an ‘‘F.’’ It

is not that they are a bad idea: make college cheaper with a tax

credit and more kids should go to college. It is very simple economics.

But it is also simple economics that a subsidy will increase

schooling only if it reduces prices for those for whom price is a barrier. We need to get money into the hands of those who are just

teetering on the threshold of college and need a helping hand from

us.

Who are these potential college students? They are from lowincome families, and they are disproportionately non-white and

Hispanic. Where might they go to school? The local community college, where tuition and fees average $2,200 a year, or a State university, where they average $5,500 a year.

I want to drive this point home with a picture. There is a graph

in my testimony that shows average tuition and fees in the United

States. At the top of this graph are the Dennisons, the Harvards,

the Williamses, where costs average above $20,000 a year. A minority of students attend these elite institutions.

If you look down, down, down, you will see tuition at schools attended by the typical student. Eighty percent of students attend

schools with tuition and fees below $10,000.

Senator BAUCUS. We just found the graph. Could you go through

that again?

Dr. DYNARSKI. All right. That top graph.

Senator BAUCUS. Figure 1?

Dr. DYNARSKI. Exactly. That top line is the elite schools: private,

4-year schools where tuition is above $20,000 a year, on average.

That is a minority of students. About 20 percent of students are

going to those schools.

Down at the bottom, are the 80 percent of students, with an average of $2,200 a year for the community colleges, $5,500 a year

for the 4-year public schools. And that is the list price. As was

pointed out by Dr. Long, the net price is actually about half of that.

So this is who we should keep very firmly in mind as we are

thinking about the tax incentives and how they should be designed.

We should be thinking of a low-income person attending an inexpensive public college.

The student who is admitted to Yale, or Williams, or Dennison

whose family earns $100,000 a year is going to college whether we

give him a tax incentive or not, and we should not be building our

education policy around the prices that she faces.

As currently designed, the education tax incentives do just about

nothing for the target population I just described. Instead, the tax

incentives focus on upper-income students at the most expensive

private colleges.

There are three problems with the targeting of the tax incentives. First, they are non-refundable. Half of the families with college students do not get the full credit because their income and

their tax liability is just too low.

Second, the full value of the Lifetime Learning Credit does not

even kick in until tuition and fees exceed $10,000 a year. As I

pointed out, for very few students is that the case.

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Third, the now-expired tuition deduction was most valuable in

the upper tax brackets. Over half of the benefits of this deduction

accrued to households with incomes over $100,000 a year. Children

from these families are going to college with or without our help.

In addition to being poorly targeted, the tax incentives are too

complicated and confusing to do their job. Families cannot respond

to a price subsidy if they do not get it. Those on the margin of college entry are low-income, non-white or Hispanic, with parents who

did not go to college. English might be the second language.

From this context, think about the tax incentives: the IRS Publication 970 which explains the tax incentives is 82 pages long. Research shows that complicated programs like these do not affect

college attendance. Simple, easily communicated subsidy programs

do increase college attendance and completion.

To make the tax incentives for education more effective, we need

to focus and simplify them. We should focus them on people who

need them and simplify them so that families can understand them

and respond to them.

So, I recommend we create a single refundable tax credit. A single credit would reduce complexity. Making it refundable would get

it into the hands of people who need it.

Second, I recommend that we deliver the credit at the time of college enrollment when people need it, when tuition is due, and not

a year later when taxes are filed. The Department of Education

manages to deliver grants at the time of college enrollment, so this

can be done.

We could go even further by consolidating the tax credits and the

Pell grant into a single simple and generous grant for college students. College students and their families now face two parallel

and duplicative bureaucracies, a tax system and a financial aid system. To consolidate the process into one tax credit and one application, that is less paperwork and less headaches for American families.

Such a simple program could easily be communicated to families.

We right now send workers estimates of their Social Security benefits so they can plan for retirement. Let’s send families estimates

of the education credit so they can plan for college.

Early and clear information gives families confidence they can afford college, and encourages their children to do their part by working hard in elementary school and high school.

So to close, the education tax benefits do not, as they are now

constituted, get more people into college. Simplifying and focusing

the incentives will allow them to serve their goal, just opening the

doors of college to those who have the ability, but not the means,

to further their education.

Thank you.

The CHAIRMAN. Thank you, Dr. Dynarski.

[The prepared statement of Dr. Dynarski appears in the appendix.]

The CHAIRMAN. Mr. Brostek?

17

STATEMENT OF MICHAEL BROSTEK, DIRECTOR, TAX ISSUES,

STRATEGIC ISSUES TEAM, U.S. GOVERNMENT ACCOUNTABILITY OFFICE, WASHINGTON, DC

Mr. BROSTEK. Mr. Chairman, Senator Baucus, and members of

the committee, thank you for the opportunity to testify today on

the Federal Government’s efforts to financially support attendance

at post-secondary education institutions.

American higher education has long been crucial to the development of our Nation’s cultural, social, and economic capital. This

hearing is an opportunity to consider whether any changes should

be made in the government’s overall strategy for providing such assistance, or to the individual programs and tax provisions that provide the assistance.

This is important for several reasons. The fact that we face large

and growing structural deficits in the future, primarily driven by

demographics and rising health care costs, emphasizes the need to

consider how government allocates its resources.

In addition, GAO has noted that fundamental reexamination of

government programs, policies, and priorities is necessary to ensure that they match 21st-century needs.

My statement today focuses on three issues: differences between

tax preferences and title IV assistance; apparent ineffective use of

tax preferences, possibly due to their complexity; and the lack of

research about the effectiveness of education-related tax preferences and title IV programs.

Post-secondary student financial assistance provided through

programs authorized under title IV in the tax code differs in three

important ways. First, title IV grant and loan programs traditionally provide aid to students while the students are in college. Tax

preferences help then, but they also help students and families

save before college and help in repaying college costs after college.

Next, while student aid programs and tax preferences serve students and families across a wide range of income groups, some title

IV programs, we have heard, particularly the Pell grant program,

provide much of their financial assistance to students in families

with lower incomes.

For instance, for Pell grants to independent students, 92 percent of the dollars went to families with incomes of $40,000 or less in

the 2003–2004 school year. In contrast, over half of the dollar benefit provided to tax filers under the tuition deduction went to those

with incomes of more than $80,000.

A final difference between title IV programs and tax preferences

involves students’ and families’ responsibilities. Students and families have more responsibility for appropriately using the benefits of

tax preferences compared to title IV aid.

For title IV aid, students and families fill out the Free Application for Federal Student Aid form, albeit complex, and submit it to

the Department of Education, and then Education is responsible for

calculating the student’s and family’s expected family contribution.

Then students’ educational institutions are responsible for determining eligibility and the amounts and packaging of award

amounts to students.

In contrast, for users of the tax benefits, they must identify the

applicable preferences, understand the rules, understand how these

18

preferences interact with each other and with the Federal student

aid system, keep records sufficient to support filing of their taxes,

and correctly claim the credit or deduction on their return.

Post-secondary education preferences can be difficult for families

to understand and use correctly. Perhaps due to the complexity of

the tax provisions, hundreds of thousands of taxpayers failed to

claim tax benefits that they are entitled to, or did not claim tax

benefits that would be most advantageous to them.

For example, we estimated that in tax year 2002, nearly 450,000

taxpayers either failed to claim an education credit or to take a tuition deduction to which they were entitled, or used one tax provision when another would have been more beneficial to them. About

half of those taxpayers who made suboptimal choices used paid

preparers.

Finally, when we did our work in 2005, we found that Congress

has received relatively little evidence concerning the effectiveness

of the assistance provided under either the title IV or the tax preferences in promoting, for example, attendance at college or choice.

In our report, we found no research on any aspect of effectiveness

for several major title IV programs and tax preferences. For example, no research has examined the effects of Federal post-secondary

education tax credits on students’ persistence in their studies or on

the type of educational institution they chose to attend.

Gaps in the research on post-secondary education program effectiveness may be due, in part, to data and methodological problems

that have proven difficult to overcome. The relative newness of the

tax preferences also presents challenges because relevant data are,

in some cases, just becoming available.

This concludes my oral statement. I would be happy to answer

questions.

[The prepared statement of Mr. Brostek appears in the appendix.]

The CHAIRMAN. Thank you, Mr. Brostek, very much. I particularly appreciate everybody staying within the time slot that we

gave to each of you.

We will have 5-minute rounds, and this will be the order: Grassley, Baucus, Thomas, Bingaman, Bunning, Schumer, and Lincoln.

Mr. Golden, your book says that the preferences at our Nation’s

top universities provide to those who are children of alumni, who

are children of faculty, and perhaps most incredibly, those who are

children of the wealthy.

Are you aware of these top universities providing the same level

or number of preferences for those who served in the armed forces,

like serving in Iraq and Afghanistan?

Mr. GOLDEN. I am not aware of those type of efforts. Many years

ago, after World War II of course, the GI bill was responsible for

a large influx of veterans into elite colleges, as well as other education. I am not familiar with any kind of similar large-scale influx

today.

As I describe, what I am aware of is an extensive system of preferences for children of the wealthy and alumni and others. I am

also aware of recruiting efforts by colleges that seek to boost their

endowments by recruiting, not in Iraq, but at American prep

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schools and other elite high schools in order to find financially

wealthy candidates.

The CHAIRMAN. Well, I think we all have some concern about

preferences that give advantages to the wealthy and do not take

into consideration the needs of those who have fought to defend our

Nation and our freedoms.

For you and anybody else on the panel—but because of time not

too many other people, though I do not want to leave anybody out

who wants to comment—two questions. I am going to ask Mr. Golden to answer first. I want to state both questions so I do not take

as much time.

I know that a few elite universities have recently trumpeted that

they are providing tuition tax-free for low-income individuals. However, Mr. Golden, I am worried about whether this is really expanding access for low- and middle-income families or if it really

is just changing the mix, given the significant number of individuals that are being admitted under special cases, such as children

of alumni and children of the wealthy.

Are these actions more about public relations as opposed to actually increasing the number of middle-income and low-income families that are going to be actually admitted into the top universities

in the first place?

The second question. I know that many universities are going to

tell me, if they have not already, that they provide institutional

support and assistance for working families.

However, I have also read accounts which suggest that the

amount of this institutional assistance has gone down in recent

years, perhaps—but not for sure—in response to government efforts to increase aid, but that also a great deal of the institutional

assistance at elite colleges also goes to wealthy families. Your

views, then anybody else who wants to comment on it.

Mr. GOLDEN. Yes. As you say, a number of top colleges, Harvard

and others, now provide free tuition to families under a certain income level. At Harvard, it is $60,000. I regard these initiatives as

promising and a step in the right direction.

My concern would be that, because they have not indicated any

reduction in the preferences that I speak of for alumni children, donors’ children, and so on, essentially the increased number of slots

they may provide to children of low-income families will essentially

come at the expense of middle-class families, so they appear to be

pitting low-income and middle-income families against each other

rather than cutting into the slots for the rich which they appear

to regard as sacrosanct.

In regard to the second question—institutional aid—I do not

have as much expertise on how that is broken down, but I would

note that a large part of higher education institutional aid is provided in the form of athletic scholarships, not in the Ivy league,

which just has need-based scholarships, but elsewhere. Often, as I

document in my book, athletic scholarships go to relatively affluent

students.

There are a number of studies showing that athletes at liberal

arts colleges actually come from wealthier families than the average student, in part because they are playing sports that are predominantly played at prep schools and elsewhere.

20

There has also been, in the area of aid, a move toward greater

merit aid, which also favors affluent families. But that is not sort

of in my area of expertise, but I am sure others on the panel can

speak to it.

The CHAIRMAN. All right. I will ask you three to comment shortly, please, because I do not have much time left. I will not ask another question before I go to Senator Baucus.

Dr. Long, then Dr. Duderstadt, then Ms. McGuire.

Dr. LONG. Thank you, Mr. Chairman.

Just briefly, you mentioned the low-income initiatives that

schools like Harvard and Princeton University have. I would also

like to recognize schools like the University of North Carolina at

Chapel Hill, where they are reaching out to low-income students.

They have found that their applications have gone up and they

have coupled these scholarship programs with intensive recruitment activities to find students who might not think that they can

afford Harvard, but to let them know that there is financial aid

available.

So, they have seen an increase in their enrollment of low-income

students, and it does seem to be changing—at least at Harvard—

the face of the institution.

I will also briefly say that institutional aid expenditures from colleges and universities are actually increasing and continue to increase but, yes, there are concerns.

Some institutions are using this money for low-income students,

particularly at the top—they only give need-based financial aid—

while other institutions are using this for merit, which is favoring

more affluent families. They are really balancing multiple goals.

So, I suggest that we need to have more information about exactly

how they are awarding this institutional financial aid. Thank you.

Dr. DUDERSTADT. I would like to make a comment, very quickly,

about the recent study by the Educational Trust that Kati Haycock

put before us about the tendency of the 50 flagship public research

universities that are seeing an increasing shift away from the

broad populations that they were founded to serve to more affluent

students.

In part, that is because of a decline in State support, but it is

also a conscious effort on the part of many of these institutions to

shift from institutional need-based to merit-based aid, primarily to

pump up their rankings in surveys such as U.S. News & World Report, which of course give much higher weight to student grade

point averages, class rank, and standardized test scores.

I think part of the difficulty here is, these institutions need to

look within themselves and understand more clearly just what the

socioeconomic distribution of their student bodies is, because the

concern is, as public institutions, they are beginning to drift away

from their public purpose.

The CHAIRMAN. Ms. McGuire?

Ms. MCGUIRE. Yes. Thank you. Following on that, it is simply

not true that support for needy students in private colleges and

universities is declining. In fact, the reverse is true. It is growing

quite rapidly.

I know at Trinity, our support has grown by more than 500 percent over the last 10 years for very needy students. It also is true

21

that the flagship State universities are educating a proportionately

significantly wealthier population than many of the smaller private

colleges, particularly in urban centers. There was a newspaper article in the Washington Post a while back that talked about the fact

that, at the University of Virginia, the median family income was

around $94,000. That was about 5 years ago; it is probably higher

today. At Trinity, it is $35,000. Today our median family income

is about $38,000.

You can bet that the gap between us and the University or Virginia or College Park is true for many of the smaller independent

colleges and universities, particularly those that were founded by

religious congregations in cities who see as our mission to educate,

as a matter of social justice, those populations that have been historically excluded from higher education.

We do not have very large endowments because the good nuns

and priests did not build large endowments; they worked for free

in the past. We now have to pay our folks, but we also are providing massive support.

I know hundreds and hundreds of private colleges and universities that are discounting tuition at a rate of 40, 45, and even 50

percent, and it is at their peril.

The CHAIRMAN. I will insert in the record here something from

the Lumina Foundation for Education entitled ‘‘Engines of Inequality.’’ It says, ‘‘The average institutional grant aid to students from

families earning over $100,000 annually—$3,823—is actually higher than the average grant awarded to low- or middle-income students.’’

[The information appears in the appendix on p. 178.]

The CHAIRMAN. Senator Baucus?

Senator BAUCUS. Thank you.

I would be interested in the panel’s reactions to the suggestion

of Dr. Dynarski, namely, to maybe combine an increase in the Pell

grant with a refundable tax credit and just make it simple for students.

Maybe, Dr. Dynarski, you can explain in a little more detail what

your idea was. I would like for the rest of the panelists to respond

to it.

Dr. DYNARSKI. First, I want to point out that the tax code is generally not a model of simplicity. [Laughter.] The education tax credits are no exception. But financial aid rivals the tax code in terms

of its complexity.

The FAFSA, which is required to be filled out to get the Pell

grant, has about as many questions on it as a complicated 1040.

It is much more complicated than the typical tax form that somebody would be filling out given that they, say, make $30,000 a

year. They would be filling out the 1040–A or the EZ, so the

FAFSA is more complicated than taxes for them.

I would like to see both the financial aid system and the tax system for supporting higher education simplified, streamlined.

Senator BAUCUS. But your proposal was?

Dr. DYNARSKI. The proposal was to put them all together into

one super credit. So, take the money that we spend on the Pell

grant, take the money that we spend on the tax credits, put it all

22

together and have one unified credit that everybody is eligible to

apply for.

Senator BAUCUS. And in a very short sentence, why is that a

good idea? Then I want the rest of the panelists to respond whether

they agree. Why is that a good idea, Dr. Dynarski? Tell me in your

own words why it is a good idea.

Dr. DYNARSKI. It is simple. I think the people that we care about

are those who believe that college is too expensive, so we want to

deliver a simple message to people that college can be affordable.

Senator BAUCUS. And it is focused on less wealthy students and

families.

Dr. DYNARSKI. Exactly.

Senator BAUCUS. All right.

Dr. DYNARSKI. So it is unifying into one program the low-income

students who get the Pell, and the middle-income students who get

the tax credits. Everybody is in the same boat.

Senator BAUCUS. All right. Ms. McGuire, your response?

Ms. MCGUIRE. I am in favor of anything that will simplify the

ability of students to get Federal financial aid. It is absolutely a

nightmare.

Senator BAUCUS. What about this idea?

Ms. MCGUIRE. Well, this idea has merit. However, let me answer

that, for many of the lowest-income families that we serve in Trinity and elsewhere, the tax credit is not particularly useful.

Simplification is very useful, but for the majority of my students

who are, in fact, independent even at age 18, the tax credit does

not help them. They need the actual dollar support from the Pell.

Senator BAUCUS. But yours is refundable. She is talking about

refundable.

Ms. MCGUIRE. They need to have the money when they enroll.

They cannot wait.

Senator BAUCUS. That was her third idea. She mentioned that,

too.

Ms. MCGUIRE. Well, that is fine. If it translates to real dollars

at the time they enroll, the credits against the tuition price, then

what the backdrop of that is, is transparent. But you have to remember, low-income students do not have the means to work

through all of this, and that is partly what is discouraging them.

Senator BAUCUS. Sure. That is a good point.

Others’ reactions? Dr. Long, you had your hand up. Either one.

Dr. DUDERSTADT. On the Spellings Commission, we actually had

this delusion of grandeur: we could reduce the FAFSA down to a

single page. Anything that simplifies the process and gets the dollars to students that have need, I think, is to the advantage of this

country.

Senator BAUCUS. Now, what about this idea?

Dr. DUDERSTADT. I think it is a step in the right direction.

Senator BAUCUS. Would you modify it?

Dr. DUDERSTADT. I would have to look at it more in detail and

I would have to get back to you on that. But I think, again, the

effort to simplify and the effort to get dollars to the students that

need them is the direction we have to be moving.

Senator BAUCUS. Thank you.

Dr. Long?

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Dr. LONG. Yes. I think Dr. Dynarski’s idea is a very good one.

But to emphasize, there were three parts to it. You cannot just

take the simplification and try to fold in the Pell grant program

and use the credits as they currently are and expect to have an effect. It is key that it has to be refundable.

Work that I have done has shown that families that are most

needy, the families and students we want to get into college, currently do not receive the tax credit. So if it is not refundable, we

are going to be missing that part of the population.

Second, the issue of timing is vitally important. Work I did shows

that the tax credit turned out to actually increase access, meaning

new people coming to higher education. They are helping with affordability, but that is a slightly different issue.

If we actually want to have a single financial aid program that

will increase enrollment, taking people into college, we have to be

able to give them the money when they need to pay their tuition

bill. So, those key things that Dr. Dynarski said, refundability and

the timing, matter a great deal, along with simplicity, if we are

going to put these two programs together.

Senator BAUCUS. Other reactions to the idea?

Mr. BROSTEK. We do not have an official position on it. We have

not studied the issue.

Senator BAUCUS. No, neither have I. But it sounds like a good

idea.

Mr. BROSTEK. Yes. It does sound to me like an idea worth exploring. Some things to consider in exploring it would include whether

we were able to target the assistance to those who need it most

through that process, what would be the tax administration impact

of this?

A number of the lower-income individuals may not currently

have a tax filing responsibility, given their income, so this would

potentially bring more people into the system who would need to

get used to using the tax system to receive this kind of assistance.

The issue of the timing, trying to make this advance payment,

is an interesting idea. I think that deserves more study. From a tax

administration perspective, if IRS gives someone money and then

it turns out they are not eligible for it, it is difficult to recover that

kind of outlay. That is particularly true, probably, for the lowerincome taxpayers. So, I think that would need some study as well

in deciding whether this is a good idea to go forward with here.

Senator BAUCUS. Thank you. My time has expired. Thank you

very much.

The CHAIRMAN. I will skip over Senator Thomas. If he comes

back, we will work him in. We will go to Mr. Bingaman, then, then

Mr. Bunning.

Senator BINGAMAN. Thank you very much.

Let me just follow up on your last statement there, Mr. Brostek.

You were saying, from a tax administration perspective, it is difficult to give money and then ever get it back.

Are there any examples? I am trying to think of examples where

the government provides a tax credit or a payment based on a tax

credit prior to the filing of the tax return. That is what is being

suggested here, right?

24

Mr. BROSTEK. Well, there is a bit of an example. The Earned Income Credit has an advance option where you can get up to 60 percent of the credit that you would be eligible for in your paycheck

during the year before you have to file your tax return.

I do not recall exactly how that is calculated. I believe it is based

on your expected earnings for the year that you are entering into.

There is this control of 60 percent eligibility because of the fear on

many taxpayers’ part that they might end up owing taxes, so that

less than full eligibility is a means of trying to ensure that people

do not end up owing taxes at the end of the year.

Senator BINGAMAN. Dr. Dynarski, let me ask you, your suggestion is that the single credit be a replacement for the grants, and

the loans, and the deductions, and the credits that currently exist.

How would you—and I am sure there are actuaries around here

who could tell us, or maybe just smart people who could tell us—

translate a loan into a tax credit?

Dr. DYNARSKI. This is referring to the grants only right now.

Senator BINGAMAN. Oh. You would keep the Pell grant?

Dr. DYNARSKI. I would hang on to the——

Senator BINGAMAN. The Pell grants would be turned into tax

credits, but the loans would continue to exist.

Dr. DYNARSKI. Correct. Correct. So basically you can, in a revenue neutral way—and for that matter, in a distributionally neutral way—just take all of these different programs that have different names and different application forms and different eligibility requirements and put them into one simple program.

You would just have to communicate one program to families,

they would just have to apply for one program, and that lets you

leverage the simplicity of the benefit, lets you go out and educate

people about the benefit because it is a single program, and it lets

people count on having money for college when their kids get to be

of college age.

Senator BINGAMAN. Right. All right.

Well, I think doing some major simplification is very much to be

desired, I would certainly agree with that. I think, also, getting the

money to the people who need it or the tax benefit to the people

who need it.

I think in my State you have an awful lot of these schools. I

think you say nearly half the families with college students do not

get the full credit because their income is too low. We have many

people like that, of course, in my State. I think the tuition charged

in many of the schools is so low in my State that you do not get

the full benefit of the tax deduction or the credits.

One other aspect that I notice you also include in here relates to

a bill that Senator Smith and I have introduced which would expand the availability of the deduction to not just tuition, but tuition, fees, and all sorts of other things that people incur.

Maybe you could just elaborate on that to some extent because,

there again, I think that would help a lot of low-income people to

get the benefit, particularly people who are going to inexpensive

schools.

Dr. DYNARSKI. Right. So the deduction is limited to your net

costs. The higher your tuition is, the greater the benefit of a deduction. If you go to a low-tuition school, a community college where

25

tuition might be $1,000, that limits the amount of tax benefit you

can get right now.

If you include room and board, that starts to level the playing

field because people at community colleges, while they are paying

low tuitions, they do need to live, so, if they could deduct those expenses, that would get them more tax benefits.

I do have to say, though, that a deduction, by its nature, benefits

people from the upper brackets more than people from the lower

brackets. It is simply worth more, if you are in the 33 percent

bracket, to deduct a dollar in income than if you are in the 10 percent bracket.

Senator BINGAMAN. Right.

Dr. DYNARSKI. So the tax credits, I think, are a more efficient

way to get the money to the people who are really on the margin

of going to college, but I think we need to be very clear about

whether our goal is to get more people into college or to ease the

pinch of costs for people who would go to college anyway.

Depending on which of those goals, you use a different tool. So

if we just want to ease the pinch for people who were going to go

anyway, a deduction might make sense. If we want to get into college people who cannot afford it and will not go if they do not get

that credit, then we need to think about refundability and a tax

credit. Those are the more proper mechanisms for that goal.

Senator BINGAMAN. So your suggestion is that this would then be

administered out of two departments in the Federal Government.

You would have the Department of Education still administering

the loan program and you would have the IRS administering everything else.

Dr. DYNARSKI. I am an academic, right? You guys figure that out.

[Laughter.] I think the IRS is best equipped to determine eligibility

for all of these programs because they know people’s income. You

can determine eligibility for the loans and for the grants pretty easily once you know somebody’s AGI.

The Department of Education has the delivery capacity in place

because they deliver grants and loans to institutions right now. So

it seems like you might have some system in which IRS is determining eligibility, and maybe Education would be delivering the

grants to the institutions, as they do right now with the Pell

grants.

Senator BINGAMAN. Mr. Brostek, did you have any thoughts as

to how that might actually be done?

Mr. BROSTEK. Well, I would generally agree that IRS has some

of the key information that would be needed to do this. As long as

IRS has information that is verifiable from a third party, through

information reporting from another party, they can be very accurate in ensuring that people are complying with the tax code and

the tax credits are available.

A question would be whether there would be any additional information that IRS would need that it does not collect and whether

or not that additional information could be verified by some other

party.

Senator BAUCUS. What might that be?

Mr. BROSTEK. Well, the discussion about perhaps including room

and board expenses is part of this for the tuition deduction. For

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IRS, it would be very difficult to verify an independent student’s

rent that was being paid unless the landlord was willing to send

in an information return.

If a lot of students were renting from fairly small landlord operations, that landlord may not be in the practice of sending out an

information return that could be used to verify the expense that

was being claimed.

Dr. DYNARSKI. And just to respond to that, in the realm of student aid, people do not verify the rent that they are paying. You

set an allowance for what a student needs to live on in terms of

room and board, and that allowance is what you would be able to

put down on your taxes.

Senator BINGAMAN. Let me ask Mr. Brostek, is there any capability in the IRS to administer a loan program?

Mr. BROSTEK. Well, if you think of accelerated depreciation as

being, in essence, a loan to a taxpayer on future tax considered

due, I guess you could say the accelerated depreciation provisions

in the Code are the equivalent of a loan. There is not another example that comes to my mind.

Senator BINGAMAN. All right.

The CHAIRMAN. Senator Bunning?

Senator BUNNING. Thank you very much, Mr. Chairman.

Ms. McGuire, in your written testimony you address credit rating

agencies and the pressure they put on colleges and universities.

Could you comment on these issues? How, specifically, do these

pressures influence decisions made by the university leaders?

Ms. MCGUIRE. Thank you so much, Senator Bunning, for asking

that. I believe that it is a great deal of pressure. For many of my

colleagues who are college and university presidents and trustees,

the reality is that improving your credit rating is one of the number-one objectives you have, along with getting into the top tier of

U.S. News & World Report. Both the credit ratings business and

the collegiate rankings business, in fact, work against the very

issues of affordability and access.

As I said earlier, and as I elaborate on in my written testimony,

the reality is that colleges are small cities. All of us have buildings,

some of which come from the 19th century and all the bad architecture of the 20th century. It all needs to be replaced. Our insurance

companies are putting a lot of pressure on us, as a matter of risk

management.

FASB is putting pressure on us this year. They have adopted a

new rule, FIN 47, that requires us to reserve for asbestos liability.

We never had to do that before, and it is running into the millions

of dollars in some places. There is a tremendous amount of liability

in the infrastructure. How do we address that? We address that

through borrowing money.

But some institutions are more focused on borrowing more

money at less expense, and that is what the credit ratings business

is all about. So the better your credit rating, the cheaper the money

is and the more you can borrow.

The problem is, it works against many of the other values that

are on the table in this hearing because the reality is, for some of

us who are serving the poorest of the poor, the most low-income

students possible, getting a good credit rating is very, very hard beVerDate 11-MAY-2000 10:21 Oct 22, 2007 Jkt 095484 PO 00000 Frm 00030 Fmt 6633 Sfmt 6633 37861.000 SFIN1 PsN: SFIN1
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cause Moody’s, Standard & Poor’s, the investor rating services, see

that as a tremendous risk. What is the risk? That we will not be

able to pay back the loan, of course. Now, is that a sensible view

for them to have? Probably. That is a sensible banking point of

view.

One of the problems is, in the past, in the 1950s, the 1960s, and

so forth, there were tremendous low-cost loan programs available

through the Federal Government to build dormitories, build libraries, and do other infrastructure development on college campuses.

All of those programs have disappeared. We are left with the byproducts of those programs, which are buildings which are now deteriorating. In order to replace them, we need to go out to the private markets.

For private colleges and universities, particularly those in States

that do not have such programs, the only thing left to do is to go

out and borrow the money commercially, and that is where the

credit rating game comes in.

The other piece of this, I should just mention very quickly, is the

quality of buildings, grounds, facilities, and technology directly relates to the arms race for students. Student consumers demand,

today, the most extraordinary amenities.

When you and I went to college, we might in fact have been satisfied to share a room with three plugs. The fact of the matter is

today, the average college student comes with appliances that require 20 or 30 three-prong outlets in many rooms. This is true.

Students today at Trinity just marvel at the single-pipe steam

heat system that starts clanging when we turn the heat on. They

have never heard of a single-pipe steam heat system before. I need

$100 million to renovate the buildings on my campus. But believe

me, with the 40-percent discount and serving the students we

serve, we are not going to have that kind of money any time soon.

This is part of the problem that we face in higher education, the

haves and the have nots.

Senator BUNNING. Thank you very much.

Maybe we should go back and take a look at what our former colleague did in Georgia, Senator Zell Miller. Anyone in Georgia that

desires a higher education can go to the University of Georgia and

be charged no tuition—no tuition—if you are from Georgia.

If you are an out-of-State student—and they only accept 20 percent out-of-State students, of which my granddaughter happens to

be one—the cost for the out-of-State students is extremely high.

But all the other programs that we have presently on the books are

trying to lessen the burden for people to get to college.

They may be disproportionately geared, according to some of you,

for the more affluent students, but that was not the intention. That

is the way they are being used presently. We can correct that by

legislation. We can correct it by moving credits and exemptions, as

suggested, to a simplification.

But the whole point is, not all students want to go to college

after high school. We have to have some type of school system that

will take care of that student also. There ought to be some available funds for that student.

I am talking about vocational schools, vocational education, and

training of other types of students rather than our good students

28

that go on to get very good educations at the University of Kentucky or the University of Missouri, or wherever.

I think it is very important that we look at the whole spectrum

of students who use the ability that we have in place right now.

We do need to improve it, there is no question in my mind. Thank

you.

The CHAIRMAN. Thank you.

Now, Senator Lincoln?

Senator LINCOLN. Thank you, Mr. Chairman.

I just want to thank both Chairman Grassley and Senator Baucus for really drawing together this very important discussion

today. I think it has tremendous impact on the future of our country and, without a doubt, a tremendous impact on the future for

our children. Promoting post-secondary education is such an essential element of any effort in preparing our workforce. We all know

that.

We know that if they are going to meet the demands of today’s

increasingly competitive global marketplace or the demands of tomorrow, we have to give them the kind of education that is going

to be substantive enough that they can be competitive in that global marketplace.

But I think it is also important for us to recognize that it is a

huge part of our economy. The statistics show us that college graduates and what they will earn in their income over a lifetime

versus those who do not get a college education is phenomenal, and

what that means to our economy.

So, we are delighted you are here. We hope that you will remain

with us in this discussion. But I hope, for our benefit as legislators

and stewards of our government here, that we will begin to direct

ourselves to look at this issue and this discussion as an investment

and not a give-away.

Way too often we look at these types of programs as give-aways,

and then we have this big brouhaha about who is deserving and

who is not. If we look at education—higher education particularly—as an investment, then I think we will have a much more

productive discussion and a much greater outcome.

So I encourage my colleagues, as we move forward on this discussion, that we will actually do that. I look forward to being an enormous part of that.

I just wanted to mention a couple of things. I know I keep shaking my head when Ms. McGuire speaks because I went to a very

small liberal arts private college. It was an all-women’s college. I

read my bulletin and I see that over 80 percent of the student body

is on financial aid.

Being able to provide the kind of diversity that a small college

provides was incredibly important to me. The diversity was incredibly important to the college, being able to admit a large number

of international students, low-income students. Being able to create

a diversity on campus that, itself, was a laboratory for learning

was very important, and it was important to me.

So I do think that there is definitely a wide span as well in terms

of our institutions of higher learning, and a lot of the challenges

they face, particularly since it did come from two centuries ago, my

29

campus did. I remember as the heat got kicked on and the radiators started to bang, it became a very positive memory in time.

But just a couple of questions. One, Mr. Brostek, you mentioned

the lack of research that currently exists regarding the effectiveness of both title IV programs and our education tax incentives.

I would say to Dr. Dynarski, we have been working for 4 or 5

years to make the child tax credit refundable. Making tax credits

refundable is not an easy step. It is difficult to convince people

that, again, this is an investment. It is not a give-away to somebody who is still working hard, still trying to save, still trying to

reach the American dream like everybody else. So as we do that,

I hope we keep in mind what we are capable of here and how hard

those kinds of steps are.

But when we talk about the research, before we make fundamental steps to rewrite education incentives in either area, whether it is title IV or the tax code, it would make sense that we would

want to look to make sure policy makers can come together and

sort out what is working and what is not.

So I guess, obviously this hearing is a huge step in the correct

direction for that, but how feasible do we think it is for us to get

relevant agencies moving on this type of research, and do we have

the capabilities—or do they, I guess—if they are provided the kind

of resources they need to let us know what is working and what

is not?

Mr. BROSTEK. The Department of Education has taken a step by

establishing a research institute. This past year they put out a Request for Proposals for research, and I believed they received them

in the November time frame. I am not sure what will be funded

yet, but there is an effort there to start looking at the provisions.

One of the problems that we have noted in the past and in our

prior work is that, for the tax provisions, they are often sort of an

orphan without a home in terms of being studied for their effectiveness.

Senator BAUCUS. Say again?

Mr. BROSTEK. The tax provisions are sort of an orphan when it

comes to someone taking responsibility for determining whether

they are effective. The IRS is interested in ensuring that we are

all paying the correct amount of tax, and they do not see it as their

mission to determine whether a particular provision is accomplishing what Congress intended.

The Department of Education, in this case, does not have access

to taxpayer data under the privacy provisions of the law, so their

ability to do research is somewhat constrained for that reason.

That leaves the Department of the Treasury as perhaps the more

likely Federal agency to do this kind of research. They have a relatively small staff. The last time I recall, there were over 163 special tax preferences in the Code, and there is very little research

that Treasury does on that wide array of tax provisions. So, we believe it would be useful for Treasury, Education, and the Office of

Management and Budget, who is responsible for resources——

Senator BAUCUS. Joint Tax would be in on that, too.

Mr. BROSTEK. That is true. The JCT. We do some research for

you on these provisions as well. But within the executive branch,

we think those three agencies need to work together on a strategy

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for figuring out how we are going to analyze these provisions on

what kind of schedule, and who is going to be responsible.

Senator LINCOLN. Well, that makes sense. As Dr. Dynarski mentioned, it is kind of a no-brainer to know that if you are at a lower

income, the tax credits are not going to be as useful to you.

But we do need to know better, I think, in terms of what works,

what does not that we have, and then go back in and look at how

we restructure the unified credit. Going to those types of ideas

could be very useful with the programs.

But the other thing is, some of these programs are so complicated that having the student apply for them, things like the

Perkins loans, which are enormously helpful to the institution taking the resources and then sending them out, we have cut Perkins,

unfortunately, way too much, in my opinion, and many institutions

have suffered, and so have the students.

Dr. LONG. If I may, I think you are exactly right. I am glad to

see this discussion about simplification. We actually do know quite

a bit about the effect of financial aid, and I am happy, as an academic, to have a chance to present some of these findings, some of

the work that I have done, as well as Dr. Dynarski, and our colleagues.

We have seen that financial aid can work, but it does have to be

simple. There has to be clear information. Policies such as the

Georgia HOPE scholarship—one of the reasons why it was so effective in increasing enrollment and affecting choice is because it was

very simple to understand.

High school guidance counselors were trained in telling students

about it. Even third graders can tell you, if I do these things, get

a B average in high school, I know that I can get free college tuition in Georgia.

As we are thinking about different policy options and what can

we do in terms of the tax side, I would like to reemphasize something Dr. Dynarski brought up earlier, and that is the fact that the

IRS has lots of information about families in the United States.

They know which families are low-income. They know the age of

their dependents.

If information is such a problem, can we use the information that

the IRS has to inform families, similar to the way that we do in

terms of Social Security, that you have a child of a certain age who

might be thinking about going to college? There are these benefits

available to you. Plan ahead. Take the academic courses necessary

for you to be able to go to college and succeed in college, because

this money is there.

So we do need to think of ways that we can streamline our government policies and use the information that we have to try to improve outcomes for families. I say you are absolutely right.

We know that education is vitally important, and we know that

there are huge returns to going to college, not only investment, but

if we also think about the counter-factual: yes, we know investing

at an early age is very important, but think about that 18-year-old.

If they do not go to college, they have 60 years in our society without skills, and we know that that is very, very costly.

Senator BAUCUS. Senator Schumer? Your time has expired.

31

Senator LINCOLN. I just wanted to say, if the seventh-grader does

not take algebra, by the time they are 18, it is really tough. So we

need to start earlier, working with the kids to see what they have.

Senator BAUCUS. Senator Schumer?

Senator SCHUMER. Thank you, Mr. Chairman.

Senator BAUCUS. No, no. No, no. [Laughter.]

Senator SCHUMER. Not yet. Mr. Ranking-Member-soon-to-beChairman. I want to thank you and Senator Grassley, our present

Chairman, for calling this hearing, because we all know about the

rising cost of tuition. It is one of the issues that American families

struggle with every single day.

I think when parents go to bed at night, this is one of the things

that keeps them up, how are we going to pay the kids’ tuition,

more than just about anything else. It is undeniable that sustaining a talented, college-educated workforce is essential to our

success in the global economy.

The great irony is, a college education has become a necessity in

the challenging world young people face, yet it is priced like a luxury. Over the past 2 decades, the growth in the price tag of a college education has outpaced inflation, I think, for the last 26 years.

Skyrocketing tuition means hard choices about the family budget.

Every time a young American does not go to college, even though

they deserve to, because they cannot afford it, or they do not go to

the college they should because they cannot afford it, they lose,

their family loses, and America loses.

I want to address two points in that regard. The first is the provision on college tuition deduction, the above-the-line deduction. I

was one of the authors of that. Senator Snowe and I had been

pushing that. It passed in 2001.

It allowed up to $4,000 in tuition expenses for families whose income was below $130,000, $2,000 for a family whose income was

up to $160,000, for a couple. I was terribly disappointed that the

House and Senate leadership allowed this provision to lapse this

year.

Here in the Senate, as Senator Grassley mentioned, in a bipartisan way, we passed it with 66 votes, a 4-year extension. Yet, in

what was clearly a case of misplaced priorities, the conference committee eliminated it and chose to restore some massive breaks for

oil companies instead.

My friend, Mr. Chairman, mentioned that this became an issue

in the campaigns. Damn straight. It should have. This Congress

should not have allowed that tuition deductibility to lapse, particularly to increase tax breaks for oil companies.

So I hope we can amend that now. I want to praise the Chairman and Ranking Member, because I know you are both working

hard to get this done in the wee hours of the 109th Congress. I am

hopeful this 2-year extension, which really has to be retroactive to

January of this year or middle-class families will not get it, will

come to pass.

Now, I want to make one more point. That is, in the area of college tuition, that is one of the areas, if we are concerned about

complexity for middle-income taxpayers, Congress could make some

sensible changes. This is just in tax simplicity. It is a little difVerDate 11-MAY-2000 10:21 Oct 22, 2007 Jkt 095484 PO 00000 Frm 00035 Fmt 6633 Sfmt 6633 37861.000 SFIN1 PsN: SFIN1
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ferent than the good point that Dr. Long was making, but I think

it is an important point.

I want to take a moment to talk about a bill I will be introducing

in the next Congress, which I hope will receive bipartisan support.

It is a bill that reflects today’s topic, but will represent a significant

simplification for millions of taxpayers.

The way I look at it, we often hear about tax simplification, but

most of the time that is just code for eliminating certain taxes on

investment or business income.

If you leave out the Alternative Minimum Tax, which is another

issue I hope we can address in the next year, the tax code is not

really that complicated for average middle-class families that earn

most of their income from wages and take the standard deduction.

That is about two-thirds of the public.

There are a few areas where the tax code would be simplified

that would make a real difference for the middle class, and one of

these is to combine the various higher education tax incentives.

Assuming the tuition deduction is extended—that is separate—

we will have three main tax breaks for higher education: the

HOPE credit, the Lifetime Learning credit, and the tuition deduction. Ten million taxpayers receive one of these benefits each year.

The intent of Congress in enacting these three benefits was essentially the same, an attempt to make college more affordable for

middle-class families by providing them with a modest tax benefit.

But the taxpayer has to pick just one because claiming one of these

credits is a disqualification from being eligible for the others.

Under each of these programs, the benefit families receive depends on their particular tax and income situation, as well as their

tuition expenses. It is not immediately clear which program helps

a family the most because the rules and the dollars are different

and complicated.

So what do taxpayers do? They sit down with one of those legendary IRS worksheets and calculate them all in order to determine the best one that could help. Is it any wonder that Americans

find this part of the tax code confusing and frustrating?

So I am going to introduce legislation that takes steps towards

making the tax code a little less complicated for the middle class

struggling to send their kids to college.

I am going to introduce a bill that will consolidate the HOPE and

Lifetime Learning credits, and the above-the-line deduction into

one single streamlined, easy-to-understand credit. It is a simplification proposal recommended by the nonpartisan Joint Committee on

Taxation.

I am not going to go into the details of what they have recommended. I would ask, Mr. Chairman, that my entire statement

would be read into the record.

[The prepared statement of Senator Schumer appears in the appendix.]

Senator SCHUMER. But I see my time is expiring, so I would just

ask any of you to comment on that type of simplification.

Ms. MCGUIRE. I think simplification is welcome. As Dr. Dynarski

explained earlier, anything we can do to make it easier for the consumer to have access to these benefits is important.

33

I do wish to follow up with just one comment. There is a lot of

research, and many studies have been done, on tuition. The reality

is, families are willing to pay extraordinary tuition at very few institutions in the country.

Part of the headlines that are generated every year when the tuition reports come out, once again, are about a very few elite institutions, where even middle-class families will pay, as Dan Golden’s

book underscores, just about anything to get into a few certain institutions. There are plenty of affordable options for every family

in this country.

I should note that there are more than 17 million students this

year in higher education, the highest number ever. The fastestgrowing group in higher education is low-income black and Hispanic students.

There are hundreds and hundreds and hundreds of private universities and colleges that are extraordinarily affordable. As I said

in my testimony, at Trinity, the average out-of-pocket expense is

about $2,000. Our discounting practices are such that we are providing significantly more aid through our own institutions than all

of the Federal aid combined.

So at another hearing, perhaps at some point, we can go through

the tuition price issue and the discounting issues in more detail,

because the headlines do not really represent the actual costs to

consumers.

Senator SCHUMER. Tuition did go up higher than the rate of inflation for the last 26 years. Is that correct?

Ms. MCGUIRE. Yes. And there are reasons for that. One of the

reasons is discounting by institutions. In fact, the return on financial aid to students is driving up the cost of tuition. It is a paradox.

Number two, what I referred to earlier, the cost of facilities and

technology far outstrips the rate of inflation on just about all of our

campuses. Third, risk management. The cost of insurance, not only

health care, but property, casualty, and liability insurance, is skyrocketing.

Fourth, the cost of our labor pools is increasing, in many cases,

faster than tuition, in part because we are having to add lines because the students and the families do expect significantly more

services today than ever before. The amount of service expectation

that colleges and universities are expected to provide today, as well

as the quality of the infrastructure, is helping to drive these costs

up.

I can certainly present charts and graphs, and I do every year

to my own students, on where every single dollar goes. Frankly, I

know very few presidents who cannot justify where every single

dollar goes.

Senator BAUCUS. Mr. Golden, I have a question for you. Namely,

do we do anything about all these categories of privilege that you

are talking about, or otherwise just let the colleges do their thing,

whether it is Harvard, Yale, Stanford, or whatnot, that tend to accept the most wealthy, the sons and daughters of administrative

personnel, and the other categories that you mentioned? Is there

a role for Congress to do anything about that or should we just let

it be?

34

Mr. GOLDEN. Well, I do make a few recommendations in my

book; whether they would be done by Congress or by the colleges

themselves is sort of beyond my role as a journalist to say.

But what would be beneficial to see happen would be to eliminate some of these preferences, such as the preference for children

of alumni, as members of this body, such as former Senator Robert

Dole, have advocated; John Edwards spoke to it in his presidential

campaign, preferences for alumni children, because that is a predominantly affluent community.

Senator BAUCUS. You say eliminate, but that would be voluntary.

Mr. GOLDEN. Yes. Well, as a journalist, the Journal is not too

comfortable with me making specific legislative proposals.

Senator BAUCUS. I was surprised to see you here, actually.

Mr. GOLDEN. Yes. So, I have to tread carefully there. I would

note that a couple of years ago, as I describe in my book, Senator

Kennedy made a number of proposals along these lines on legacy

preference, including sunshine legislation that would have at least

required colleges to make clear how many students qualified for it

or benefit from it. I go into that in detail in my book in a relatively

sympathetic manner.

Senator BAUCUS. Dr. Duderstadt?

Dr. DUDERSTADT. Yes. I just wanted to comment on tuition for

just a moment, because 75 percent of the college students in this

country attend public institutions.

Senator BAUCUS. Sure.

Dr. DUDERSTADT. In public institutions, tuition represents, on the

average, about one-third of the actual instructional cost. The reason for that is the discounting provided by a State subsidy through

appropriation.

Today, State support of public higher education on a per student

basis is at an all-time low for the last 25 years. As enrollments

have increased, costs have increased. The States, with populations

that have other priorities—health care, retirement, safety from

crime and low taxes—have shifted away from it. It is a serious

issue.

What you are seeing is the plummeting of the State as a partner

in public institutions. At most of the flagship public universities

now, the research universities, State support is now less than 20

percent. At my institution, it has dropped to less than 7 percent of

our operating budget. So there is really no slack in the system.

Tuition has to compensate to some degree for the loss of State

support, and yet, nevertheless, it still remains only a small fraction

of the actual instructional costs at these institutions.

Senator BAUCUS. I am just curious. Join in any time you want

here. We have not talked a lot about the role of corporate aid in

education very much. State appropriations, tuition, public financial

assistance. But what about business? What is the role of American

corporations toward contributing more dollars to education? Ms.

McGuire?

Ms. MCGUIRE. Well, Senator Baucus, unfortunately it may reinforce the stereotype of the elite institutions, in fact, wicking up

most of the dollars. But it is true that a very small number of research universities receive about 75 percent of all charitable gifts

35

to American higher education, and the substantially large gifts in

that pool are corporate gifts.

It is very hard for the very small institutions to receive very significant corporate gifts. Sure, we get matching gifts and occasionally we receive very, very nice grants.

It is more likely today, in fact, certainly here in the District of

Columbia and the Washington region, that corporate support is

going massively into K–12 education, and I have a hard time arguing with that because K–12 education is in such great need.

There also are opportunities for colleges and universities to partner with corporate supporters on very specifically targeted programs, such as nursing, health professions, and that sort of thing

in areas of great workforce need. But the reality is, the largest

parts of corporate support are heading toward R&D and the research universities.

Dr. DUDERSTADT. Well, let me respond to that as well. Roughly

a third of the Spellings Commission consisted of people from industry and from business, and they pointed out, they spend massive

amounts of money on workplace training.

Senator BAUCUS. That is right.

Dr. DUDERSTADT. Taking college students as they graduate and

then providing further skills.

Senator BAUCUS. Right.

Dr. DUDERSTADT. If, in fact, the colleges and universities could

better align themselves to provide some of those skills, those in

business and industry might be quite willing to redirect those resources into higher education. But, of course, colleges and universities have a certain autonomy.

While we regard business and industry as the marketplace, the

recipient of our graduates, there is a lot of resistance, and understandably so, for having them dictate the nature of our curriculum

and our pedagogy. So, there is an uneasy tension. I think the key

here is forming much more sophisticated partnerships between the

business community and higher education which meet the needs of

both institutions.

Ms. MCGUIRE. If I may just footnote very, very quickly. Let us

not forget that 72 percent of the students in higher education are

non-traditional students, many of whom also were funded by their

employers through employer vouchers. We always tend to leave

them out of these discussions.

Senator BAUCUS. Say that again. What is that figure again?

Ms. MCGUIRE. Seventy-two percent of all undergraduate students

in higher education today are non-traditional, either by age or

independent status and so forth, and a significant number of those

are working students who are funded by their employers, and that

is another whole discussion of the tuition situation.

Senator BUNNING. May I ask Dr. Dynarski a question?

Senator BAUCUS. Sure.

Senator BUNNING. I have been active in 529 plans, especially in

the House of Representatives when I was there, to include room

and board cost as qualified higher education expenses under these

plans. I would like your comments on the types of expenses that

qualify under the various plans, credits, and deductions.

36

For instance, I understand that the cost of books is not a qualified expense for the purpose of the above-the-line deduction, but

can qualify as a qualified expense for other educational provisions

in the tax code.

In particular, do the current allowable expenses appear to be

adequate? Are there other expenses that should be identified as allowable education expenses? Are you aware of proposals made by

the administration to streamline the various definitions of a qualified educational expense, and can you comment on these proposals?

Dr. DYNARSKI. This feels like my general exams in graduate

school. [Laughter.]

Senator BUNNING. Well, that is why you are here.

Dr. DYNARSKI. I can say that one great part of the complexity in

the tax provisions is that they each define qualified expenditures

differently, so the 529 definition, as far as my current understanding—it changes constantly—is the most generous.

So under the 529 provision, you can count room and board and

tuition and fees as qualified expenses. Books. I think computers as

well. It is pretty generous.

For the above-the-line deduction and for the Hope and Lifetime

Learning credit, it is much more limited. You are pretty much limited to tuition and fees. As I said, a big chunk of our expenses

when we go to school are not the tuition and fees, it is the other

costs. It is the living, it is eating, it is paying your rent, it is buying

your books.

We have a system in which the people who can afford to save for

college through the 529s can list those as tax-advantaged qualified

expenses, but people who are instead perhaps taking advantage of

one of the credits cannot. So, that is inconsistent.

Senator BUNNING. That would be one of the areas that you would

merge.

Dr. DYNARSKI. I want to make it consistent.

Senator BUNNING. Consistent.

Dr. DYNARSKI. Yes. And I think it would have a progressive impact if it were to be made consistent in such a way that it brought

in more expenses for people who go to low-tuition institutions like

community colleges, which would mean bringing in room and

board.

Senator BUNNING. All right. Thank you, Mr. Chairman.

Senator BAUCUS. Yes. Thank you, Senator.

We all see a lot of parents, families, who eagerly page through

U.S. News & World Report, the top 10 graduate schools, all the top

10. Is there not another role for U.S. News? [Laughter.]

Dr. DYNARSKI. Yes.

Senator BAUCUS. And what would that be? Of course, they have

to market their magazine and get their ad rates up.

Dr. DUDERSTADT. Perhaps they ought to pay more attention to

you folks.

Senator BAUCUS. Yes. And, of course, they have a certain market

they are catering to. But it seems to me that they could perform

a public purpose here, a public policy purpose here of some kind,

maybe using other criteria, too, just to help advance the ball here

and help middle-income and lower-income students get education.

37

Ms. MCGUIRE. I am so happy you raised that, Senator Baucus.

It is one of my other favorite topics. I actually just wrote an article

on this topic. The reality is, U.S. News & World Report favors

wealth, and most of its criteria, in fact, are about money.

If you look at the institutions who are down in the lower tiers

of that magazine, you will find an extraordinary number of smaller

institutions, like Trinity, like many others, women’s colleges,

Catholic colleges, State institutions that are serving remarkably diverse, remarkably low-income populations, working effectively with

their cities and towns, with their corporate communities doing exactly the kinds of things that members of Congress and Senators

are expressing they value.

I would certainly dearly love to see some ranking system that

honored the institutions who serve a large proportion of low-income

minority students and who, in fact, have turned around many,

many students and their families from thinking they could not

complete college to, in fact, being successful, not only baccalaureate

students, but graduate students. We have many at Trinity, and

there are many other institutions that do that.

Senator BAUCUS. Dr. Duderstadt?

Dr. DUDERSTADT. Ranking is kind of a sensitive issue to the University of Michigan today. [Laughter.] I had the opportunity to

meet with the editor of U.S. News & World Report, along with the

presidents of Stanford and Columbia, and we laid out our concerns.

It was a new editor. He said, look, I agree with you completely, but

I am told by others that it is a very important source of income for

us, and it is unlikely to change.

Senator BAUCUS. Yes, it is.

Dr. DUDERSTADT. I think that is one of the reasons why one of

the key points in the recommendations of the Spellings Commission was this stress on this accountability, transparency, and public purpose to get more information out to students and their parents about learning outcomes, about how costs are really determined, what the real prices are, and what the values are of their

education.

If that could be done through other sources, perhaps the Department of Education or others, it would be a counterbalance to essentially a commercially driven activity of U.S. News & World Report,

and I think would be very much in the interest of American higher

education.

Senator BAUCUS. Are there certain data that we do not have or

that are not reported?

Dr. DUDERSTADT. The most important data that you can gain,

which are not collected or reported, are based on learning outcomes. Again, back to the Spellings Commission, one of our challenges was to the faculties and to institutions to clearly define the

educational objectives of their programs and then provide to the

public evidence of how well their students are achieving that objective.

There have been experiments along that line. The State of Texas

has been very out-in-front on it. But it is something that really has

to be embraced more by higher education, by the accreditation

agencies and the institutions, to measure outcomes rather than

simply inputs, and to report those outcomes to the public.

38

Senator BUNNING. I would like to ask this panel, because I think

one of the big things that we lack is the K–12 informing our students about what a college education means, what a college education means later when they go to work, and the differentials that

it means. That is not done in most high schools that I know of.

It is so essential for those students who eventually go to college

to understand the difference. What is going to happen to me if I

do not go to college, and what is going to happen to me if I do go

to college?

If that is explained in toto to our students in high school, and

what is necessary in high school to accomplish that goal, then I

think our K–12 system, whether it be private or public, would

serve a much better purpose than it is doing now because that is

not done. The parents are the ones who are really concerned because they understand the difference, usually, even if they are not

college graduates as parents.

But if they are college graduates as parents, they really understand what is the difference if you do not, or you do, go to college,

whether it is Trinity, whether it is the University of Michigan, or

Harvard, or wherever it might be.

Dr. LONG. Absolutely. I think you are highlighting that there are

several pieces of information that are missing. First, preparation.

Students do not know what they need to do in high school in order

to succeed in college. We give them high school requirements that

do not match the requirements of what they need to meet in terms

of college-level work.

We have discussions about K–12 academic reform. Very few people from higher education are part of those conversations to say,

this is what students need to do in high school in order to succeed

in college so that there is academic preparation.

The second piece is affordability issues. As we have talked about,

we have this list tuition price which really does not capture what

students are paying, what types of financial aid are available, how

that financial aid is being awarded, not just from the government,

but from the institutions.

To go back to the U.S. News & World Report situation, that is

a survey all about inputs, the students that are coming, what their

characteristics are before they even get to the college.

We know very little about what actually is happening in colleges

while the students are there, what kinds of supports they can expect, what types of things they will learn, as well as learning outcomes. What is the output of these schools? So, there are lots of

pieces of information that we are missing right now.

Now, there are certainly efforts to try to increase this information. I know the Department of Education has tried to create a

website with more of these types of pieces of information, but part

of the problem is, families do not know that that information is

there. Everyone knows about U.S. News & World Report. Those

issues come flying off.

Senator BUNNING. I can just give you an example. In the Commonwealth of Kentucky, K–12 in the public educational system is

70-some percent paid for by the State. Now, that should be an informational tool that is used in that 70 percent pay, that all those

39

things that you are talking about are brought forth to that student

that is going through the process.

If it does not happen, that poor student is going to wind up in

the ninth, tenth, eleventh, and twelfth grade knowing, sure, I want

to go to college, but I am sure not prepared. Only in certain very

sophisticated high schools is that information being given out.

Ms. MCGUIRE. Senator Bunning, just if I may, two quick comments. One is, the Gates Foundation is conducting a lot of studies

right now around the country, in urban public school systems in

particular, to address some of these issues.

Second, 2 weeks ago in the Sunday New York Times magazine,

there was an excellent article called ‘‘What It Takes To Make a

Student,’’ which is referenced in my testimony in a footnote. I highly commend it to you and to other members of this panel interested

in these issues, because it really unpacks some of them.

Finally, here in the District of Columbia, as a result of the initiative that Congress took to create the DC Tuition Assistance Grant

program, we really have a model that, in fact, addresses some of

these also through the combination of the Federal funding in that

program and the private funding that was made available.

We have a college access program now that puts counselors in

high schools to address these very issues. I think it is a national

model well worth looking at.

Senator BUNNING. Thank you.

Dr. DUDERSTADT. I was going to say, it was one of the conclusions, and one of the most important ones of the Spellings Commission, that higher education itself must become much more deeply

engaged with primary and secondary education. There are some excellent models of that around the country.

We pointed out the California State University system, which

goes into every high school in the State of California with faculty

and with programs, providing in person exactly what is required

for transition into college work.

Senator BUNNING. Mr. Golden?

Mr. GOLDEN. In the area I researched of admissions preferences

for the wealthy, in terms of how much Americans know about what

they are facing, I found colleges were often less than candid about

the extent of these preferences that they would provide. They

would typically argue that there is no influence or intervention of

fundraising on admissions, whereas, I documented that there was.

They would generally understate the impact of preferences for

children of alumni so that the average applicant from an

unconnected middle-income family to a selective school would not

realize that their chances of getting in were actually much lower

than they thought they were. If the overall odds were 1 in 5, 1 in

8, or 1 in 10, that meant that their chances were 1 in 10, 1 in 20,

or 1 in 30.

Senator BUNNING. Thank you very much.

Senator BAUCUS. Mr. Chairman, before I have to leave here, I

would, with your permission, just request to all six of you, to the

degree you are interested, do a little analysis of the so-called

Dynarski suggestion and modify it, tweak it, refine it, whatever.

Simplicity. Combining the Pell and refundable credits, and get the

money up front, get it early, as near as I can understand it.

40

Dr. DYNARSKI. I do have a longer paper that goes into detail. If

you would like to read that, I will make it available to staff.

Senator BAUCUS. I would appreciate it if you could look at that

from the point of view of simplicity, how well it can be administered, the degree to which IRS really can do this, and whatnot.

The goal here is to be practical and pragmatic and make something work here. I do not care about committee jurisdiction. It does

not make any difference. Just, what works? That is the main thing

here.

If you could, maybe separately, just give this committee, in written testimony or just written remarks somehow, at your leisure,

just what you think about it, we would appreciate it.

Dr. DUDERSTADT. Very good.

Ms. MCGUIRE. Happy to do so.

Senator BAUCUS. Thank you.

The CHAIRMAN. By the way, we will not keep you very long. I

just have four questions. Hopefully they will not take very long. I

know the first one will not.

Dr. Long, you made a statement this morning—and I do not

question your statement this morning—about not being able to

show a relationship between government programs and inflation of

tuition.

But I want to know about the interplay between that and your

work in the Georgia HOPE program where you found ‘‘the results

suggest that 4-year colleges in Georgia, particularly private institutions, did respond by increasing student charges. In the most extreme case, colleges recouped approximately 30 percent of the

scholarship award.’’

Dr. LONG. Sure. I can definitely speak to that study. So obviously

a number of researchers have been trying to see if colleges are responding to financial aid. Now, the Georgia HOPE scholarship is

a very special case, and it does not apply at all to what we have

in the Federal context.

The CHAIRMAN. All right. Then that is enough if it does not

apply. All right.

Now to Dr. Duderstadt. As the president of the University of

Michigan, you were very active in issues regarding the NCAA. This

is not the direct focus of this hearing, but the tax-exempt status

of that organization has been the subject of a great deal of scrutiny

by the Ways and Means Committee of the House, and is certainly

relevant to our work here.

I would appreciate your views on whether the NCAA’s response

to Chairman Thomas was adequate, and if not, what other additional questions or information should Congress receive to better

consider these matters? In addition, I would appreciate any additional points that you would have on that matter.

Dr. DUDERSTADT. Sure. There has been a growing concern on the

part of a great many people, both within higher education and beyond, that the increasing commercialization of the big-time programs—college football, men’s basketball—are beginning to distort

the academy, to some degree.

You see it in the sense that the increase in costs of intercollegiate athletics has been increasing at three times the rate of academic costs over the course of the last decade.

41

Part of that may be due to some of the perversity of the tax code,

for example, treating quid pro quo transactions such as the leasing

of luxury sky boxes or the ability to purchase season tickets as

charitable contributions, which of course they are not.

But it also relates to the broader array of commercial activities

engaged in by the NCAA and by the institutions. That was, I think,

very effectively challenged in the letter from Congressman Thomas

in the House Ways and Means Committee to the NCAA.

I think the NCAA gave great care to its response, much of which

was useful and informative, but it was, in part, a mixed bag. To

some degree, concerns were passed along to the institutions saying

that the NCAA really did not have influence over that. You could

raise the question of, should they?

Some of it was hidden behind the broader intercollegiate athletics enterprise, the vast array of sports which do not suffer from

the drawbacks of the commercialization of the big-time football and

basketball programs. And, of course, some of it simply was information the NCAA did not have.

I think it is always important that, from time to time, a shot

across the bow is aimed at the leaders of intercollegiate athletics

to force them to step back and really think deeply about whether

their decisions are being made in the best interests of the educational opportunities provided the student athletes involved in

their programs and in the best interests of their academic institutions.

That is what that letter did. I think it will lead to further debate

and concern, and hopefully persuade the NCAA and the institutions themselves that maybe they should take some steps to reconnect intercollegiate athletics with the academic objectives of their

institutions. Perhaps cleaning up some of the tax policy, perhaps

further consideration of such changes, is the stimulus that will

cause them to do that.

The CHAIRMAN. Professor Long, your testimony talks about getting more information from colleges focusing on net tuition prices.

This matter of getting more detailed information and a sense of

greater transparency and accountability from the colleges is something that is discussed quite a bit.

I would ask you, but also maybe panelists who want to comment

on it, for thoughts on what improvements in transparency, accountability and reporting should we look for from colleges and universities. I know, for instance, Professor Duderstadt, that the National

Commission on the Future of Higher Education talked quite a bit

about improved openness. As charities, these entities are required

to file 990s, available to the public.

As we heard in our hearing on hospitals, the Form 990 is very

inadequate in providing useful information regarding hospitals,

and that needs to be upgraded. I am interested in what we should

do in terms of information at universities.

Dr. LONG. Absolutely. As we said before, list price really does not

capture what students are paying. There are many decisions that

colleges are making that affect student affordability and access. We

need to know a lot more about what types of institutional aid they

are giving, not only the averages, but exactly how they are awarding this aid, and to whom.

42

Some of this aid is being used for needy students, particularly at

the top institutions that are holding true to their mission, but an

increasing proportion of this is going for merit-based aid—highachieving students where we definitely want to recognize their

achievement—but it is going to students who do not need the

money as much as others.

So, having more information on exactly how colleges are using

their money to either help affordability or serve other goals would

help us to understand a bit better what the next steps should be.

I think certainly transparency would help a great deal in pushing

colleges to do more honorable things, and some certainly already

are.

The CHAIRMAN. Ms. McGuire?

Ms. MCGUIRE. Senator Grassley, I always take the peculiar attitude, well, since my salary gets published anyway, nothing else is

secret. I am, perhaps, a renegade among college presidents in that

I think our accreditation reports should be open.

We already have all the data that everybody is looking for,

whether it is the Spellings Commission, or this committee, or Congress. It resides in these massive reports we prepare for all of the

many accrediting agencies to which we are accountable. Most of it

is not secret.

Sometimes it shows some institutional warts and deficiencies. In

fact, I think by being more candid about where we struggle, where

we need help, we would have a lot more credibility.

So, I have been calling on my colleagues to think about how a

little humility in sharing information, not just the glossies but in

fact some of the realities, would actually help us as an industry.

It is all there.

The CHAIRMAN. All right. So you are agreeing with Dr. Long,

there needs to be more transparency?

Ms. MCGUIRE. Yes.

The CHAIRMAN. All right. But you are also saying it is not a lot

of extra gathering of information, it is just making it more public

than what they do in their report, and probably in a more understandable way.

Ms. MCGUIRE. I think most of the information already exists. At

Trinity, we put our self-study, as well as the team report, on our

website. We see nothing to hide. It is not all 100-percent glowing,

but it is real. We think cinema verite ́ would serve us all better in

this environment.

The CHAIRMAN. All right.

Mr. Golden, your book talks about how the wealthy are able to

load the dice in favor of their children being accepted at these top

colleges. I was particularly taken by the situation you write about

of the committee on university resources at Harvard.

It seems that there are some individuals who are not alumni who

are giving large donations with an eye towards significantly increasing the chances of their child being admitted. Would you provide the committee with more detail on how that operated?

Mr. Golden. Yes. At Harvard specifically, the committee you

mention, of its 400 or 425 biggest donors, those are primarily alumni, but they also do include some non-alumni. By virtue of being

on that committee, and through other ties, they generally have acVerDate 11-MAY-2000 10:21 Oct 22, 2007 Jkt 095484 PO 00000 Frm 00046 Fmt 6633 Sfmt 6633 37861.000 SFIN1 PsN: SFIN1
43

cess to Harvard officials or admissions people and are in a position

to put forward the cases of their children.

More generally, while colleges say that they maintain a separation between fundraising and admissions, in reality, that is quite

rare. At most colleges, the fundraising office usually provides a list

of applicants to the admissions office who, if they are admitted, the

parents would donate a lot of money.

Sometimes there is also a list from the alumni office and the

president’s office as well. So the goal for wealthy people, like the

people on Harvard’s committee or other people of means, is to get

their children’s names on these lists and get their applications

flagged for special attention. Sometimes they do that through contacts with trustees or other officials.

Sometimes they might hire an independent counselor, who then

would possibly contact the development office at the college and

say, the family that I represent is in a position to donate if the

child is accepted.

So they make known their philanthropic interests to the college

they would like to send their child to, and thereby the child gets

on a list or gets a preferred status in admissions.

Then there comes a meeting between the admissions people and

the fundraising people, where they sort of debate, often, can we let

this candidate in even though their credentials are not of the best?

How far should we stoop? How much money is likely to be given?

How big is the institutional interest in this family? Decisions are

hammered out in those kind of meetings.

The CHAIRMAN. I think this is an example of our questioning

whether the tax incentives are working in the way that they

should, as in this case that you bring up, whether individuals who

made donations to this organization, or any organization—in this

case, Harvard—should be allowed to take a charitable deduction if

they did not appear to have a charitable intent, but instead gave

money for the purposes of a personal benefit, namely to get their

children accepted.

This is something I think I would ask the IRS to review, or at

least ask them for their views on this issue, and understand what

actions have to be taken in this area.

In closing, I think we had a very useful discussion today. There

seemed to be strong member interest in simplification and controlling costs. Clearly, those are areas we ought to look at next year.

I think ensuring greater access at our elite colleges is also something that we need to consider closely at some time in the future.

Thank you all very much for your testimony.

[Whereupon, at 12:15 p.m., the hearing was concluded.]

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A P P E N D I X

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