As college endowments soar, Congress takes notice

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Stanford University's endowment grew nearly 22 percent last year to $17.1 billion, a staggering amount of tax-free money that is attracting attention from members of Congress who want wealthy institutions to do more to keep tuition costs down as student loan debt soars.As dozens of elite institutions continue to post double-digit endowment growth, most generally spend less than 5 percent of their endowment each year, according to figures released Thursday by the National Association of College and University Business Officers.And as tuition continues to grow faster than the rate of inflation, one prominent lawmaker is questioning the wisdom of allowing universities to hoard their money in mega-endowments."I just want to remind them that their money is tax-exempt," said Sen. Chuck Grassley of Iowa, the ranking Republican on the Senate Finance Committee, which oversees tax policy. "They're supposed to offer public benefit in return for the privilege of tax exemption. If endowments increase by double digits from one year to the next, it raises the idea that maybe these schools aren't using enough of their endowments to help students afford college."In September, Grassley held a committee hearing on endowment growth and on whether wealthy universities could be doing more to make education affordable. He joined a growing chorus of parents, educators and lawmakers concerned about the high cost of college and growing student debt. "Congress gave us the right to be tax-exempt because of our public purpose of educating students and contributing to the public good," said Randy Livingston, Stanford's vice president of business affairs and chief financial officer.Stanford's endowment, which grew 21.9 percent as of last June 30, is the third largest of any university in the country. It trails only Harvard's $34.6 billion and Yale's $22.5 billion, according to the association report, which represents chief administrative and financial officers from 2,500 colleges and universities. Its report reviewed the endowments of 785 public and private universities across the country. The thing that confounds critics is that as university endowments have ballooned, tuition has continued to increase. For example, Stanford's annual tuition (excluding room and board) increased from $21,300 in 1997 to $34,800 in 2007, roughly $7,200 more than if it had held to the rate of inflation during the decade.Stanford has taken steps to alleviate the financial burden for middle- and low-income students in recent years, and its board of trustees plans to make an announcement about financial aid in February, officials said. Grassley, who didn't single out Stanford by name, would like wealthy universities to spend more -- at least 5 percent of their endowment annually. The average amount spent by universities with endowments greater than $1 billion was 4.4 percent in 2007, according to the association report."It seems a lot of these schools could go beyond 5 percent and consider a payout commensurate with their rate of endowment growth over time," Grassley said. "That would offer real relief for low- and middle-income families."Mandating universities to spend a minimum, as Grassley has suggested, would introduce volatility into the operating budget because institutions can't predict how much the endowment will grow each year, said Livingston. The increasing scrutiny of mega-endowments has led to some change. Harvard now gives generous tuition breaks to low- and middle-income students to eliminate their need for student loans. And Yale has announced it will spend more of its endowment, no less than 4.5 percent a year and no greater than 6 percent. Pat Callan, president of the National Center for Public Policy and Higher Education in San Jose, wants to see wealthy universities do more to open their doors to low-income students because they don't have that many. One measure of a school's low-income population is the percentage of students receiving federal Pell Grants, whose families generally make less than $40,000 a year.Pell Grant recipients made up 6 percent of Harvard's student body and 12 percent of Stanford's in 2005-06. In comparison, those numbers were 27 percent at UC Berkeley and 30 percent at San Francisco State University."When this amount of resources has accumulated, the question of who benefits (exists): Is it serving the broader interests in American society like upward mobility for lower-income people?" said Callan. "It's one of the public purposes of higher education." (E-mail Carrie Sturrock at csturrock(at)sfchronicle.com) (Distributed by Scripps Howard News Service, www.scrippsnews.com.)