Washington College’s endowment is just $200 million, yet the Maryland school spends almost 60 percent of its annual payout on scholarships.

About 75 percent of the operating budget for Berea College, a private school in Kentucky that serves only low-income students, comes from investment earnings of the $1.1 billion endowment.

Leaders from both schools and three policy experts are scheduled to testify before a U.S. House Ways and Means subcommittee today about endowments and their tax-exempt status. The hearing, which has started, is expected to show examples of how some schools use their funds to help lower the annual cost of college.

Posting Losses

“The committee is right to be looking at college endowments,” Sheila Bair, president of Washington College and the former chair of the Federal Deposit Insurance Corp., said in a prepared statement to the committee. “I can think of no better purpose for endowment income than scholarships. I would love to have a $1 billion endowment.”

The scrutiny over endowment spending comes at a time when many large funds including University of Virginia and Ohio State University are reporting investment losses.

Separately, two congressional committees are reviewing responses to a joint inquiry to the richest 56 private schools, as they examine policies that don’t tax endowment investments and give donors to universities a tax break.

Schools defended their endowments in their responses, telling the Senate Finance and the House Ways and Means committees that they must abide by gift agreements with donors and can’t redirect funds.

Immense Wealth

One speaker will argue that the billions of dollars amassed by the richest private schools leads to further disparities among colleges and students, and the subsidy to the private nonprofit colleges is “far greater” than to public two-year and four-year schools.

“Because so much wealth has accumulated in so few institutions, questions arise about the degree to which the inequality in taxpayer subsidies serves a public purpose,” Mark Schneider, a vice president at the American Institutes for Research, said in his prepared testimony.

House Oversight committee chairman Peter Roskam, an Illinois Republican, said he is concerned that college prices are “spiraling out of control” as schools enjoy the tax benefits.

“The level of anxiety that I’m hearing from my constituents in suburban Chicago is palpable and I’m not alone,” Roskam said in an interview Monday. “A lot of people are feeling whipsawed by this.”

Another subcommittee member, Republican Tom Reed of New York, expects to introduce a bill this year that would require endowments with more than $1 billion to spend a fixed percent of investment earnings on financial aid.

College Costs

“I think this is certainly more than reasonable, though it would be better for colleges to adopt such a policy on their own,” according to testimony from Bair, who as president of Washington College, created a policy to freeze tuition. “It saddens me that Congress would need to require colleges to do something so obviously in the best interests of their students.”

Reed said in an interview that using endowments can be a tool to find solutions to bridge the crisis of the “ever-increasing” cost of college.

“The ultimate goal is to bring these prices down,” said Reed, whose daughter recently started college.

Reed said he’s also exploring the issue the “abusive practices” of some donors receiving benefits such as preferential treatment of seats at sports stadiums, when they are already receiving tax benefits for their donations.

This article was provided by Bloomberg News.