Plan To Tax Rich Colleges To Help Students Struggling To Gain Support

“My philosophy was that colleges that could afford to spend more on student aid should do it voluntarily and even permanently,” Grassley said in a statement on Friday. “Still, tuition generally isn’t going down, and student debt generally is going up.”

The amount of federal student debt has doubled since 2007 to more than $1.2 trillion and is expected to double again in the next decade, as students and their parents borrow for college and graduate school.

Colleges say spending endowment money can’t be compared to withdrawals from a bank account because the funds are accrued from thousands of individual agreements made by donors who often dictate how their gift should be spent.

Reed’s draft bill also tries to address this, stipulating that future donors to colleges with endowments of more than $1 billion must allot 25 percent of their gifts to the tuition relief grants, or they won’t be able to receive a tax deduction.

Legal Issues

The bill is asking colleges to spend money in ways they are forbidden to do, said Lawrence Bacow, the former president of Tufts University and a current member of the Harvard Corporation at Harvard University, whose $37.6 billion endowment is the wealthiest in higher education.

“I can’t see this going anywhere but you never know,” Bacow said. “There are huge legal problems in asking institutions to do this.”

Donors don’t like to be told that their gifts must be prescribed in certain ways.

“What they tend to care about most is what’s being done with their money,” Bacow said. “If somebody is endowing a chair in engineering, they’re not going to want to say, ‘Oh, I’m going to give 25 percent for financial aid.”’

Reed’s idea could create a conflict with state law, which governs how endowments and spending are managed, said Steven Bloom, director of federal relations for the American Council on Education, higher education’s chief trade group.

“It’s not surprising that politicians hear about the anxiety from their constituents about paying for college,” Bloom said. “Endowments aren’t the reason why tuition had gone up.”