Elite universities must purpose endowments to subsidize students’ educations

Harvard is one of the most prestigious universities in the United States. It is also one of the most difficult and competitive to be accepted into. 

However, Harvard graduates often leave with significant amounts of debt, owing $1.2 billion in total. Yale students owe approximately $760 million, while students at the University of Pennsylvania are $2.1 billion in debt. 

The most frustrating part is that such universities have the funds to provide financial relief to their students. Harvard’s endowment is nearly $41 billion; for Yale and UPenn, it is over $30 billion and $14.5 billion, respectively. 

Rich, elite universities are taking advantage of their tax-exempt status, receiving billions of dollars in funding from the government but failing to utilize the revenue for academia and student services. 

Schools such as Harvard and Yale receive millions in research money from the federal government by being tax-exempt. Additionally, many higher-education institutions seek endowments — financial assistance from the government or outside sources to generate income to support budgets and fiscal stability. 

However, many of them are using this wealth to pay professors more, construct new buildings and facilities and add new bureaucracies of administrators. According to the Bureau of Labor Statistics, the employment of postsecondary education administrators will grow 4% from 2019-2029, which is the fastest average growth rate increase for all occupations. 

For example, student enrollment in the University of California system increased by 38% in 2015, but managers and administrators more than doubled. Additionally, the UC Board of Regents gave a 3% pay raise to some of UC’s highest-paid employees. 

All of this occurred despite the student debt crisis. From 2015-2019, student loan debt grew almost 6% per year; today, the rate has more than doubled. 

Endowment money is going to administrators and construction when it should be alleviating the student debt crisis. According to one research study, out of the 67 wealthiest, private, nonprofit universities, 35 of them spent less than 5% of their endowment in 2013. If those schools ticked up their spending to equal 5%, they could fund the tuition of 2,376 students from families making $30,000 or less.

Furthermore, affluent, private universities rack in millions of dollars from U.S. taxpayers. The cost of subsidies for a student at a university such as Yale or Harvard is approximately $45,000- $70,000 per year. For a student going to California State University, Fullerton, it is $4,000; for someone going to Queensborough Community College, it is a little over $5,000. 

This is an appalling use of taxpayer dollars — tax-exemption statutes essentially aid affluent schools in spending egregiously on unnecessary sectors at the expense of students. 

In May, Republican Sen. Tom Cotton of Arkansas introduced a bill that would propose a new tax on the largest endowments of private institutions. The Ivory Tower Tax Act would put a 1% tax on the fair market value of private colleges’ endowments to support apprentice programs. 

Additionally, universities would be required to disburse 5% of their endowment per year “to support an educational mission.” Failing to distribute these funds would result in a deduction of 30% in funding. 

However, Sen. Cotton’s Ivory Tower Tax Act does not go far enough, as it only applies toward registered apprentice programs. More efficient and comprehensive laws should mandate that universities spend large percentages of their endowments and tax what they receive. 

In his book, “The War on Normal People: The Truth About America’s Disappearing Jobs and Why Universal Basic Income is our Future,” former Democratic presidential candidate and entrepreneur Andrew Yang advocates for a law that requires any private university with an endowment of over $5 billion to lose its tax-exempt status unless it spends its total financial income from the previous year on educational fees, student support, and domestic expansion.

If such a theoretical law included public universities such as the University of California system, this would incentivize higher-learning institutions to spend millions more each year on their students. This would also motivate investment from schools near the $5 billion thresholds, such as USC.

Another plausible solution is a government tax on wealthy universities’ endowments; then, the federal government could use the revenue to subsidize students’ educations. 

For instance, the 2017 Tax Cuts and Jobs Act implemented a new tax on some private, nonprofit universities and colleges. Higher-learning institutions with a minimum of 500 students and aid exceeding $500,000 per student will pay a surcharge of 1.4% on their net investment income. 

This tax still comes up short in requiring universities to provide for their students financially and ultimately include more schools. While it is estimated to generate $200 million, this number could be significantly higher if more universities are taxed. 

Ultimately, reforms must occur to hold elite universities accountable for amassing billions of tax-free dollars and not supporting college students financially.