At a time when the cost of a college education is skyrocketing, a slew of private non-profit colleges are raking in the cash thanks to huge endowments and smart investments. But one lawmaker doesn’t want these schools to continue getting richer; he called on them to share their gains with middle class and working class college students.
Arguing that private institutions should do their part to lower the cost of a college degree, New York Congressman Tom Reed is proposing that schools with large endowment funds use profits from their investments to help lower the overall cost of college. Under the bill dubbed the REDUCE Act, colleges with endowments of more than $1 billion would have to use 25 percent or more of their investment gains to reduce the cost of college for middle and working class families.
“Many colleges have amassed endowment funds in the billions of dollars, in part by taking advantage of tax exemptions that allow the institutions to not pay taxes on their investment incomes,” said Reed when rolling out his “Our Vision for Students” plan. Current tax exemptions afforded to colleges are supposed to be used to lower the cost of school for students, but Reed says it’s not the case every time.
Tuition across the board – be it a state school or a private non-profit – has increased, but the largest gains are often seen at private schools. According to Reed, the tuition hikes at private colleges and universities have risen at a pace that’s almost twice as fast as the rate of inflation. That burden falls on the college students and their families. By getting the private colleges to chip in some of their endowment investment gains, Reed says it will help those students whose families earn too much to be eligible for grants and federal aid but still can’t afford the full cost of a college degree.
For the colleges and universities that balk at such a demand, particularly a government mandated one, Reed said the schools would be slapped with an immediate 30 percent tax on their investment income. That could potentially jump to a 100 percent tax if they continue to violate the rule. Failure to comply would also result in the school’s ability to accept charitable contributions. “Schools must begin to make college affordability a larger priority,” Reed said.
The legislation comes at a time when the outstanding student debt, now over $1.4 trillion, continues to grow. Rep. Tom Reed may be extra focused on student loan issues because his state, New York, has the eighth highest average debt per borrower off all 50 states. Borrowers from the Class of 2015 who attended a college or university in New York owe an average of $31,139, much higher than the national average of $28,400.
LendEDU reached out to Rep. Reed but did not receive a response.
While the legislation sounds promising, the idea could end up going nowhere like many bills that enter Congress. Only time will tell if this bill has the opportunity to be signed into law on the President’s desk.
Author: Andrew Rombach
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