September 15, 2008

Mr. Marx goes to Washington

Although the biggest piece of Amherst-related news last week was the shocking death of David Foster Wallace ‘85, many media outlets covered the congressional testimony last week of several college presidents, including Amherst’s Tony Marx.

President Marx’s testimony was part of a roundtable examining college endowments called by U.S. Sen. Charles Grassley (R-Iowa) and U.S. Rep. Peter Welch (D-VT). The swelling of college endowments has spurred calls for mandatory spending by wealthy colleges, a topic Parker explored late last year. Sen Grassley, for one, has been concerned that endowments at many private colleges are growing too large at a time when higher education costs are skyrocketing. Grassley has proposed that high earning college endowments be forced to spend at least 5% of their endowment income each year.

Marx’s comments were delivered during a panel titled “Are Mandatory Payouts Beneficial?” As part of those remarks, he highlighted aspects of Amherst’s commitment to affordable post-secondary education:

… I think the debate about 5 percent raises deeper questions. What is it we are trying to achieve? The question is not “How much money do we have?” but “What should we be using that money for?” At Amherst, the answer is quite simple: We have a responsibility to spend our endowment on access, quality instruction and service to society—to its economy and democracy. We are committed to doing more toward that goal, with or without a 5 percent spend rule.

We are all concerned that middle- and lower-income families are fearful of our sticker price and are underrepresented at top colleges and universities. I agree and have been hard at work improving economic diversity and access to Amherst. For example, last summer, we replaced loans with grants for all students receiving financial aid, providing the opportunity for students to graduate debt-free and free to make career choices accordingly. At Amherst, almost 20 percent of our American students are now low-income, Pell-eligible. And we have accomplished this while maintaining the highest standards of selectivity.

I think Marx hit all the right notes here. While a 5% spending floor might not be different that what is mandated for other private foundations, a mandatory spending amount would apply pressure on schools trying to protect their endowments and create spending that would be counterproductive to Grassley’s goals as Marx pointed out:

There is a conundrum here: While students who pay the full sticker price do, in effect, help subsidize those who cannot, that price tag also discourages those who most need aid from applying to our nation’s best colleges and universities. Mandating a minimum endowment spend rate won’t change this. Instead, the wealthiest institutions may feel pressed to no longer charge any tuition to the wealthiest students. What is the social benefit in that exactly?

There are a couple of important angles to this story that have gone unmentioned in much of the news coverage. First, Grassley and Congress do have one incentive to bring colleges to the table to talk: the tax exemptions. Educational institutions have virtually zero tax liability, which undoubtedly has been a major factor in endowment growth. Although that endowment growth has spurred increased financial aid at many schools, it has also financed construction projects at many schools (“luxury” dorms, student centers, athletic facilities) often viewed as obnoxious luxuries by cash-strapped peers struggling to keep tuition under control. While it’s unlikely that those exemptions will be lifted anytime soon, it makes sense for private colleges to engage Grassley and Congress and demonstrate their commitment to educational access.

Second, one might argue that the real problem with the cost of higher education in the U.S. is not the prices at places like Amherst, where financial aid is generously given, but at state universities where funding cuts have caused massive tuition increases. Very few public schools have built the types of endowments to provide the type of tuition relief via financial aid that many private schools can. You might be surprised to hear that there are students at Amherst who pay substantially less (as in over $15,000 in some cases) each year in total cost of attendance (after grants from Amherst) than their siblings enrolled at their home state universities.

I attended law school at a large public university. While I received an superb legal education, it was evident that the lack of state funding was taking a large toll on the university as a whole as well as the law school. The quality and availability of the education at our public universities is a distinctive and important feature of this country’s post-secondary system. While Amherst should play its part to create affordable access (and I think it already does), no forced amount of spending from private endowments will address the larger issue of what is happening to our public institutions.

Dave Nardolillo '98 | September 15, 2008 12:54 PM | Administration

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