HERE'S A tantalizing but risky idea: To help more students pay for the soaring cost of college, Congress would push schools to dip deeper into their endowments, freeing up more money from bulging coffers - $34.6 billion at Harvard, $22.5 billion at Yale, $15.6 billion at the University of Texas.
The logic seems simple. Colleges are nonprofit entities, just like charitable foundations. Both get tax breaks to serve the public good. And since foundations have to spend 5 percent of their endowments each year, says Republican Senator Chuck Grassley of Iowa, it's wise to ask if colleges should, too.
He's right to ask. But Congress should be cautious. In 2007, colleges spent an average of 4.6 percent of their endowments. And even when they're not being spent, endowments serve a public good.
Last week, Grassley and Senator Max Baucus, a Montana Democrat, wrote to schools with endowments of $500 million or more asking for data. The colleges have 30 days to tell the Senate Finance Committee about their costs, endowments, and financial aid.
The senators seek accountability for how colleges use their tax-free status, just as the federal government did with the Tax Reform Act of 1969, which required foundations to pay out 6 percent in assets - a figure that later fell to 5 percent. The concern then was that foundations were being used as tax shelters and were piling up assets that weren't employed for the public benefit.
But a university is a different creature, and there are good reasons to protect endowments. With their own money, schools have a cushion against bad investment returns and unexpected cuts in federal research funding. Or they might, as Harvard did, invest in promising projects such as stem cell research even when the federal government won't. The public benefits from this independence.
Before it acts, Congress has to make the case that colleges are behaving irresponsibly - watching their endowments grow while financial aid spending lags, for example - and that a 5-percent mandate is the proper solution. And even if such a mandate were put in place, it should factor in several years of returns, and protect poorer schools that are building endowments.
Families are rightly alarmed by spiraling tuition, and the threat of congressional action can push wealthy schools into granting more financial aid. Yet Congress also needs to recognize that professors, libraries, and labs are inherently expensive, and that universities produce significant public benefits, in the form of research grants, economic development, and the new blood they bring into their host communities. If lawmakers want to tighten the rules for endowments, they first need to offer better evidence that schools are abusing their tax-free status and acting against the public interest.
