By Richard Vedder
Our intrepid Boston friend and sometime partner in crime, Wick Sloane, in an email just received, suggests a variant on today's blog heading as a new college chant, or perhaps part of a college protest song. I read this just after getting off the phone talking to a reporter at a major newsmagazine about endowments. Actually, I realized these two things were connected: Pell Grants and endowments are intimately related.
Our Whiz Kid Gordy Ructi is running regressions and doing analysis of endowments at hundred of American universities. The evidence is not all in, and work is incomplete. But the following seem to be roughly true statements ("stylized facts") worth pondering:
1) Endowments have soared in value in modern times, as the cost of colleges to students has continued to rise by healthy amounts.
2) The proportion of students on Pell Grants at the most endowed schools usually is very low -- around 10 percent or less in many cases. Higher per student endowments typically do not lead to large increases in aid to poor students that lead to higher attendance rates among that group.
3) The "tax expenditures" involved with tax deductions associated with endowments are worth billions of dollars a year -- an estimate of $15 billion annually may be close to accurate in some years.
4) Had the government collected, say, even $10 billion more in revenue by taxing endowment income (not new contributions), it could fund a vastly expanded Pell Grant program -- giving literally millions more students Pell Grants, increasing the size of existing grants by 50 percent or more, or by doing a combination of both.
Americans do believe tax policy should be used to achieve social objectives, and, for many, one national objective is greater equality of educational opportunity. Given the four stylized facts above, it is not surprising that there is rising discontent about endowments --alleged inadequate endowment-funded spending to make education more accessible to more disadvantaged students, the lack of transparency about how they are invested and used, etc. Even college officials sometimes are in the dark on exactly how funds are invested which, given the vast resources granted to the colleges through the political process, is not defensible in my opinion.
Recognizing this, the American Enterprise Institute, in cooperation with CCAP, plans a conference within the next two months on this important topic. Stay tuned.