Centerfield: Stupid Congress Watch: Force College Endowments To Be Spent Down?

February 07, 2008

Stupid Congress Watch: Force College Endowments To Be Spent Down?

UPDATE: Sponsors in both chambers have withdrawn their bills.

Those Evil Colleges Are All Secretly Hiding Ponies In Their Basements!

And buried among the 61 amendments to the Higher Ed Act bill that lawmakers said they would seek to offer on the House floor Thursday was one, offered by Rep. Peter Welch (D-Vt.), that would require colleges, regardless of wealth, to spend at least 5 percent of their endowments each year in ways that would reduce what students pay to attend college.

University endowmemnts' purpose in life is to be huge and grow ever bigger still. The money both grows itself and generates a positive cashflow for universities via a conservative investment strategy. That means there's more and more money available to the U over time that doesn't have to come from tuition, research, grants, or gummint help.

So why is this a dumb idea? Because it's an utterly short-term idea. OK, it could reduce tuition alot the first year. The second year, you'd get only 95% as much of a break, and it shrinks more each year. Universities'd have correspondingly less and less money from investment to build and do whatever they're doing with the endowment investment cash.

Another reason the idea's stupid is another basic money mistake: Ivy League and other elite universities charge so much because they CAN - demand for their goods is out of sight, not because they're squirreling away endowment money.

Versions under consideration in the Senate are less drastic, but are the same basic, stupid idea.

If this idea makes it into law, it'll slowly hollow out one of America's great pillars: our best-in-the-world universities and the unmatched amount per capita on R&D and its success level. A very dumb idea.

To be fair to Congress, IMHO it's unlikely to pass. But I haven't enjoyed the recent hearings on the subject.

Posted by Jon Kay at February 7, 2008 12:58 AM

Comments

It is a dumb idea. On the other hand, it's pretty much the same dumb idea (that Congress has both the right and the duty to tightly regulate every aspect of business for "the common good") that elite Universities have been enthusiastically trying to cram down the rest of our throats. And at least with Universities, there's the excuse that they are massively publicly subsidized, both directly (in the form of grants and loans to their customers to prop up the price that they can charge) and indirectly (in the form of tax exemption).

I know it's too much to hope that they generalize from their experience, but I don't mind seeing them squirm a little.

Posted by: Joshua Macy at February 7, 2008 08:08 AM

For those universities with such mammoth endowments (Harvard) that grow at such a pace and from such a base that they would do fine even if they didn't charge tuition at all, hey, a fine idea. That would only leave the other 99.99% of institutions out there getting hurt.

Posted by: Tully at February 7, 2008 09:29 AM

On the other hand, it's pretty much the same dumb idea (that Congress has both the right and the duty to tightly regulate every aspect of business for "the common good") that elite Universities have been enthusiastically trying to cram down the rest of our throats.

I saw that idea on Instapundit, but it's not true, of course. What is true is that individual professors and other staff have been getting ideas about high regulation and rules of elites, a very different thing.

There's not even anything like unanimity on profesorial politics - science and engineering faculty are alot less liable to get such ideas (writes the engineer). A computer scientist's much likelier to be moderate than the population as a whole. How is it fair to blame CS faculty for stupidities of other departments? Especially since the extremist dreams are dreams and not reality.

For those universities with such mammoth endowments (Harvard) that grow at such a pace and from such a base that they would do fine even if they didn't charge tuition at all, hey, a fine idea. That would only leave the other 99.99% of institutions out there getting hurt.

Harvard's endowment is huge only because they've been able to grow it over centuries, using that growth strategy; it started small. It's possible they could afford to avoid having tuition, but do you recommend it under a capitalist system?

Posted by: Jon Kay at February 7, 2008 02:23 PM

Elitists with socialism Adv. Babysitting for legacies and color quotas.

A better product? Of what hot air and papers? Get a clue! It's an old model. Needs slicing away.

Would prefer seeing most of the money be
put into developing cos., new technology, long-term jobs and long term benefit.

Would even prefer they use the bulk of the monies
to make more parks for modern living sanity.

Lost any respect for hot air and papers a long time ago. Only respect smart, multi-skills, ethics--base, and smart applications.

Posted by: alex at February 8, 2008 04:34 PM

So why is this a dumb idea? Because it's an utterly short-term idea. OK, it could reduce tuition alot the first year. The second year, you'd get only 95% as much of a break, and it shrinks more each year.

It is dumb, but not as dumb as it seems. A well-managed stock portfolio (a big if considering that many schools have their portfolios ham-strung by politically-correct screening) should return about 10%/year over the long haul; 8% would be very doable with a stock-bond mix.

Thus, a 5% payout will still see a endowment grow at 3% a year if it's chugging away at 8%.

It's still lousy politics, but most endowment funds could afford a 5% payout and function nicely.

Posted by: Mark Byron at February 8, 2008 04:50 PM

You make my day!

Posted by: Freeman at February 26, 2008 08:49 AM

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February 07, 2008

Stupid Congress Watch: Force College Endowments To Be Spent Down?