Higher Education Endowments Under Scrutiny

Senator Charles Grassley (R-IA) announced in October that he would like to see an upcoming higher education bill include a base payout requirement for large endowments at colleges and universities. A possible provision would require higher education endowments to pay out at least 5 percent of their total net endowment value – the same payout rate required of private foundations – or face a penalty.

The provision follows a September 26, 2007 Finance Committee hearing on hedge funds during which witnesses testified that universities were enjoying greater returns from endowment investments than the endowment funds they were applying to their charitable missions. As part of the September hearing, Jane Gravelle, senior specialist in economic policy at the Congressional Research Service, described research on the growth of endowments and discussed the potential effects on tuition growth and student aid availability if a larger portion of endowment funds were used for those purposes. Lynne Munson, adjunct fellow at the Center for College Affordability and Productivity in Washington, DC, argued that, “What the data shows is that endowment wealth is everywhere—except in the hands of the students who need it today.”

At the hearing’s conclusion, Senator Grassley received a favorable response when he asked these two witnesses whether they supported a payout requirement for endowments of $500 million or more. Ms. Munson also claimed in her testimony that institutions should be required to provide much more financial disclosures in their Form 990 filings.

See full testimony on the Finance Committee's website.

Last updated: November 5, 2007