Universities with large endowments face criticism from those who believe portions of those endowments should be used to help offset tuition increases. Some of those critics want the federal government to mandate that schools devote parts of their endowments toward that tuition goal.
George Leef takes aim at that proposal in his latest Forbes column.
Changing the law on the deductibility of contributions would no doubt have a powerful effect on endowment spending, but Fleischer, Munson, and most other critics favor a different approach—compelling schools to spend at least a certain percentage of their endowment each year. [University of San Diego law professor Victor] Fleischer’s solution is to have Congress require universities with endowments in excess of $100 million to spend at least 8 percent of the endowment each year.
The good effects he envisions from that mandate are: “Sky-high tuition increases would stop, and maybe even reverse themselves. Faculty members would benefit from greater research support. University libraries, museums, hospitals and laboratories would have better facilities. Donors would see the tangible benefits of philanthropy. Only fund managers would be worse off.”
All of that sounds irresistible at first, but there are reasons to doubt that aggressive federal intrusion into what has been the purview of college and university boards would have those good consequences. There is also reason to believe that there would be some bad ones.
First, the presumed benefits of Fleischer’s 8 percent rule are wildly exaggerated. Whether those “sky-high tuition increases” would stop depends on how the institutions choose to spend the mandated increase in outlays.
Some of that spending might go towards tuition reduction, making attendance less costly for at least some students. But unless we are prepared to allow federal bureaucrats to oversee endowment spending, there can be no assurance that university officials would spend more on tuition reduction or any of the other good uses Fleischer contemplates.
They might instead choose to gild their campuses with lovelier buildings, more alluring amenities for students, and showier sports venues. We have already seen a lot of spending on that and would probably see more still under a mandate to increase spending.
Second, bear in mind that only a very small number of colleges and universities would be affected by this rule. It wouldn’t do anything to stop tuition increases at the great majority of schools that have small endowments or already spend at the 8 percent rate or more. If rising tuition is your concern (and it should be), you need to think about the root causes of rising tuition. Elite schools failing to spend enough of their endowment is not among them.
