Republican Bill Could Strip America’s Fancypants Colleges Of Nonprofit Status

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A Republican member of Congress will introduce a bill that will require America’s wealthiest colleges and universities to allocate 25 percent of their annual endowment incomes to financial aid for poor and middle-class students. Otherwise, the fancypants schools would lose their nonprofit statuses.

The sponsor of the bill is Tom Reed of upstate New York, reports Bloomberg Business.

The draft bill would affect colleges and universities with total assets of over $1 billion. If the schools fail to provide an amount of financial aid equal to at least 25 percent of their endowment incomes for three consecutive years, they would bid a fond farewell to the very generous federal tax exemptions they enjoy for their complex investment portfolios.

Reed said the legislation is necessary to respond to the ever-skyrocketing cost of college education in the United States. For decades, the sticker price for a year of college has outpaced the inflation rate. The average cost for tuition, fees, room and board and other costs at a typical private school is now nearly $48,000, according to College Board figures. (RELATED: Understanding The Higher Education Bubble Through Caddyshack)

“Potentially billions of dollars are at stake, and that gets people’s attention,” Reed told Bloomberg. “This is a tool that allows us to bridge the gap between now and the times when these costs are put on a downward trajectory.”

Under the bill, the schools would have to use 25 percent of their gargantuan endowment incomes to provide financial aid for students from families with incomes up to 600 percent of the poverty line, as established by the Department of Health and Human Services. (Currently, 600 percent of the poverty line for a family of four is $145,500.)

Precisely 92 colleges and universities would be affected by the legislation, according to data from the National Association of College and University Business Officers (NACUBO).

Reed said colleges and universities have already ramped up intense lobbying efforts against his bill.

“The initial response has been very aggressive,” he told Bloomberg.

The schools affected — not generally known as a group for laissez-faire attitudes toward government regulation — have suddenly become paragons of free-market principles on this one particular issue.

“It’s a big mistake for Congress to try to fine tune and meddle in these kinds of decisions,” former Northwestern University president Henry Bienen told Bloomberg. “The circumstances of different universities are not the same with regard to their financial aid policies and their spending and the size of their endowments and who holds the endowments.”

Many of the affected schools have extraordinary endowments. (RELATED: Meet The One Percent Of American Colleges And Universities)

Northwestern, for example, has an endowment valued at $9.78 billion. That amount is a couple hundred million dollars more than the entire annual gross-domestic product of Tajikistan.

Bienen, Northwestern’s president, generously gave $1,000 to Barack Obama in 2011. He has been a bighearted donor to the Democratic Party of Illinois as well.

Harvard University has an endowment valued at $37.6 billion. That amount is higher — by a few billion — than the entire annual gross-domestic product of Jordan.

Amherst College, a school with fewer than 1,800 students, has an endowment valued at $2.15 billion. That amount is just slightly less than the entire annual gross-domestic product of Lesotho.

In 2014, the total value of 832 colleges and universities tracked by NACUBO was $516 billion — more than the GDP of Norway. The schools averaged an impressive investment return of 15.5 percent in 2014. (RELATED: America’s 53 Best Colleges PERIOD In 2015 When You Consider Absolutely Everything That Matters)

If that aggregate return were taxed at 35 percent, the federal government would be $16.2 billion richer, according to figures from the Congressional Research Service.

Colleges with endowments which hover around the $1 billion mark — Middlebury College and Bowdoin College, for example — could have difficulty coughing up enough of their endowment incomes for financially-needy students, Bloomberg notes. (RELATED: US News Rankings Give Top Marks To Brutally Expensive Schools)

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