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Federal Tax

Republican Bill Would Raise Tax on University Endowments

Tim Shaw  

Tim Shaw  

Three Republicans in the House of Representatives introduced legislation aimed at Ivy League and other highly profitable universities that have raised tuition prices in response to President Joe Biden’s student loan debt cancellation of up to $20,000 per eligible borrower.

The president’s decision, under pressure from congressional Democrats who had urged Biden to forgive as much as $50,000 per student loan borrower, was a giveaway to elite universities, said one of the lawmakers, Republican Representative Dave Joyce of Ohio.

“Transferring $600 billion in student loan debt from one group of Americans to another does nothing to make education more affordable,” Joyce said in a statement. “Instead, it incentivizes wealthy universities to continue driving up their tuition costs amid record-breaking inflation. These institutions need to be held accountable for their role in our nation’s ballooning student debt.”

Joyce, along with fellow Republican House members Byron Donalds of Florida and Mayra Flores of Texas, proposed a bill the lawmakers hope would discourage tuition increases by hitting elite institutions with a higher tax on annual profits from their endowments.

Titled the Higher Education Accountability Act, the proposal would raise the excise tax under Code Sec. 4968(a) to 10% from 1.7%. Universities that increase the net price of attendance by more than the rate of inflation over a three-taxable-year period would instead face a 20% tax. The legislation also would lower an endowment’s per-student value threshold to $250,000 from $500,000, a change that would result in 65 more educational institutions being subject to the tax. The changes would take effect for tax years beginning in 2023.

The bill’s co-sponsors cited a working paper issued in August by the National Bureau of Economic Research examining how private college and university endowments affect the availability of financial aid to various economic and racial groups among incoming students. The paper’s author, George Bulman, an economics professor at the University of California, Santa Cruz, concluded that over the past 20 years, institutions with increased endowments from high investment returns enrolled fewer minority students and those eligible for federal Pell grants.

“Instead, wealthier institutions offset higher admissions yields by reducing the number of admitted students, thus becoming more selective,” Bulman wrote. “As a result of increased spending and greater selectivity, institutions with growing endowments achieved higher national rankings.”

The Republican lawmakers also pointed to the impact of tuition fees, saying they have increased at a pace that’s twice the 65% rate of inflation from 2002 to 2022.

“Elite universities should not be profiting off our students and federal student loans,” Flores said. “Instead of helping the next generation of professionals in America, they are harming them with increased costs and decades of payments.”

 

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