Over the past two decades, the wealth divide has grown enormously among U.S. colleges and universities, in much the same way it has among corporations and Americans as a whole.
In higher education, the rich got richer. Some 75 percent of the $500 billion in endowment wealth these days is held by just 11 percent of colleges. More than a quarter of the $41 billion raised by colleges last year went to just 20 schools. And elite colleges continue to be overwhelmed by applications for seats in their freshman class, while many other institutions go begging for students.
The success of these few schools has made all of higher education a large target in the GOP tax plans making their way through the legislative process on Capitol Hill. Unlike the tax breaks given to corporations and wealthy Americans, colleges and universities — and the parents and students who pay their tuition bills — face a plethora of unfavorable provisions:
— Consolidating tax credits that help families pay for tuition.
— Ending deductions for interest on student loans.
— Taxing tuition waivers given to graduate students.
— Reducing incentives for charitable contributions.
— Eliminating the tax exemption on bonds many universities use to pay for dorms and other buildings.
— Adding a surcharge on the biggest endowments.
Perhaps Republicans have made higher education a target because they don’t like colleges very much. A study released last summer by the Pew Research Center found that 58 percent of Republicans and right-leaning independents think colleges have a negative impact on the country. Distrust in higher education institutions among those on the right has risen consistently since 2010, when it stood at 32 percent. College leaders suspect the negative perception is partly a result of recent widespread media coverage of students who actively and sometimes violently protested conservative speakers.
Whatever the reason for the lack of trust in colleges, it has real consequences for the policies that affect students and their parents. We’ve seen this already in the last decade or so as state lawmakers have cut back on taxpayer support for public colleges and universities, which enroll 80 percent of students in U.S. higher education. Just before the 2008 recession, students and their families paid for about one-third of the cost of their education at public universities, and now they are on track to pay for most of it. In more than half of the states, they already do.
If Republicans really wanted colleges to change how they spend their money or manage students, there are other avenues than the tax code. After all, the GOP tax bills are unlikely to raise all that much revenue through the provisions targeting higher education. But they will have disastrous repercussions on higher education, especially at wealthy colleges that seem to be a particular focus in the legislation.
Elite schools provide the low- and middle-income students they enroll with a boatload of financial aid that often allows them to graduate without any debt. Because tax reform could lead to fewer donations and higher costs on maintaining big endowments, it will put those generous student aid packages at risk.
And this comes at a time when wealthy colleges actually need to do more to recruit financially needy students. At almost one-third of the nation’s 500 most selective colleges and universities, fewer than 20 percent of students receive Pell Grants (which mostly goes to students from families making less than $50,000 a year). A report earlier this year found that 38 elite colleges had more students from the families in the top 1 percent of incomes (more than $630,000 per year) than from families in the bottom 60 percent of incomes (less than $65,000 per year).
Instead of taking away money from elite colleges, Congress could promote more equity in higher education by requiring all colleges and universities to enroll a minimum percentage of Pell Grant recipients. One proposal introduced by Sen. Christopher Coons (D-Del.) and Sen. Johnny Isakson (R-Ga.) would require the 5 percent of schools with the lowest percentage of low-income students to make efforts to raise those numbers or risk paying a penalty.
Beyond providing generous financial aid to needy students, elite colleges also need to expand their physical campuses if they are to serve more low- and middle-income students. They do that in part by borrowing money through tax-exempt bonds, which would be eliminated for private colleges — rich and poor — in the tax bills. One private college president told me this week that the elimination of so-called private activity tax-exempt bonds will have a bigger financial impact over time at his institution than the endowment tax because it raises the cost of borrowing for construction.
College campuses have been transformed over the last decade by new buildings, some of which have been seen as frivolous amenities that provided little value to the education of students — recreational centers with climbing walls, fancy dining halls and luxurious dorms. But that arms race for better amenities played out on only a handful of campuses and was often overstated by media coverage of colleges opening “lazy rivers.”
There is evidence that campus construction is slowing. “The last three years represent the three leanest years of new construction since at least 2000,” Jay Pearlman, an associate vice president at the higher education construction consulting firm Sightlines, told me earlier this year. In other words, schools are already curbing their appetite for building without help from Congress, whose tax proposals will only impair colleges’ ability to maintain their campuses.
In the end, if Republicans succeed in passing this tax legislation, it will exacerbate the education divide of the last two decades. That chasm — between those with a college diploma and those without — turned into a critical factor in last year’s presidential election. Perhaps that’s why the GOP thinks it can save its political base by inflicting pain on colleges. But that will have catastrophic consequences for one of the most successful sectors of the U.S. economy — higher education — and its ability to provide educated workers to a global information economy.