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To Tax Or Not To Tax University Endowments


The tax plan passed by House Republicans on Thursday would tax large endowments at private colleges. Last year, university endowments - the money that universities raise and invest to secure their financial health - grew on average by almost 13 percent. Fewer than a hundred schools would be affected by the provision, but they include many of the country's most recognizable, including Harvard, Yale and Princeton and tiny Grinnell College in Iowa. It's a liberal arts school with 1,700 students and a $1.8 billion nest egg.

I'm joined in the studio by Raynard Kington, who's president of Grinnell. Thank you for being here.

RAYNARD KINGTON: Thank you for inviting me.

GARCIA-NAVARRO: So you have come out publicly against taxing endowments. Make your case.

KINGTON: Well, first of all, I think it's based on sort of an incomplete notion of what we use endowments for.

GARCIA-NAVARRO: What do you use them for?

KINGTON: So Grinnell - over half our budget, 55 percent of our budget, comes from our endowment. So we use our endowment to actually reduce the costs to students. And I think there's this impression that schools with large endowments are exclusive, elitist schools, often in New England. And, actually, we're a very diverse group of schools. And many of our schools on that list are, one, among the most prestigious and productive and intellectually among the leading institutions in the world. So that's one. Two, many of those institutions - many institutions, including Grinnell, have made extraordinary progress in providing aid to students. So while the sort of official price tag on many of the schools is pretty high, when you look at the net price, many of the best value schools, the schools that every year are listed as best values, are on that list. And why are they on the list? Because they give lots of aid.

GARCIA-NAVARRO: So how much aid do you give, for example?

KINGTON: Last year, we gave almost $50 million of our internal resources for aid. So between 25 percent and a third of all of our students had enough grant aid from the college for tuition to be free. Why is that possible? Because we have this endowment that we use to underwrite the cost and to provide opportunities for students.

GARCIA-NAVARRO: OK. You have, as you mentioned, an enrollment of 1,700 students with an endowment of 1.8 billion. That's more than a million dollars per student. The government only wants to take 1.4 percent in this proposal.

KINGTON: Well, first of all, 1.4 percent may seem like a small percent, but that is every dollar there - takes dollars away from students. It takes away either from the quality of educational experience or from our ability to offer aid. And we do this as a public good. We do it for students from all over the country. We admit need blind. So we admit students without even considering how much they can pay. And we're able to do that because of these resources, and we're not unique.

GARCIA-NAVARRO: Right. But, you know, if you look at something like Harvard and Yale, they have an endowment of a combined $60 billion. I mean, that's an astronomical amount of money. And, in effect, by it being tax free, aren't we the taxpayer subsidizing these elite universities that are hardly hurting for income? I mean, aren't we all paying for it?

KINGTON: You're all paying for it, and you're also getting all the benefits.


KINGTON: So many of these institutions - there are two groups. One are the research-intensive institutions. And those resources are used to get medical cures, to train lawyers and teachers and social workers. So you're investing. In addition to training those people, you're underwriting the cost of research that takes place in those institutions, as - well. So I think the American people get a great bargain with these endowments.

GARCIA-NAVARRO: But isn't there something broken in the system or the business model - that a tiny liberal arts college can only be competitive because of its billion dollar endowment, and other small schools, like McIntosh, have to close?

KINGTON: There's no question that many of our schools are facing real challenges with the basic business model. And we have a lot of resources, but most of our resources came from investing well and not spending over a long period of time. Other schools have different patterns. So with us, it allows us to provide a first-rate, world-renowned education of small classes, extraordinary teachers. And it allows us to make that education available without regard to ability to pay and to students who have huge needs. So is this ideal circumstance? I don't know, but it's the world that we have now. And it allows us to take those resources away - just doesn't make sense. It really - it's taking away resources that benefit the public.

GARCIA-NAVARRO: Raynard Kington is the president of Grinnell College. Thank you so much for coming in.

KINGTON: My pleasure to be here.

(SOUNDBITE OF E-VAX'S "WHAT WE MEANT") Transcript provided by NPR, Copyright NPR.