February 20,2008

Grassley: Stanford’s Student Aid Spending May be Latest in Trend, Small Iowa College Offers Example of Commitment to Students

M E M O R A N D U M

To: Reporters and Editors

Re: Stanford University’s student aid announcement

Da: Wednesday, Feb. 20, 2008

Sen. Chuck Grassley, ranking member of the Committee on Finance, with jurisdiction overtax policy, has called for well-funded colleges to consider spending more of their endowments onstudent aid. His interest is in ensuring that tax-exempt funds are used in keeping with their taxexemptpurpose. Earlier this month, he and Sen. Max Baucus, committee chairman, wrote to the 136colleges with endowments of $500 million or more, asking a series of questions about theirendowment pay-outs and student aid. They are awaiting responses from the colleges. Grassleymade the following comment on Stanford University’s announcement of increased student aid.“Stanford is the latest big-name school to dip into the bank account and spend more onstudents. I hope we’re seeing a trend and a shift in thinking. Spending a little more on studentswon’t break the bank for well-funded schools.

“Even less well-funded schools can demonstrate their commitment to student aid. I recentlyreceived a letter from Faith Baptist Bible College in Ankeny, Iowa. The school received a $7.5million gift from a deceased farm couple. That’s about the amount of the college’s yearly operatingbudget. The college is using the money for scholarships, tuition freezes, and new academicprograms. If a 400-student college can do it, so can others. And doing a good job with a big gift willattract other gifts.”

Following is the senators’ news release and letter to the 136 colleges.

Thursday, Jan. 24, 2008

Baucus, Grassley Write to 136 Colleges, Seek Details of Endowment Pay-outs, Student AidWASHINGTON – Sens. Max Baucus and Chuck Grassley, the leaders of the Senate FinanceCommittee, today wrote to the 136 U.S. colleges with endowments of $500 million or more, askinga series of questions about endowment growth and spending on student aid. The senators areseeking answers in light of a new study showing explosive college endowment growth.“I have been encouraged by the recent changes that several universities have made to ensureaccess to higher education for low and middle income students. We need to engage America’scolleges and universities to come together to address the fact that college tuition for youngAmericans and their families is increasing at a faster rate than inflation,” said Baucus. “Thequestions we put forward in this letter will help Congress better understand how colleges use theirendowments to make certain that talented young folks in Montana and across the country aren’t leftout of the classroom.”

Grassley said, “Tuition has gone up, college presidents’ salaries have gone up, andendowments continue to go up and up. We need to start seeing tuition relief for families go up justas fast. It’s fair to ask whether a college kid should have to wash dishes in the dining hall to pay histuition when his college has a billion dollars in the bank. We’re giving well-funded colleges achance to describe what they’re doing to help students. More information will help Congress makeinformed decisions about a potential pay-out requirement and allow universities to show what theycan accomplish on their own initiative.”

Baucus is chairman and Grassley is ranking member of the Committee on Finance, withjurisdiction over tax policy, including the tax-exempt policy that covers colleges and universities.Federal law requires most private foundations to pay out 5 percent of their assets each year towardtheir charitable purpose. No such requirement exists for university endowments. Donations touniversities are tax-exempt, and endowment funds are tax-exempt. A Finance Committee hearinglast September explored endowment growth. Since then, three colleges – Harvard, Yale, andDartmouth – have announced increased student aid.

A new study from the National Association of College and University Business Officers(NACUBO) released today shows double-digit endowment growth at hundreds of colleges over thepast year. According to the study, 136 colleges in the United States now have endowments of $500million or more. The study is available at http://www.nacubo.org/x2376.xml.

The text of the Baucus-Grassley letter to the 136 colleges follows here.

January 24, 2008

Dear

A top concern for Americans, and for Congress, is the rising cost of higher education. Congress haslong looked to tax breaks, targeted spending, and loan programs to help families and students meetthe burden of saving and paying for college. The results have provided some benefits but haven’tresolved the problem of low and middle income students and families will face ever-higher tuitioncosts. We are interested in approaches that universities and colleges can adopt to address thisproblem.

It seems clear from recent actions by our nation’s top universities that there is much that can beaccomplished by colleges and universities, particularly those with significant endowments, tocontrol costs and provide real relief for students from low and middle income families. In fact, manycolleges and universities are now focused on controlling rising tuition costs and assisting low andmiddle income families. These efforts, by several of the nation’s top universities, are already havinga broad positive effect throughout the university community. This is a very positive trend that we’dlike to see continue.

We would appreciate additional information about tuition costs and your institution’s endowment.University endowments receive very generous tax breaks under the Internal Revenue Code. We wantto better understand how these tax benefits for higher education endowments are improvingeducation and making undergraduate studies more affordable for low and middle income familiestoday.

The newspapers have been filled with stories of a few universities taking steps to increaseendowment spending and provide free tuition for low-income families and greatly reduced tuitionfor middle-income families. This has been the first good news in a long time for families strugglingwith the burden of ever-increasing tuition. These actions have given hope to many that a topeducation is possible without having to take on crippling debt.

We are also pleased about steps that some universities are taking to exercise increased transparencyin defining the actual amount of financial assistance a student will receive and the actual cost afamily will have to pay for tuition, fees, room and board – for example, by providing an onlinecalculator. Too often, colleges and universities do not provide enough information to students andfamilies. Families and students need to have greater certainty regarding the costs of education sothey can better assess their education options.

The recent release of figures from the National Association of College and University BusinessOfficers (NACUBO) makes it clear that institutions with endowments over $500 million dollars ayear are seeing very significant growth – and have been for many years. That is good news becausemuch good can be done now. We hope that these strong returns will encourage you and your Boardof Trustees to review your endowment payout policy and ensure that it reflects best practices.To assist the Senate Finance Committee in better understanding this area, we request your responseto the following questions:

1) Please provide the number of undergraduate and graduate students year-by-year for the last tenyears.

2) Please provide the total cost of undergraduate tuition (including all fees) -- both sticker andaverage, mean and median -- year-by-year for the last ten years. Please provide the amount of tuitionassistance (not including loans or work study) that the university has provided to undergraduatestudents year-by-year for the last ten years. For the most recent year, please provide the percentageof students receiving university grants (for example 25%; 50%; 75% and 100% of tuition and fees).Please provide the average grant amount.

3) Please explain your university’s financial aid policy. How do you inform students and parents ofthat policy? What outreach efforts does your university take to recruit potential low-incomestudents? How is low-income defined? What is the amount spent on these efforts?

4) Who determines and decides when tuition increases are necessary? What is the process formaking this decision? Does the full Board of Trustees vote on tuition increases? Are students,parents and the public provided an opportunity to comment on tuition increases prior to finaldecisions being made? What role does your university endowment play in providing financialassistance to students?

5) Please explain how your university’s endowment is managed and the role of the Board ofDirectors? What are your university’s endowment payout and investment policies? What is themission of your university’s endowment? When was the last time that the university’s endowmentpolicy was reviewed? When will it next be reviewed?

6) Please provide the year-by-year net growth of the university’s endowment for the last ten years(in both percentage and dollars). What is the amount of donations the endowment has received yearby-year for the last ten years? Please provide the percentage of investment in each asset class(equity, fixed income, hedge funds, private equity, venture capital, etc.) and the amount investedoutside the United States

7) Please explain how you determine what is considered part of the university endowment. In otherwords, how is your endowment defined? Are there any other long term investments that are notincluded in the endowment as reported to NACUBO? If so, what are they and what are their values?

8) What has been the cost of management of the endowment year-by-year for the last ten years?

9) What was the payout (both in dollars and percentage) from the endowment year-by-year for thelast ten years? What is the targeted payout (in percentage) from the endowment year-by-year for thelast ten years? If either the actual and/or targeted payout is below 5%, please explain how this meetsthe needs of the current student body. If there is a material variation between actual and targeted,please explain. What were the top 10 major expenditures from the endowment last year?

10) How much of the endowment is subject to permanent spending restrictions or limitations set bythe original donor? Of the portion subject to permanent limitations, what percentage is restricted forneed-based scholarships? What portion is restricted for undergraduate financial aid? Please providethe top five types of restrictions on the endowment by category. What percentage of the endowmentis subject to significant limitations placed on it due to a decision by the board (or a subcommitteeof the board) or a college or university official – such as a set-aside for a specific program? Pleaseprovide the investment return to the endowment year-by-year for the last ten years.

11) Please explain the fee arrangement to investment advisors. How is the fee and compensationmeasured and determined? What is the process to review reasonableness of the fee andcompensation and what comparables are used? Who reviews and approves the fee? Who pays thefee (the endowment, general funds)? Please explain what relationship, if any, exists betweenendowment and/or growth and the compensation given to the college or university president andthe endowment manager. Please list what endowment-related bonuses, if any, either the college oruniversity president or the investment manager has received year-by-year for the last ten years.In advance, we appreciate your time and consideration in responding to these questions. Yourresponses will help us better understand this area and inform our deliberations as we considerpotential policies. We encourage you to contact the Finance Committee staff so we can work withyou on your response and ensure that it is not unduly burdensome. We envision that many or mostof the answers can be answered in brief – a page or less. Please respond within thirty days. Thankyou.

Sincerely,

Max BaucusChairman

Chuck GrassleyRanking Member