Dartmouth is preparing to lobby against the September legislative proposal made by Sen. Chuck Grassley, R-Iowa, that would require U.S. universities to spend more of their endowments in an attempt increase financial aid awards.
The proposed legislation would force colleges with endowments greater than $500 million to spend 5 percent of their endowments annually. Failure to do so would result in a loss of tax exemption status for endowment earnings. Dartmouth, with an endowment totaling $3.8 billion at the end of June, would be directly affected by this regulation.
"Dartmouth plans on increasing its endowment distribution above five percent next year, so [the proposal] wouldn't have any impact on Dartmouth," Adam Keller, executive vice president for College finance and administration, said.
Although the College plans to increase annual spending from the current average of just over 4.5 percent, not all of the additional money will go towards financial aid, as Grassley has hoped. Private or "restricted" gifts allow donors to designate where their money will go. As up to 75 percent of the College's endowment consists of these gifts, Grassley's goal of decreased tuition costs may not be achievable, at least in the case of Dartmouth.
"It's a little bit naive in terms of the complexity of our endowment." Keller said. "When somebody restricts [their gift] for the Dickey Foundation or for Rocky, we can't use that money for financial aid. Increasing distribution may not necessarily have an impact on tuition."
Keller added that Dartmouth already decreases tuition costs with its need-blind admissions policy and its guarantee to meet 100 percent of demonstrated student need.
Grassley's proposal also does not allow any flexibility for colleges that experience a bad year in endowment performance, a factor that could hurt schools in the long run, Keller explained. In the case of "terrible performance", Keller said, having to spend the 5 percent minimum would cut into the College future ability to meet its basic financial needs.
The Grassley legislation was inspired by the requirement that private foundations spend 5 percent of their endowment annually, but Keller pointed out inherent differences between universities and foundations. In the past, foundations have spent minimal amounts of their endowments regardless of annual performance, and members of family foundations have saved endowment money to "have it as part of the family wealth," Keller said.
The differences between the management of foundations and schools automatically prevent these activities from occurring at at institutions of higher learning.
Keller said that it is a "much better idea" to allow colleges to self-regulate the spending of their endowments depending on the return on their endowments that year. Yale University, for example, has raised its target spending rate to 5.25 percent, according to an article in the Yale Daily News.
"What we see around the country is endowments at universities are really performing pretty well," Keller said. "Universities are being pretty responsible about it. They are beginning to pick up their endowment spending rate."
Dartmouth plans to respond to the proposed legislation through its membership in several organizations that testify in support of self-regulated spending on behalf of numerous colleges.
"We're trying to speak with a single voice when possible about this, not to send confusing messages or anything like that," Keller said.
Currently, the College directs 22 percent of its spending toward financial aid for the students in the arts and sciences. The average grant for a member of the Class of 2010 was $27,089. The nation-wide average for private college students is $9,300, according to a report released by the College Board on Oct. 22.
