An Overview of Potential Legislation Affecting Higher Education Endowment Spending and Tuition Fees

In December 2016, a member of President Trump’s transition team—Congressman Tom Reed—unveiled a comprehensive plan to reduce higher education costs for students.

The plan calls for colleges to be more accountable for the quality and cost of the education they provide. It includes three pieces of legislation, all of which have yet to be introduced:

  • Reducing Excessive Debt and Unfair Costs of Education (REDUCE) Act
  • Accountability of College Costs through Exposing School Spending (ACCESS) Act
  • Promoting Lifelong Accountability Now! (PLAN) Act

These potential bills are worth following to see how Congress will address endowment-spending regulation and rising tuition fees.

REDUCE Act

Reed intends to introduce a bill named the REDUCE Act. The REDUCE Act requires colleges with endowment funds in excess of $1 billion to use at least 25 percent of their investment gains to reduce the cost of attendance for students from middle- and working-class families. The bill would likely affect the majority of the Ivy League schools as well as large state colleges and universities.

According to a study conducted by the National Association of College and University Business Officers (NACUBO) in Washington, DC, 91 American colleges and universities reported endowment funds in excess of $1 billion in 2016. The schools that fail to use the set percentage of their investment income toward reducing the cost of education will face various penalties:

  • Hefty taxes. An immediate 30 percent tax will be applied to all investment income with the possibility of as much as 100 percent tax for continued violations.
  • Loss of tax-exempt status. Colleges and universities that continue to fail to comply will lose the ability to receive charitable contributions.

ACCESS Act

The ACCESS Act requires colleges and universities—as a condition of maintaining their ability to receive charitable tax deductions—to report employee expenses not currently required by Form 990. This information includes:

  • Salaries
  • Use of school vehicles
  • Housing reimbursement
  • Club membership
  • Other miscellaneous fringe perks received by school employees

The act requires higher education institutions to make such information readily available to the public—for example, on the school’s website.

PLAN Act

The PLAN Act aims to reduce rising tuition costs by tying tuition hikes to inflation rates. Schools would be required to submit cost containment plans to the US Department of Education every five years. Schools that manage to stay below the inflation rate will be rewarded, while the schools that don’t will be penalized.

The bill is still in development, and it’s unclear at this point how colleges and universities will be rewarded or penalized.

A Growing Trend

Congressman Reed’s bills aren’t the first time in recent years that Congress has scrutinized college and university spending.

On May 21, 2015, the College Affordability and Innovation Act of 2015 bill was introduced in the House by Representative Jim Himes. The bill would’ve established the Commission on Higher Education Accountability Standards and required higher education institutions to establish affordability, accessibility, and value accountability standards based on the commission’s recommendations. Schools that didn’t meet compliance thresholds would have been penalized through the distribution of Title IV funds.

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If you have questions about these bills and how they may impact your college or university, contact your Moss Adams professional.

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