Senate Asks Why Colleges Earn 17.6% on Endowments But Spend Only 4.6% on Students

The Senate Finance Committee yesterday sent a letter to the 136 U.S. colleges and universities with endowments of $500 million or more, requesting the schools to respond within thirty days to more than fifty questions dealing with finances and tuition. From the press release:

Federal law requires most private foundations to pay out 5% of their assets each year toward their charitable purpose. No such requirement exists for university endowments. Donations to universities are tax-exempt, and endowment funds are tax-exempt. A Finance Committee hearing last September explored endowment growth. Since then, three colleges – Harvard, Yale, and Dartmouth – 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 the past year. According to the study, 136 colleges in the United States now have endowments of $500 million or more.

My school -- the University of Cincinnati -- ranked 63rd out of 785 colleges and universities with a $1.2 billion endowment.

Press and blogosphere coverage:

• Bloomberg: Harvard, Yale Are Questioned by Senators Probing College Costs, by Matthew Keenan
• Boston Globe: The Real Story on Harvard's Generosity (op-ed), by Steven Roy Goodman
• Chronicle of Higher Education: Senators' Letter Grills 136 Wealthy Colleges About Endowment-Spending and Financial-Aid Policies, by Brad Wolverton
• Inside Higher Ed: Senate Scrutinizes Well-Endowed Colleges, by Doug Lederman
• New York Times: Senate Looking at Endowments as Tuition Rises, by Karen A. Arenson
• USA Today: Senators Press for Colleges' Financial Details. by Mary Beth Marklein
• Wall Street Journal: Bulging Endowments Stir College-Aid Debate, by Robert Tomsho

Cross-posted on TaxProf Blog.