Tags: college | tuition | endowment | student loan | tax reform

Exploding Tuitions Cost Taxpayers and Students Billions

Exploding Tuitions Cost Taxpayers and Students Billions

Yale University campus pictured on April 15, 2008, in New Haven, Connecticut. (Christopher Capozziello/Getty Images)

By    |   Wednesday, 15 February 2017 01:13 PM

In 2010, as part of the legislation to enact Obamacare, Democrats in Congress, along with President Obama, nationalized the student loan market. Seven years later, the United States government now owns $1.2 trillion in outstanding student loans. During the 10-year period from 2017 through 2026, the Congressional Budget Office anticipates that the U.S. government will lose $170 billion on student loans. At the same time, the CBO estimates that the government will make more than $1 trillion in additional student loans over the next 10 years, nearly doubling the total amount of student debt outstanding. Ultimately, it is taxpayers who will bear losses from loans that are not repaid.

While naïve young people borrowing six figures to obtain degrees in social justice or gender studies with no prospect of being able to find a job to allow them to repay the debt deserve some criticism for making irresponsible financial decisions, the government’s policies of easy credit for college expenses have led to exploding tuition costs. The increased revenue to colleges and universities has been spent on increasing compensation to professors and creating bloated university administrative hierarchies that provide no benefit to students’ educations. For example, Senator Elizabeth Warren, D-Mass., was paid $350,000 by Harvard to teach a single course, and New York Times columnist Paul Krugman was paid $225,000 for 9-months as a distinguished professor in the Ph.D. program of CUNY. Krugman was not expected to teach or supervise students during the first year of his contract and only teach one seminar annually thereafter on “income inequality.”

While young people are leaving school with crippling amounts of debt and taxpayers are incurring billions of dollars of losses on uncollectible student loans, colleges and universities are continuing to accumulate massive endowments. The aggregate principal in the five largest university endowments exceeds $100 billion:

1. Harvard University: $32.7 billion

2. University of Texas System: $25.4 billion

3. Yale University: $23.9 billion

4. Stanford University: $21.4 billion

5. Princeton University: $20.7 billion

Total for Top 5 Endowments: $124.1 billion

The U.S. Department of Education estimates that as of the end of 2014, colleges and universities have endowments exceeding $535 billion. Such amounts likely now exceed $600 billion and continue to grow tax free.

Maybe Congress should consider making changes to the taxation of large endowments as part of tax reform. This would encourage these universities to use their endowment funds to reduce tuition and thus reducing future student debt. The tax on income generated by the endowments would offset the costs of unpaid student loans on taxpayers. Remarkably, if you assume that the endowment funds earn a return of 8 percent annually and a 35 percent tax was imposed on the investment income of the endowments, the 10-year revenue generated would almost be exactly equal to the CBO’s projection of the government’s loss on the student loan program.

Richard S. Bernstein, CEO of Richard S. Bernstein & Associates, Inc., West Palm Beach, is an insurance advisor for high net worth business leaders, families, businesses, municipalities, and charitable organizations. An insurance advisor to many of America’s wealthiest families, he is a writer, trusted local and national media resource and expert speaker on estate planning and health insurance. Visit his website at www.rbernstein.com. To read more of his reports — Click Here Now.

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RichardSBernstein
During the 10-year period from 2017 through 2026, the Congressional Budget Office anticipates that the U.S. government will lose $170 billion on student loans.
college, tuition, endowment, student loan, tax reform
548
2017-13-15
Wednesday, 15 February 2017 01:13 PM
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