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Election Year Looms

HEA and endowment payments are among the key issues awaiting action.
University Business, Dec 2007

WITH AN ELECTION YEAR about to begin, all bets are off on what Congress is likely to do on postsecondary education matters and just about everything else when it reconvenes in January. Whatever the issue, political considerations are likely to color its outcome in the year ahead.

Even reauthorization of the Higher Education Act, which seemed to be on course for passage earlier this year, is facing political debate. While approval still seems likely, it awaits action by the House Education and Labor Committee, where it is stalled while the committee focuses on reauthorizing the No Child Left Behind (NCLB) Act, a more politically controversial issue. In late October, the House gave HEA another temporary extension -this time for six months.

Meanwhile, Republican members of the Education Committee introduced their own version of HEA reauthorization- the "College Access and Opportunity Act." Among other things, it calls for giving consumers more information about college costs, protecting students from conflicts of interest between lenders and colleges, making accreditation agencies more accountable, and updating programs to give students access to college and to help them pay for it.

Rising college costs appear to be driving interest in a mandatory endowment payout rate.

As David Ward, president of the American Council on Education, described it in a letter to presidents of other higher education organizations in Washington, many of the provisions in the GOP legislation are ideas that have been floated previously. "This is very much a 'message' bill designed to spark discussion and preview ideas that House Republicans want to work on as part of reauthorization," Ward explained. He added that Republicans were optimistic about the prospect of working in a bipartisan way on the bill when it finally comes up for House action, now not likely until the new year.

Higher ed authorities in the capital are also watching closely what's developing in the Senate Finance Committee. Its members are considering legislation that would affect colleges and universities with large endowments by imposing a mandatory endowment payout rate for the first time.

As analyzed by ACE, rising college costs appear to be driving legislative interest in the issue, with the assumption that tuition increases could be controlled if well-endowed universities spent a little more of their endowments. But that assumption "mistakenly views endowments as large sources of unrestricted money that colleges and universities could easily use to moderate tuition increases," ACE declared in a background document.

Actually, according to ACE, most if not all higher ed institutions with the largest endowments already provide a substantial amount of aid to students from low-income families, with the average grant covering tuition and expenses including room, board, and books. Therefore, mandatory endowment payments to cover the financial needs of low-income students are not necessary, ACE concludes.

Further, it maintains, endowment spending already contributes significant resources toward operating budgets at a number of IHEs and, in some cases, may be the largest source of revenue for an institution.In that way, endowment spending already serves to hold tuition rates below the level necessary if tuition alone paid the true cost of educating a student.

The Finance Committee also has called for increased disclosure of endowment information. IHEs, as tax-exempt organizations that also are committed to appropriate transparency, would support that, according to ACE.

A key concern raised by the committee's exploration of mandatory endowment payouts is the possibility that it could lead to unprecedented federal intrusion into institutional decision-making if Congress tells universities how much to spend and what to spend it on.

As ACE points out, most institutions aim for an annual 5 percent endowment payout-more or less depends on circumstances such as market conditions. At a Finance Committee hearing on the issue in early fall, Sen. Charles Grassley (R-Iowa), the senior minority member, said Congress should seriously consider legislation that would include additional reporting requirements and a minimum 5 percent payout on all college and university endowments above $500 million.

It is uncertain where the committee will go on the issue. At a September hearing, the higher education community was not invited to testify, and ACE's offers to provide witnesses were turned down. As a result, lawmakers "received an inaccurate and incomplete picture" of endowments, ACE said. In late fall, ACE was urging colleges and universities to tell senators and staff members from their states, particularly those serving on the committee, how endowments work and that imposing a one-size-fits-all solution to a complex issue like endowment spending is misguided, the wrong response to college costs, and bad public policy. "Senators must proceed cautiously on this issue, if at all," ACE asserted in its backgrounder.

Earlier in the fall, President Bush took final action on a less contentious issue when he signed the College Cost Reduction and Access Act, which the House and Senate had passed by overwhelming bipartisan margins. The legislation cuts subsidies to lenders who participate in the federal loan program and uses the savings to boost Pell Grants, cut the interest rate on student loans, and expand repayment options for students.

Overall, the measure will deliver a $20 billion increase in student aid over the next five years-the largest investment in students since the creation of the GI Bill, said Sen. Edward M. Kennedy (D-Mass.), chair of the Senate Committee on Health, Education, Labor, and Pensions.

"This legislation shows how the Congress and the president can work together to accomplish important things on behalf of American families," declared Rep. George Miller (D-Calif.), chair of the House Education and Labor Committee.

Independent colleges that don't employ or engage a lobbyist face tough restrictions on lobbying Congress.

On another matter, ACE distributed a memo prepared by a Washington law firm that spells out what new rules on lobbying Congress mean for colleges and universities. Public IHEs remain exempt from congressional gift and travel restrictions. Thus, for instance, a state university may provide a member of Congress with tickets to a home football game without violating the rules. Independent IHEs, particularly those that don't employ or engage a lobbyist, face tougher restrictions, including a ban on most gifts to members of Congress from the institutions and their employees. But the gift restrictions preclude food or refreshments of "nominal value" that independent schools may offer at free receptions for members of Congress and staff.

Another new ACE paper evaluates the implications of a Supreme Court decision last June regarding race- and ethnicity-conscious admissions policies in K-12 public schools. In two cases based on developments in Seattle, Wash., and Louisville, Ky., the high court ruled that public school districts may not use race and ethnicity as the predominant considerations in school assignment programs designed to promote diversity.

The key higher ed implication, ACE points out, is that the Supreme Court's 2003 ruling in another case, Grutter v. Bollinger, "remains controlling law" for IHEs. The decision in that case upheld the affirmative action admissions policy of the University of Michigan Law School.

Although the 2003 and 2007 rulings seemed to be contrary, the court distinguished them by noting that unlike the admissions plan it upheld in the Michigan case, plans in the Seattle and Louisville cases relied on different types of racial classifications. Since the 2003 ruling, changes in its membership have given the court a more conservative bent. But after a careful reading of the latest decision to analyze its impact on how IHEs use race as an aspect of diversity, "we remain cautiously optimistic" that the University of Michigan ruling survives, said ACE's general counsel, Ada Meloy.

Proposals for reforming the higher ed accreditation system, which have ignited what the American Enterprise Institute calls "a firestorm of controversy," were reviewed at an AEI conference in the capital. While Secretary of Education Margaret Spellings and her commission on the Future of Higher Education recommend changes to the current process, others in the higher ed community say the changes go too far and could negatively impact accreditation as a whole. Some critics argue that the education agency seeks to federalize education or implement a one-size-fits-all system. "The government is not leaning in this direction," Sara Martinez Tucker, undersecretary of education, insisted at the AEI event.

"Transparency is the main issue behind the changes that need to occur" in the accreditation system, said Arthur Rothkopf, former president of Lafayette College (Pa.) and now senior vice president of the U.S. Chamber of Commerce.

Anne D. Neal, president of the American Council of Trustees and Alumni, suggested that the solution to the issue is to decouple financial aid and accreditation. "The certification process that an institution must go through to be able to operate, regardless of federal aid, should be enough to decipher whether or not they are a diploma mill," she declared.

Alan Dessoff, a former reporter for The Washington Post, is a Bethesda, Md.-based freelance writer.

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