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Don’t seize Harvard’s endowment. Cut off federal funding

William F. Buckley Jr. frequently told the joke about the doctor who asked his patient what he planned to do now that he had only a few months left to live. The patient said he would join the Communist Party: “Better one of them should go than one of us.”  

Conservatives often have the right diagnosis of the problem but the wrong solution. One such case is the proposal for the federal government to tax, or seize, the endowments of Ivy League universities. While the authors accurately assess the problems of the modern ivory tower, their self-defeating recommendation would ignore the real source of the problem, violate fundamental rights, and ultimately legitimize the Left’s thuggish suppression of conservative organizations.

Getting the problem right

Confiscating universities’ endowments has been the topic of two recent articles: “It’s Time To Tax The University Endowments” by Zak Slayback in The American Conservative, and “Seize the Endowments” by Will Chamberlain in the recently relaunched Human Events. While their critiques differ somewhat, their recommendation is identical.

Both begin by reviewing the well-known shortcomings of modern academia. Administrators are quick to raise tuition, hostile toward conservatives, indiscreet with high-value technological secrets, facilitate foreign propaganda in exchange for funding and indoctrinate students in useless or harmful ideologies such as intersectionality and critical theory. This often makes earning a college degree a poor return on investment. And in the age of coronavirus, universities’ ample endowments did not discourage them from laying off workers and even demanding federal stimulus money.

It’s impossible to quibble with their assessment, which I share. (The first media attention I ever got as a writer came in response to an article critiquing the Ivy League, and I’ve written two books and countless articles about political extremism funded by tax-exempt foundations.) The strongest retort is that some university workers may fare better on unemployment.

Chamberlain adds a critique about student loans:

College debt is uniquely odious; it’s the only debt that’s non-dischargeable, and it’s offered to children. Today, 44.2 million Americans carry almost $1.5 trillion in student loan debt. 

Technically, you can discharge student loan debt in bankruptcy, if it presents an undue hardship. The government also caps student loan payments based on your income and forgives student loans after you make 10 to 25 years of regular payments, regardless of your outstanding balance.

But the point remains: High college tuition prevents some students from attending and shackles others with crushing debt. The problem is so acute that we devoted the Spring 2019 issue of Religion & Liberty to the topic. But as much as I share their sentiments, I cannot endorse their conclusion.

Three wrongs on the Right

There are at least three problems with their proposal to confiscate university endowments. First, Chamberlain encourages the federal government to “seize” nonprofits’ private property in part for “attacking our voters.” Beto O’Rourke made the same argument when he proposed revoking the tax-exempt status of churches and synagogues that oppose same-sex marriage. It’s a short intellectual journey from crafting policies transparently designed to punish one nonprofit to punishing entire classes of socially disfavored nonprofits. Ask the Tea Party organizations that applied for 501(c)4 status under the last administration. Second, the government created by these policies would be anathema to our Founding Fathers. These arguments will receive greater development in a separate article.

However, the third problem with their argument is that they do nothing to rein in the greatest force behind skyrocketing tuition costs and student loan debts: federal spending.

Seizing college endowments while maintaining federal funding is like trying to save a drowning man while shoving a fire hose down his throat.

Eliminate the source of the problem: federal funding

Chamberlain alludes to the problem of federal funding in his article only to drop the subject. “The Federal Government has already spent trillions of dollars to make a college education more affordable,” he writes. “All that has happened is that price-gouging universities have spent like drunken sailors on administrators and facilities.” The government spent $172.4 billion on higher education in 2017 at the federal, state, and local level—not including federally subsidized student loans. Chamberlain notes the results:

Inflated tuition costs, of course, is largely to blame ... In the past 20 years, the average tuition and fees at private National Universities have jumped 154%. In-state tuition and fees at public National Universities have grown the most, increasing 221%.

That makes debt-laden college graduates (and non-graduates) “the victims of fraud, a fraud jointly perpetrated by their alma mater and the federal government.” Curiously, Chamberlain does not draw the most obvious conclusion from this data: The government should stop perpetrating its role in modern academic fraud.

Conservatives documented the connection between increased federal funding and higher tuition more than 30 years ago. They even have a name for it: The Bennett hypothesis. In a New York Times op-ed on February 18, 1987, then-Secretary of Education William Bennett wrote:

[I]ncreases in financial aid in recent years have enabled colleges and universities blithely to raise their tuitions, confident that Federal loan subsidies would help cushion the increase. ... Federal student aid policies do not cause college price inflation, but there is little doubt that they help make it possible.

Since 1978—the year the federal government began offering subsidized loans to all students—the cost of college tuition has risen by 1,375%, or 238% since 1980 in inflation-adjusted dollars. Every dollar in federal financial aid raises tuition by between 60 cents and a dollar, researchers have found. For instance, Nicholas Turner found for every dollar on federal aid, colleges reduced their private scholarships by 83 cents. And the Federal Reserve Bank of New York revealed that federally subsidized loans’ effect on tuition is “most pronounced for more expensive degrees” and “those offered by private institutions,” like Harvard. In other words, the proposal to seize the endowments does nothing to remove federal incentives for the behavior they deplore.

Seizing college endowments while maintaining federal funding is like trying to save a drowning man while shoving a fire hose down his throat.

Chamberlain also ignores another dirty little secret: The federal government is the primary holder of student loans. Under the Health Care and Education Reconciliation Act of 2010, Barack Obama virtually nationalized the student loan market. Thanks to that Obamacare-related legislation, the federal government holds $1.2 trillion of the $1.5 trillion in total student loan debt. Student loans now make up almost 60% of all federal assets.

The federal government enabled universities to drive up tuition costs. Then it set itself up to collect an ever-increasing share of student loan debts. Government intervention into education created a trillion-plus-dollar debt crisis of which it and academia are the joint beneficiaries.

Unfortunately, the bubble worked too well. Another 1,400 students default on their student loans every day. That leaves U.S. taxpayers on the hook, taxed once for the privilege of increasing their own college tuition and taxed again to write off the insurmountable debt. And all of this has happened without a shred of constitutional authorization. 

This is a situation crying out for reform. Richard Vedder, professor emeritus of economics at Ohio University, has proposed some commonsense reforms to federal higher education spending:

Why don’t we provide vouchers for college attendance like some states do for students going to K-12 schools … with extremely high-income applicants made ineligible for any assistance, while very low-income students could receive enough to cover most basic living costs (more than they get today)? Why don’t we further restrict assistance after the first year to students showing at least minimally acceptable academic performance, perhaps something like a “C” average (2.0 grade point average)? Why don’t we put a five-year limit on vouchers, reducing the phenomenon of students taking six years to get a degree?

If the federal government limits U.S. soldiers and veterans to 36 months of educational benefits, are civilians entitled to more? Restricting the duration of benefits might reduce the number of traditional college students who take more than four years to complete a bachelor’s degree (which presently stands at one in three; here, too, federal grants “help cushion the increase”).

Perhaps one could add an additional plank to this platform: Condition federal funding based on the size of a university’s endowment. Consider it means-testing for the ivory tower. If Chamberlain, et. al., want Harvard and Yale to spend more of their endowments on scholarships for the needy, taxpayers could try forcing them to spend their own money. This would reduce taxes without endorsing the federal confiscation of nonprofits’ private property.

Reducing federal funding would check runaway tuition increases, respect private property, safeguard religious liberty, honor the original intent of our Founding Fathers, and keep conservatives from proposing policies that contribute to their own destruction.

(Photo credit: Joseph Williams. This photo has been cropped. CC BY 2.0.)

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Rev. Ben Johnson is a senior editor at the Acton Institute. His work focuses on the principles necessary to create a free and virtuous society in the transatlantic sphere (the U.S., Canada, and Europe). He earned his Bachelor of Arts in History summa cum laude from Ohio University and was inducted into Phi Beta Kappa.