Joyce, Malliotakis Introduces Bill to Hold Higher Education Institutions Accountable for Student Debt Crisis

WASHINGTON, DC – Today, Congressman Dave Joyce (OH-14) and Congresswoman Nicole Malliotakis (NY-11) introduced the Higher Education Accountability Tax (HEAT) Act. The legislation aims to hold wealthy, elite universities accountable for the role they have played in the ballooning student debt crisis and encourages them to commit a larger share of their endowment spending to financial aid for students.

“Institutions are making record profits and exacerbating the student debt crisis with rising tuition costs,” said Congressman Joyce. “Instead of pushing students to take out more loans in response to inflation and rising tuition costs, we should look to the elite universities that are profiting off their students rather than working to make education more affordable. The HEAT Act does just that by holding universities accountable for their contribution to the national student debt crisis, requiring them to pay a higher annual tax on their large endowment profits. Students have been shouldering this burden for far too long, and it’s about time colleges step up to the plate.”

“Our legislation will finally hold universities accountable for their role in fueling the student debt crisis and encourage them to limit rapid tuition increases,” said Congresswoman Nicole Malliotakis, “Out of control tuition and the debt that amasses because of it delays millions of young Americans’ ability to buy homes, start a family, save for retirement, and invest in their futures.”

The Higher Education Accountability Tax (HEAT) Act would increase the 1.4% endowment excise tax to 10% for qualifying universities. It would also increase the number of universities required to pay the tax, revising the tax to apply to institutions with $250,000 or more in endowment assets per student (expanded from the current threshold of $500,000 per student). Additionally, the legislation would increase the tax rate to 20% for institutions increasing tuition by more than the rate of inflation.

BACKGROUND:

A small number of colleges and universities in the United States have accumulated significant wealth in the form of endowments. Because these institutions are public and private nonprofit charitable enterprises, donations to their endowments are not taxed and the assets grow free of taxes. In 2017, Congress created an exception to this practice, imposing a tax on the endowment earnings of a small number of private nonprofit colleges and universities.

Few low-income students enroll at institutions with large endowments, which have very selective admissions. There is variation in the share of endowment spending that is for financial aid across endowment size categories (small and large endowments). Institutions with smaller endowments tend to devote a larger share of their endowment spending to financial aid. For institutions with the smallest endowments (under $25 million), about three quarters of endowment spending supports financial aid.

Institutions with larger endowments tend to devote a smaller share of their endowment spending to financial aid, on average spending more on academic research and programs and endowed faculty positions. On average, institutions with the largest endowments (over $1 billion) spend less than one-third of their total endowment spending on financial aid. Larger institutions may devote more resources to financial aid, however, due to their larger endowment balances and distributions.

For the current 1.4% tax to apply, the college or university (1) must be private, (2) must have at least five hundred students who paid tuition during the prior taxable year (and more than 50% of those students must be located in the United States), and (3) must have assets not used directly in carrying out the institution’s exempt purpose with a fair market value equal to at least $500,000 per full-time student.

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