Republican Lawmakers Proposal To Pay For Student Loan Forgiveness
House Republican lawmakers have proposed legislation to place higher taxes on university endowments to offset the cost of Biden's expansive student loan forgiveness program.
When the Biden Administration announced that it was keeping its promise of more than $500 billion in student loan forgiveness, one question was at the forefront: Where was the money going to come from? Most assumed the burden would fall on taxpayers, but some House Republicans are proposing something entirely different. Representatives David Joyce of Ohio, Byron Donalds of Florida, and Mayra Flores of Texas propose that boosting taxes on university endowments is the answer.
Rep. Joyce is the chairman of the Republican Governance Group, a 44-member moderate political action committee (PAC) based in Tampa, Florida. He recently told Fox News Digital that the proposed legislation taxing university endowments is meant to hold colleges and universities accountable for the skyrocketing cost of obtaining a college degree. “These institutions need to be held accountable for their role in our nation’s ballooning student debt.”
Speaking about the university endowments proposal, Reps. Joyce, Donalds, and Flores argue that it’s unfair to saddle taxpayers with the cost of Biden’s debt forgiveness program while institutions of higher learning do nothing to lower costs for students. “America’s elite universities are the silent beneficiaries of President Biden’s misguided student debt bailout,” Joyce said. He emphasized that transferring over $500 billion in debt from one group of Americans to another doesn’t make college more affordable, rather it enables wealthy universities to charge even more for a college degree.
The proposed tax hike on university endowments is rather steep, jumping from the current 1.4% to 10%. Prior to tax reform legislation passed in December 2017, most endowment investments were exempt from taxation entirely. In October 2020, the IRS issued regulations to determine which colleges were subject to the tax and how much they would have to pay.
Under the new proposal, more colleges and universities would be subject to taxation. Currently, only schools with endowments valued at $500,000 per student are subject to the university endowments tax; the change would lower that to $250,000 per student. Some colleges could pay as much as 20% on endowments if they raise their net price of attendance higher than the rate of inflation over the previous three years.
White House officials say Biden’s debt relief program is fully paid for because the annual budget deficit is shrinking due to reduced spending in other areas. Other economists disagree, saying it’s inevitable that the generous debt relief plan will add to the annual budget deficit. Supporters of the three legislators’ bill say that a recent National Bureau of Economic Research study shows that even as university endowments increase, there’s no significant reduction in tuition and housing costs for students.
An endowment is an accumulation of assets that a college or university invests to support its work indefinitely. University endowments are made up of hundreds or thousands of donations from individuals, estates, businesses, and organizations that stipulate how the funds can be used. For example, a graduate who benefited from a scholarship may donate later to the same scholarship program, and the college is obligated to use that money only for that purpose.
According to the American Council on Education, these aggregated funds have supported higher education institutions for over 300 years. University endowments are like savings accounts where the principal cannot be spent; rather the funds it distributes come from the interest the endowment generates year by year. This provides the school with a relatively stable, ongoing stream of income to finance scholarships, new buildings, professor salaries, and more.
