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Summary: Normally the government requires non-profit organizations to spend 5% of their endowments annually, but colleges are exempt. It's time to fix that.
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About "5 Percent"
Rich universities have massive endowments created by the invested donations of many rich contributors over many years. The endowment funds generate income that should be used for the betterment of the students. But rich colleges with hundreds of millions or even billions in the bank are misers and refuse to spend much of it on students, charging them huge tuitions and making them take out loans, while the endowments grow and grow.
These miserly colleges are truly Robin Hood in reverse, robbing the poor to pay the rich. Low income students suffer the most, as their access to a good education is priced out of reach. Normally the government requires non-profit organizations to spend 5% of their endowments annually, but colleges are exempt. It’s time to fix that.
This plan also passes the REDUCE Act, an idea proposed a couple years ago by Rep. Tom Reed, requiring colleges to spend 25% of the annual earnings on their endowment (not 25% of the endowment, just 25% of the dividends received each year) on student aid. This helps solve for the inevitable Negative reply that if you fiat colleges have to spend 5% of the endowment every year, they’ll just raise the board of directors salaries by a few million dollars each or build new swimming pools on campus and not actually help any poor students.
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