Summary: AFF argues that colleges with big endowments are hoarding the money and not helping poor students with tuition. This brief argues that both of these policy changes are unnecessary and harmful.
Released: Filed Under: NCFCA Policy
About "5 Percent"
5% Rule: Aff requires endowments to spend 5% of their total sum every year. Endowments earn income, of which the spending counts toward the 5%. If the endowment earns more than 5%, the rest accumulates and grows the endowment. If not, the endowment declines in value.
Note: Some versions of this case use an 8% rule instead of 5%. There is expert advocacy for both, but more evidence supporting 5% rather than 8%. Much of the evidence will cross apply to both, but some is specific to 8%.
REDUCE Act: A law proposed by Rep. Tom Reed (R-NY) requiring colleges with endowments of over $1 billion or totaling over $500k/student to spend 25% of the income (not 25% of the endowment, just the income) on student aid.
AFF argues that colleges with big endowments are hoarding the money and not helping poor students with tuition. But both of these policy changes are unnecessary and harmful. Most college endowments are already spending adequately and are not misers as the AFF claims. Endowments aren’t like money in the bank that you can spend on anything. Many of the funds donated are earmarked by their donors for specific purposes (e.g.: a new library, a professorship in some specific subject, a sports stadium, etc.) and cannot legally be diverted to student aid. Mandatory endowment spending will hurt colleges financially in the long run and will not help poor students like the AFF intends.
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