Today, House Ways and Means Oversight Subcommittee Chairman Peter Roskam (R-IL) delivered the following opening statement during a hearing on the rising costs of higher education and tax policy.
"Right about now, college students are preparing for a great tradition in this country--homecoming. But as they head to tailgates and football teams take the field, parents, and some students themselves, are facing a harsher reality. The first tuition checks of the year are clearing the bank, and families are figuring out how to make ends meet during one of the biggest financial challenges in modern life, and that is, figuring out how to pay for the cost of college.
"Let's talk about some numbers. The current median income in the United States is about $55,000 a year. If you look at private, non-profit, four-year schools, the average sticker price--meaning the advertised price before financial assistance--is more than $31,000. For a public four-year college, it's just under $10,000. On top of all that, students need to buy food and books and pay rent. The College Board estimates that students need to spend between $15,000 and $23,000 each year to cover those costs. So without financial aid, college could cost somewhere between $24,000 to $54,000 a year. And students are graduating with, on average, $33,000 in student loan debt.
"We talk a lot about the increasing costs of health care in this Committee. Tuition makes those numbers look tame. Medical costs have increased over 600 percent over the last forty years. But tuition and fees have doubled that, increasing over 1,200 percent--and they show no signs of slowing down.
"Today we're here to look at what's behind the rising cost of college, and to consider whether this nation's tax policies are partly to blame. We'll come at the problem from a number of different angles.
"First, we're going to look at federal student aid. In 1987, Secretary of Education Bill Bennett argued in a New York Times editorial that increases in federal financial aid allow colleges to raise their tuition rates because schools think the students can afford it. The New York Federal Reserve recently published a study that bears this out: the Fed study finds that at private schools, a $1 increase in the subsidized-loan cap could increase tuition by as much as 65 cents. To be clear about what this means--the data shows that when the federal government makes more loan money available, schools generally respond by raising tuition. One of the study's authors, economist David Lucca, is here today to discuss those findings.
"Next, we're going to consider how schools are spending money. Over the last thirty years, schools have increased their administrative staff and engaged in an arms race with each other to build things like movie theatres and luxury gyms: Are all of these expenses necessary, and are they helping students secure a better education?
"We will also look at how private schools are setting their executive compensation rates. For non-profit institutions, it seems like a lot of university presidents are making very good money. In 2013, 42 private college presidents made more than $1 million. One way schools can justify their compensation as "reasonable' to the IRS for the purpose of favorable tax consideration is to show that similarly situated institutions pay comparable salaries to their executives. That method points in only one direction: up. It allows schools to increase their compensation year after year because others are doing it too. I'm not against people succeeding, by any means, but this is another area that's important for our subcommittee to consider--are the highest paid college and university presidents the ones providing the best education for students? And if not, why not? How does tax policy fit into that math?
"Finally, we'll look at endowments. Endowments and their investment earnings are exempt from taxes. Congress provides that exemption to further a charitable purpose: better educating our nation's students, preparing them for successful careers, and increasing the store of human knowledge through research. We understand that endowments can help assure financial stability to schools. But about 90 schools have endowments of more than $1 billion. Some of those schools have made great strides in providing exceptional financial aid to their students. Others have not. So we'll take a look at those issues as well.
"We look forward to hearing from our witnesses, who can shed light on these important challenges as we examine whether federal tax policies for colleges and universities are best serving students and families."