How Colleges Hide Their Cash
The latest proposed tax bill by republicans includes a tax on wealthy private college endowments. The tax would bring in in excess of $3 billion over the next 10 years. This move sent shock waves across most private institutions. A report by the New York Times revealed that many private institutions hide their endowments in offshore Caribbean accounts to avoid taxes on earnings that are not related to education. Endowments are tax exempt if the earnings are linked to education.
Some institutions are starting to use private equity and hedge funds to invest and increase their profits. Through increased fund raising and tax avoidance, schools have dramatically increased their endowments. Stanford University increased its endowment by over 800% between 1977 and 2012 which equated to over $16 billion. The vast majority of this money is not being used to help students or to improve the college education system. Although the wealthiest schools have increased help to students in recent years, it is only a minimal percentage of their endowments. This is because the wealthiest schools tend to only enroll privileged students who don’t need financial help.
Despite a continuous drop in state funding, the top public universities have steadily increased their enrollment over the last 40 years across all economic classes. They also typically enroll more low income students than wealthy schools. Some have proposed that if wealthy schools want to continue to enjoy endowment tax breaks, they need to invest more of the money into helping students and the public.