Rep. Tom Reed, R-N.Y., has proposed to require nonprofit colleges and universities to dedicate 25 percent of their annual endowment income to financial aid. If they don’t, they could lose their tax-exempt status.
Under the plan, nearly 100 endowments with assets over $1 billion would have to give that percentage to decrease college costs for middle- and low-income students, according to Bloomberg. If the schools fai to comply for three consecutive years, they risk losing tax-exempt status.
Fred Slater, a tax practitioner at MS 1040 LLC in New York City, called Reed’s plan “an amazing proposal.”
“There are some many obvious conflicts before you even consider the proposal and then the actual proposal has obvious flaws,” said Slater. “First, simple question: If you are a member of Congress, did you go to one of these Ivy schools that charge $40K+ and have a large endowment. Is that not a conflict? Explain how you are going to take away the exemption from a state school.”
He suggested some easier fixes. For example, Sen. Elizabeth Warren, D-Mass., has pointed out the interest rate on the student loans could and should be under 1 percent, but many banks are diverting the lower rates to other uses. “Government needs to use a carrot instead of the threats of penalties, fines and taxes,” said Slater. “Current government strategies are all about more penalties, more criminal acts and less about fixing the problem.”