Congressman Tom Reed's Vision for Students and What It Means for Higher Education

Government|Higher Education|Tax

By Joseph Krebs

In October, we recapped how the Senate Committee of Finance and House Ways and Means Committee had decided to renew their focus on the rising cost of higher education.  Now, coming on the heels of the most recent House Ways and means Subcommittee on Oversight hearing in September 2016, Congressman and Oversight subcommittee member, Tom Reed, has unveiled his own plan for reducing the cost of postsecondary education entitled Our Vision for Students 2016Our Vision for Students was released in December 2016 and outlines nearly a dozen pieces of legislation that Congressman Reed is supporting. He believes that this will help curb "a trillion dollar problem that is crippling an entire generation of Americans." 


Representative Reed's plan suggests that some immediate relief can be gained by giving students the ability to refinance their student debt, encouraging colleges to partner with high schools by offering college courses to high school students, and through the recently reauthorized Perkins Loan Program.  However, of all the solutions for immediate relief that Congressman Reed offers, the one that will stand out to those in the higher education sector the most is endowment reform. 

Currently pending introduction, Representative Reed has drafted the Reducing Excessive Debt and Unfair Costs of Education (REDUCE) Act.  The purpose of the REDUCE Act is to ensure that colleges with large endowments utilize the profits from those funds to reduce tuition for those who typically fail to qualify for federal aid due to family income levels. 

While the actual draft does not appear to have been circulated, Representative Reed claims the proposed legislation will apply to endowments in excess of $1 billion and require those endowments to utilize at least 25% of their annual investment gains for tuition cost reductions.  Those colleges and universities that fail, or refuse, to utilize their endowments for this purpose, will pay an immediate 30% tax on investment income for a first time violation, with the potential for a 100% tax or forfeiture of the right to receive charitable contributions for repeated violations.


In addition to immediate reforms, Representative Reed wants greater future transparency from the colleges and universities.  As such, he's also drafted the Accountability of College Costs through Exposing School Spending (ACCESS) Act.  The Congressman believes that colleges and universities need to be more forthcoming on both cost transparency and salary transparency.  While little is known about the ACCESS Act, Representative Reed says that under the proposed legislation, which is pending introduction, colleges and universities would be required to report certain types of costs not currently included on Form 990 to maintain their tax exempt status. They would also  be required to make their spending information accessible on the school's website. 

Additionally under the ACCESS Act, colleges and universities would be required to disclose administrative compensation and perks, such as free housing, school-provided vehicles, and other "extravagant expenditures that do not directly benefit students."  Representative Reed believes this will discourage abusive expenditures and better inform students on how their tuition dollars are being spent. 

Sustainable Solutions

Representative Reed's Vision is not all stick motivation without a carrot.  The Congressman has suggested incentivizing colleges that offer sustainable cost solutions.  For example, under the proposed Promoting Lifelong Accountability Now! (PLAN) Act, also pending introduction, schools will be required to submit cost containment plans to the Department of Education every five years.  Those colleges that are able to keep the rate of tuition increases lower than the rate of inflation would be rewarded in some fashion.  Representative Reed has also suggested that colleges and universities should have a stake in the post-graduation successes of their students and should be rewarded when students graduate on time, are hired within their field of study, and begin repaying their loans on time.


Following the Ways and Means Subcommittee on Oversight's September hearing, it is not a surprise that the Committee is focusing on endowment reform and greater transparency of college and university spending.  However, the REDUCE Act and ACCESS Act are the first concrete steps that they are seeking in hopes to address these topics.  Additionally, while specifics surrounding the concept do not exist at the moment, it seems encouraging that legislators are willing to consider some form of incentive-based legislation to encourage cost reductions in addition to the compliance mandates which appear to be coming.

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