We are very disappointed that the latest developments on Capitol Hill have reached our campus in the hills of Kentucky. At issue: the excise tax on college and university endowments.
While we agree that incentives are necessary for schools to make higher education accessible to all students, it is unfortunate that the battle over tax reform will result in a sizeable tax penalty for colleges like Berea to continue serving low-income students. Surely, this is an unintended consequence.
The endowment tax will mean that Berea College — where no student pays tuition — may have to decrease the number of students it can support. In their place, the college will have to send a check to the federal government each year. The amount would vary depending on how the market treats our endowment, but would average more than $1 million a year.
The income from Berea’s endowment now provides 75 percent of our operating budget; the entire endowment to educate students who could not otherwise afford to attend college. Currently, 715 of our 1,600 students are Kentuckians from Appalachia and other at-risk counties. The college also welcomes students from 40 states and 70 countries.
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The average family income of our students is less than $30,000. Ninety-eight percent of Berea’s students are eligible for the federal Pell Grant because their family income is among the lowest for college-going families. That is nearly twice the average of other schools in Kentucky and more than twice the national average.
Further, most Berea students graduate with little or no debt. Of those who borrow, the average debt is just $7,224 — a mere fraction of the national average of $37,172. The majority of Berea’s students are first-generation college students. The tuition-free education they receive positions them to break the cycle of poverty for themselves and their families.
The college provides this vital public service to the bright young minds in this region through income generated from its endowment because — like our founder, the Rev. John G. Fee — we believe a student’s family income should not determine his or her opportunity and outcome.
The Tax Cuts and Jobs Act, as passed, means Berea will face increased financial stress. We do not believe that is the intent of this legislation. In fact, through the support of Rep. Andy Barr and Senate Majority Leader Mitch McConnell, schools like Berea, which enroll fewer than 500 tuition-paying students, were specifically exempted from the tax.
Unfortunately, this provision was removed due to procedural objections as the Senate considered the bill. We are grateful to Barr and McConnell for their efforts on our behalf, and hope that another means to address this challenge can be found. This tax penalizes an institution that does so much for the public good in our commonwealth and beyond.
In fact, during a 2016 U.S. House Ways and Means subcommittee hearing on how colleges use their tax-exempt endowments, members of Congress from both parties praised Berea’s no-tuition model, which has been in place since 1892.
The prospect of being taxed — despite the college’s not-for-profit status — is troubling. This is not the first time forces beyond our control have challenged Berea and its mission.
We are confident that, as in the past, the significance of the college’s important and noble mission will engender continued support from Congress and inspire those who share our commitment to Berea’s ongoing success.
Lyle D. Roelofs is president of Berea College.