Huge profits in college education

Every so often the local newspaper here publishes a story about the huge profits made at one of the local universities. I have no problem with a school making a profit. Schools and places of worship also receive tax exempt status. I have no problem with that either. However, I do see a problem with huge endowments and the associated for-profit investing activities at schools.

Schools are in the business of educating. It is on that basis that they receive tax exempt status. When significant activities and resources are dedicated to building an investment portfolio, they are also in a business of making money – and that extends beyond the business of education.

Additionally, consider whether schools really should be involved in investing activities. Investing is risky. Are schools willing to accept losses? Are the supporters and alumni, whose donations are being invested, willing to accept the risks? So far things have been rosy. But what happens when the first school experiences significant losses? I assume the government will be expected to bail them out. Schools are not in a position to handle losses, which is a strong indication that they should stick to what they know best – education.

The practice of avoiding the payment of taxes is unethical. There have been many situations where businesses devise schemes to avoid paying taxes and those schemes are frowned upon. Consider this one where the top contrator in Iraq “skirts US taxes”. How is this different from what schools are doing? Why are schools allowed to “front” as an educational entity, while running significant non-educational operations?

If schools are participating in significant non-education activities they should be treated accordingly. Perhaps it is time to consider taxing private educational instituations? Perhaps separate business entities must be established for non educational activities – and those are taxed? Something must be done.

Schools must remain in the business of educating. It is unethical for an educational institution to significantly participate in other activities – whether they are profitable or not. Congress needs to take action and close this loophole. While the practice of building an endowment is not illegal according to the letter of the law, it is unethnical and not in conformance with the spirit of the law.