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Go Grassley: Senator Fights Excessive Compensation at Universities

The most recent charge in Senator Chuck Grassley’s (R-Iowa) crusade against rising tuition costs was in late February when he criticized then nominee for Secretary of the Treasury Jack Lew for the benefits he received from New York University. They totaled $1.4 million over a period of four years. Grassley said that Lew’s $685,000 severance payment, a deal the New York Times called “unusual,” was an insult to taxpayers and students who have accrued more debt, only to see soaring executive compensation.

“Mr. Lew’s eagerness and skill in obtaining bonuses, severance payments, and perks, raise questions about whether he appreciates who pays the bill,” Grassley said in his final statement before the senate voted to approve Lew.

The hearing has prompted Grassley to consolidate and outline his main concerns for higher education in a memo he released Monday.

At the center of the memo sits unease with the increase in executive pay and the growth of endowments while tuition rises for students, leaving many graduates with crippling debt.

Although Lew had seen NYU’s endowment balloon by nearly 60 percent to $1.7 billion, tuition had risen 40 percent and students were swimming in debt.

Lew’s appointment is, for Grassley, an apt reflection for how universities now value education. Climbing tuition and student debt in light of growing endowments and handsome executive pay suggest that universities have shifted their focus from educating to business.

"Universities are tax exempt to fulfill their mission of educating students,” Grassley said in a press release last year, “and executive compensation is part of the picture toward understanding how well universities fulfill their mission…

“There always seems to be more money for the executive suite even as colleges raise tuition year after year,” Grassley added later in an email. “Universities have to answer for their executive perks in exchange for their tax exemption.”

Americans now have more than $1 trillion in outstanding student debt. The percentage of students with debt has increased from 44 to 66 in the last decade, with each averaging $23,000. That number shoots up to nearly $50,000 for less affluent students attending private colleges.

Meanwhile the University of Chicago paid James Madara, who stepped down as medical dean in 2009, $2.5 million in severance. The New School in New York City paid former U.S. senator Bob Kerry a $1.2 million bonus when he stepped down in 2010.

Schools often defend these handouts, arguing that it is the cost of retention until the end of the academic year. Kerry, for example, said that he had gotten job offers that paid more than the New School, forcing the university to up its compensation if it wanted Kerry stay.

“There was no compelling reason for me to stay” Kerry said in an interview with Bloomberg Businessweek. “This was a payment to retain me on the job.” 

Universities are also using tax-exempt funds for housing and education loans to members of its faculty. The loans, often called “shared-appreciation” mortgages, usually have no interest rates and no monthly payments. In return, the university gets a share of the increase in market price when the house is later sold.

The offer, made possible by the university’s tax-exempt status, has no relation to the students.

Practices like these are endless. In the last three years, Grassley has struggled to address the factors that have led to the corporatization of universities. He has, among other actions, drafted the Understanding the True Cost of College Act with Senators Al Franken (D-Minnesota) and Ron Wyden (D-Oregon), which requires colleges to clarify financial aid packages, fought for a tax structure that encourages families to save money for college, voted to keep interest rates low for student loans, and criticized universities that attract wealth by focusing on aesthetics and luxury facilities that do not contribute to students’ education—all with little avail.

Grassley, who does not believe that education is an entitlement, is most troubled by how universities use taxpayer and student money for personal and institutional profit. It is, he says in the end, a scam.

“Colleges that benefit from tax-advantaged vehicles and tax-exempt status bear a social contract,” he said last July, “to make higher education more affordable and accessible to the public…

“After the gilded glow of the cap and gown and the pomp and circumstance of the commencement ceremony fade into memory,” he said, “reality sets in.”