Endowments: a path toward tuition-free college in Maryland

By Senator William C. Smith, Jr.
The Baltimore Sun

Education, specifically higher education, is directly correlated to innumerable economic and social benefits: higher salaries, a more versatile and qualified workforce, healthier lifestyles and greater economic mobility to name a few. Access to higher education, however, has become more fleeting, especially for the poor. In 1971, the average cost of tuition for a public 4-year college was $428 ($2,499 adjusted for inflation) per year. By 2015 tuition had risen to $9,420 per year, an increase of 276 percent when adjusted for inflation.

According to a 2016 report published by the Maryland Department of Legislative Services (DLS), “Maryland’s investment in need-based financial aid is below the national average.” The report also noted that “from 2008 to 2013, the average tuition and fees paid by a Maryland student increased 20 percent at community colleges and 15 percent at four year intuitions.” During that same period the median family income only grew by 3 percent.

For those community college students looking to transfer to a four-year institution within University System of Maryland (USM) the challenges are all the more significant. Few financial aid opportunities exist for this population, and the majority of them work or have significant family obligations. According to the DLS report, a working student would need to put in 23 hours a week at a minimum wage job to pay tuition at a community college and about 40 hours a week to afford tuition at a four-year institution — an impractical and untenable proposition for any low-income student attempting to maintain full-time enrollee status.

All of the aforementioned data point to the painfully obvious conclusion we have grappled with for decades: The high cost of postsecondary education is a significant barrier for an ever-growing portion of our population. Presidential candidates have promised tuition-free college, and more than 20 states have already enacted some form of free college tuition. But here’s the rub: All of these programs require an annual appropriation from the given state’s general fund, and all will require additional revenue or the reallocation of already scarce resources. These aspects call into question the sustainability of current tuition-free programs and serve as an obstacle to the creation of new ones.

So what feasible options do we have here in Maryland? Here’s my plan: Our public school system should create a dedicated endowment to ensure every Maryland resident admitted into one of the 12 public institutions within the USM could eventually attend tuition-free. Endowment funds are managed in such a manner so as to ensure the total asset value yields (inflation adjusted) gains to the principal. These funds are strictly managed and set how much of each year’s investment income can be spent. For many colleges and universities, this pre-set amount is roughly 5 percent of the endowment’s total asset value. Put differently, endowments ensure that a sustainable and ever-growing source of money is available to fund a university’s given priorities.

In Maryland, the USM Foundation manages endowments, and this type of an endowment is called a quasi-endowment. Quasi-endowments are “accounts invested as an endowment, but funds are earmarked for a specific use.” We’ve created similar endowments for campus capital projects and to facilitate university development efforts, why not tuition?

The initial seed money would come from three primary sources; an initial transfer from the USM fund balance, private funds raised from the 12 USM intuitions, and the general fund of the state of Maryland. At the beginning the endowment would support Pell Grant eligible transfer students from Maryland community colleges to a four-year USM institution. As the fund grows we would seek to cover all Pell eligible students in the USM. Eventually every Marylander admitted to a USM institution could attend tuition-free.

Under this plan we would be well on our way to implementing a system in which students and families would finally be free from crushing student loan debt that has long handicapped the financial and professional prospects of too many Marylanders. But the benefits don’t stop there; member institutions would receive their full allotment of tuition without having to dip into their own individual institutional endowments to provide financial aid. The money saved on financial aid would leave millions of dollars a year for each university to reinvest in other important initiatives.

An endowment of this sort offers our state the opportunity to provide a sustainable source of funding immune to the political influences of the annual budgeting process. Endowing our future is the pragmatic and sustainable path toward tuition-free college, but it isn’t a silver bullet. The cost of higher education is still exorbitantly high. Apart from tuition, students have to contend with the cost of room and board, books, fees and activities. College is expensive, and we in the legislature have an obligation to do something to expand access without strapping the next generation with billions in debt. Let’s start by ensuring every Marylander has access to our world-class system of public higher education.

William C. Smith Jr. represents Montgomery County in the Maryland State Senate; he can be reached at will@willsmithformaryland.com