College endowment moves please key lawmaker

By Kevin Drawbaugh

WASHINGTON (Reuters) - A senior senator said on Tuesday he is less intent on legislation to force more spending on students by thriving university endowments now that some major schools have said they are changing their policies.

Sen. Charles Grassley told the Reuters Regulation Summit he has "slowed the push for legislation" since announcements by Harvard, Yale and other universities that they plan to commit more of their endowments' earnings to student financial aid.

"If the trend continues as it is, there probably won't be a need for legislation," said the Iowa lawmaker and top Republican on the Senate Finance Committee.

"The possibility of legislation is out there. I haven't given up on legislation, but I've slowed the push for legislation," he said at the summit in Washington.

Tax writers on the committee last fall were taking a hard look at elite universities' multibillion-dollar endowment funds and considering steps to make them spend at least 5 percent of endowment funds annually, as private foundations must do.

At a 2007 committee hearing on colleges' involvement with offshore tax havens, researchers accused top schools of hoarding endowment earnings while tuition costs sky-rocket and many sources of financial aid fail to keep up.

Harvard, the world's richest school with a $35 billion endowment, said in December it would spend millions of dollars more annually on financial aid and slash tuition costs even for students from middle- and upper-middle-class families.

Yale and a few other exclusive colleges have since made similar announcements. "I'm very, very happy with the movement," Grassley said.

Most universities have much smaller endowments than these top schools and fewer resources for helping students. Still, Grassley said, he senses the beginning of a trend.

"I believe that you're going to have a downward pressure on tuition that's going to ripple through most of the 4,000 colleges and universities in America," he said.

Grassley's comments came at a turbulent time for student loan companies that now play a major role in bridging the gap between students' limited resources and soaring college costs.

The House of Representatives is scheduled to vote on Thursday on legislation to crack down on abusive marketing practices by student lenders, while also encouraging schools to rein in tuition increases and simplifying applying for aid.

On Monday, President George W. Bush proposed a fiscal 2009 budget that would hold federal student financial aid flat on a net basis, said Mark Kantrowitz, a financial aid analyst.

Credit rating agency Standard & Poor's on Monday cut its ratings on Sallie Mae, formally known as SLM Corp (SLM.N: Quote, Profile, Research, Stock Buzz), and said it may cut them further, citing funding pressures at the largest U.S. student lender. Sallie Mae recently said it settled a lawsuit over its failed buyout by a group led by private equity firm JC Flowers and got $31 billion in new financing from Bank of America Corp (BAC.N: Quote, Profile, Research, Stock Buzz), JPMorgan Chase (JPM.N: Quote, Profile, Research, Stock Buzz) and five other banks.

Congress enacted legislation last year slashing federal subsidies paid to student lenders including Sallie and others.

(Editing by Braden Reddall)