National News

How a Tuition-Free College Turned Into a Casualty of the Tax Wars

Posted December 20, 2017 7:25 p.m. EST

Berea College would seem to be an odd target for Sen. Bernie Sanders of Vermont, a liberal hero and champion of the little guy. Celebrated as a model for how postsecondary institutions can help fulfill the American dream, the Kentucky liberal arts college admits only students whose families cannot pay for college — 98 percent use federal Pell grants, and 64 percent are first-generation college students.

The median family income of a Berea family is $29,000.

But a last-ditch effort by Sanders and Senate Democrats to embarrass Republicans — or at least delay final passage of the tax bill — rendered Berea collateral damage in the partisan wars in Washington. A provision in the tax bill, introduced by Kentucky’s senior senator, Mitch McConnell, would have exempted Berea from a 1.4 percent excise tax that will be imposed on the nation’s wealthiest colleges.

McConnell, the majority leader, added language to distinguish that only an institution with at least 500 “tuition paying” students would be subject to the tax, effectively shielding little Berea from a Republican-designed tax aimed at the wealthy Ivy Leagues.

Sanders, as the ranking member of the Budget Committee, challenged the provision as a clear carve-out for an institution from McConnell’s home state. The Senate parliamentarian agreed, ruling that the language violated Senate budget rules that prohibit “extraneous matters” and policymaking on bills that use a special procedure to avoid filibusters.

“In the mad dash to provide tax breaks for their billionaire campaign contributors, our Republican colleagues forgot to comply with the rules of the Senate,” Sanders and Sen. Ron Wyden of Oregon, the ranking Democrat on the Finance Committee, said in a joint statement.

By Wednesday morning, Berea’s president, Lyle Roelofs, was fielding calls from apologetic politicians. Republican leaders assured him that he still had their support. Democratic leaders told him the move was not personal.

But Roelofs said it will be personal for students whose education can no longer be funded.

“We’re a casualty of polarized decision making in the Congress,” he said. “We think the federal government supports what we do, but we aren’t particularly pleased that they’re making it harder for us to do it.”

The goal of the excise tax was to prompt universities like Harvard and Yale to channel more of their huge endowments into financial aid and lower tuition. But that is not an issue at Berea. The school’s $1.2 billion endowment funds between 70 and 80 percent of the school’s budget, and the four-year scholarships of its 1,600 students. Berea’s tuition is valued at around $38,000 a year, and its endowment pays about $35,000 for each of its students.

The new tax will apply to institutions with endowments valued at $500,000 per student; Berea’s is $700,000.

A 1 percent decrease in revenue each year would shave off the number of students that the school is able to fund, Roelofs said. The school already can accept only 20 percent of its applicants.

“We think of Berea as consisting of 1,600 stories of transformation for students who may not have had the opportunity to join the middle class,” Roelofs said. “That would mean 16 out of those 1,600 stories aren’t going to happen — kids who come out of the mountains or the urban centers of Appalachia who we just can’t serve.”

In a statement, McConnell said he was “mystified” by the Democrats’ challenge to the provision.

“Democrats’ fanatical opposition to the tax bill reached such hysterical heights that Bernie Sanders proudly led the charge to deliberately harm Berea College, which offers free tuition to less fortunate families,” McConnell said.

Sanders said in a statement that McConnell knew that a policy change targeted at benefiting one institution would be problematic.

Sanders also said that he was “glad that Senator McConnell has suddenly developed an interest in making college affordable for working-class families,” and that McConnell should consider co-sponsoring Sanders’ legislation making all public colleges and universities tuition-free.

“The truth is that while Berea College is an excellent school, there are colleges all over this country that use their endowment funds to provide free or significantly reduced tuition for lower-income students,” Sanders said. “Unfortunately, Mr. McConnell’s tax bill does serious harm to the working-class students who will be attending those schools.”

Higher education and policy experts said that the Berea dispute was a small part of the broader concerns they have about the tax bill.

“We have already believed that when you took a bad idea and hasty process, you’re going to create problems, and I think this is pretty good illustration of what can happen,” said Terry W. Hartle, a senior vice president at the American Council on Education. “An institution that provides education to low-income Americans and doesn’t charge a dime will be taxed to pay for corporate tax cuts. It’s a metaphor for how the tax bill is a step in the wrong direction.”

Roelofs said he was now working with McConnell and his Kentucky delegation on ways to mitigate the fallout of the new tax through the rewrite of the tax code and forthcoming regulation.

Berea was founded by abolitionists in Kentucky 162 years ago to educate freed slaves and poor whites from the Appalachian Mountains, and proudly touts that it was the first interracial and coeducational college in the South.

The school belongs to a consortium of seven “work colleges” in the country, where students commit to working on campus through their educational careers. At Berea, students work a minimum of 10 hours a week, on the college’s farm and forest, as janitors and teaching assistants, or designing art and artifacts that are sold nationwide.

“They all have a stake,” Roelofs said. “They have an investment even though they’re not writing a big check to the college every year.”