Higher Ed Should Disclose China Ties Or Lose Federal Funding

Americans fixated on recent events in the sky should also focus on what’s been happening on the ground. 

China’s “weather” balloon that serendipitously floated close to several U.S. Air Force strategic missile bases has resulted not only in some of the best memes on the web but also increased awareness of our continuing vulnerability to foreign adversaries determined to access America’s vital secrets. But there’s another vulnerability, one less obvious than spy balloons, that demands our attention: the financial transactions between American universities and China (actually, the Chinese Communist Party and its proxies and affiliates) and the efforts by a shrewdly funded, very influential higher-education lobby to deflect federal disclosure laws in order to shield those transactions from the American public. The time has come for Congress to put teeth into those transparency requirements.

The recent bipartisan vote in the House of Representatives to establish a Select Committee on China demonstrates that both Republicans and Democrats in Congress understand that China seeks to displace the United States as the world’s preeminent power. Several issues ripe for exploration by the China Select Committee include the extent to which China has attempted to unduly influence American universities and colleges through generous contracts and gifts, the failure of those institutions to disclose these transactions as required by federal law, and higher education’s successful lobbying of the Biden administration to undermine the Department of Education’s enforcement efforts.

The law, Section 117 of the Higher Education Act (HEA), requires nearly all postsecondary institutions to file biannual reports with the Department of Education disclosing gifts and contracts worth $250,000 or more from foreign sources. If an institution skips this reporting, the Education Department’s only enforcement recourse, other than cajoling letters, is to refer the school to the Department of Justice to file a civil complaint in federal court that would compel the disclosures. This is not a law that demands exacting compliance. As a result, colleges and universities have skirted its requirements for years.

A simple, yet powerful, policy solution to this problem is for Congress to tie a school’s eligibility to participate in federal student loan, grant, and work-study programs to its compliance with these reporting and disclosure requirements. Congress should also expressly direct the Education Department to limit, suspend, or terminate an institution’s participation in these federal programs when that institution fails to make its required disclosures. These changes require only simple changes to the HEA.

Given the existential importance of these federal funds for most institutions, we anticipate that compliance would follow quickly. Student loans and grants are a vital source of revenue for higher ed. In fiscal year 2022, the Education Department’s Office of Federal Student Aid provided over $110 billion in loans, grants, and work-study funds to nearly 10 million students attending over 5,500 postsecondary institutions. In return for this largesse, and in view of the national security threat and risk of technology theft posed by China, it is not asking too much for taxpayers to know which institutions have derived revenue from China-sourced gifts and contracts, as well as the financial value of those ties.

The threat from China, among other adversaries, is real: the Justice Department’s recent China Initiative resulted in economic espionage and trade-secret-theft criminal charges against multiple defendants associated with U.S. universities, including Charles Lieber, former chair of Harvard’s Department of Chemistry and Chemical Biology. FBI Director Christopher Wray divulged that the FBI “opens a new-China-related counterintelligence case nearly every 10 hours.”

In an October 2020 report, the Education Department warned of this vulnerability and declared that America’s universities “are technological treasure troves where leading and internationally competitive fields, such as nanoscience, are booming.” The agency’s Section 117 investigations undertaken in 2020 revealed that “these institutions [universities] have provided an unprecedented level of access to foreign governments and their instrumentalities” by failing to consistently enforce the requirements of federal law regarding foreign gifts and contracts to institutions of higher education.

These investigations unearthed billions of dollars in previously undisclosed foreign-source gifts and contracts in violation of Section 117 and enraged many prominent schools and their lobbyists in the process. 

The Biden administration’s response to the growing threat from China? It ended the DOJ’s China Initiative, dispatched the highly effective assistant attorney general who led the DOJ’s National Security Division, and tanked the Education Department’s Section 117 investigations. Announcement of the reversal of the department’s enforcement efforts came not from the sitting Secretary of Education or a department spokesman, but from a higher-ed lobbyist and key ally of the Biden administration in a letter memorializing those new policies to Education Department officials. Without embarrassment, the department confirmed the agency’s new enforcement policies, causing the incoming chair of the House Select Committee on China, Rep. Mike Gallagher (R-WI), to observe that the Education Department had “thrown the Chinese Communist Party an important lifeline” by relaxing its enforcement standards.

Schools will unpersuasively complain that the reporting requirement is onerous. The HEA already requires institutions to maintain the capability to administer federal financial aid to their students, and schools manage sophisticated management systems for receiving, tracking, and accounting revenue. Protecting American security by requiring compliance with Section 117’s simple requirements in order to be institutionally eligible for federal financial aid is a relatively easy ask of thoroughly capable, and often financially sophisticated, higher-ed institutions.

Shooting down a spy balloon with an F-22 Raptor was easy. The problem of Chinese influence and access in American higher education is a more difficult problem to solve. Congress can start by putting bite into Section 117’s transparency requirements. Our national security, the generosity of taxpayers in supporting higher ed, and the ease of institutional compliance more than justify policy changes that require universities to make timely, complete, and transparent disclosures regarding foreign gifts and contracts – or face the risk of losing eligibility for federal financial aid programs.