Why look at a college’s endowment when trying to decide where to go to school? This falls into the category of all other things being equal, why not attend an institution that is in a better financial situation? Or more importantly, why risk going to a university that is facing financial difficulties?
Of course, defining “financial difficulties” isn’t easy. According to a 2012 study by Bain & Company, one-third of colleges and universities are on an “unsustainable financial path” including Harvard and Princeton. Needless to say, the study has some limitations. However, it produced a very cool graphic tool that you can use to identify which schools are at risk at Financial Fade.
Bigger College Endowments Don’t Always Mean More Money for Students
I would like to say that higher endowments mean more money spent on students but that isn’t necessarily the case. For a quick summary of the usual reasons given why endowments shouldn’t be expected to reduce rising college costs, read College Endowments: Why Even Harvard Isn’t as Rich as You Think.
But then again, according to Educause, The Purposes and Uses of Endowment, “40 institutions with endowments greater than $1 billion earned an average three-year return of 11.6 percent. Yet the average payout for this group was just 4.3 percent for fiscal year 2005, a drop from previous years.”
Furthermore, the “Why I Lost My Secretary” study reports that “many universities appear to make deeper cuts than their endowment payout strategies would call for.” The study also found that “Universities cut spending on support staff — secretarial and maintenance positions alike — while not eliminating administrators’ jobs.”
I guess that’s how those with money get more money.
How Colleges Spend Endowments
So how do the universities that have endowments spend the money? People have only been starting to ask that question in the past few years and many are not happy with the answer. In Endowments fund dorms, salaries — and sometimes tuition, Lynn Munson is quoted as saying, “they are used on projects to reflect wealth and self-esteem, not as a functional pot of money.” The article states that
Colleges tend to use endowments for long-term plans and whatever will help attract students. That could be helping to ensure the future of certain positions “” such as 15 athletics department positions at Harvard. It may also be a tuition cut or dorms and facilities that set it apart from other schools.
Remember, in many cases institutions may not have much choice in how to spend the money. According to a GAO study, Postsecondary Education: College and University Endowments Have Shown Long-Term Growth, While Size, Restrictions, and Distributions Vary, only 28% of Harvard’s endowment is unrestricted and endowment expenditures account for 44% of operating expenses. Less than one percent of The University of Texas’ endowment, the largest public school endowment, is unrestricted and accounts for only 5.4% of operating expenses.
So it’s not surprising that you can find universities spending more on students than those that have substantially larger endowments. US News has created an interesting Operating Efficiency Rankings that “shows how much each school is spending per student in relation to one point in its overall score and thus its numerical position in the Best Colleges rankings.” Ultimately, “the list shows that high spending per student is not always correlated with the very highest rankings.”
Learn More About College Endowments
Should Wealthy Colleges Be Forced to Spend More of Their Money on Financial Aid?
“At all but one of the 25 wealthiest schools, less than one in five of students qualify for federal Pell Grants, meaning they have a family income generally less than $50,000.”
Tax-Free College Endowments in Crosshairs as Overhaul Looms
“He has floated two proposals: one requiring the wealthiest colleges to funnel 25 percent of endowment earnings to aid middle-class students and the other mandating additional financial reporting on colleges’ tax returns.”
Is It Time to Tax Harvard’s Endowment?
“In a world where the government only provides limited resources for higher education, we’re almost certainly shoveling an outsized share of them to schools that don’t need the financial help.”
22 Richest Schools In America
“Favorable tax policies and exemptions, unequal research funding and donor tax write offs all play into reinforcing disparities between rich, elite private schools and poorer public institutions.”
Trickle-Down Thinking–Does Anyone Understand Why Universities and Not-for-Profits Have Large Endowments?
“Finding a clearly stated reason or purpose behind these large sums of retained earnings is surprisingly difficult”
Paying Tuition to a Giant Hedge Fund
“…just the five top managers of the Harvard endowment fund shared total compensation of $78 million, an amount which was also roughly 100 times the salary of Harvard’s own president.”
Why American Colleges Are Becoming a Force for Inequality
“These schools could not afford to support more low-income or middle-income students absent either a huge increase in tuition, a commensurate reduction in spending, or a dramatic change in public funding.”
The Endowment Trap
“Excess endowments are a non-productive use of society’s limited resources. If a college has excess assets, then it should figure out how to put them to a productive use over the next twenty years.“
Now that I’ve made the importance of college endowments in selecting a school about as clear as mud, I’ll list the 50-50 schools with the highest endowments per student. The numbers are based on the IPEDS data from the DIY College Rankings College Search Spreadsheet. As usual, the four-year graduation rate is used for private institutions and the five-year rate for public universities. Use as you see fit.
50-50 Colleges with Highest Average College Endowment per Student