A record high for college endowments
A new study shows that colleges and universities are receiving more money than most charities. The survey, sponsored by Commonfund, showed a 16.9 percent increase in the average college endowment last year.
Commonfund is a non-profit organization that invests money for colleges and other groups. Its Educational Endowment Report surveyed 767 colleges and universities and found last year’s increase in endowments to exceed even the 10.9 percent increase recorded in 2006.
Most colleges decide how the endowment money is utilized based on the returns from several years.
According to the study, both three- and five-year returns on investments made from endowments increased from 12.3 percent to 12.8 percent and 6.8 percent to 11.5 percent respectively.
Yale and Harvard universities possess the largest endowments $34.9 billion and $22.5 billion respectively, and are using their investments to help reduce tuition costs. After Harvard decreased tuition fees, Yale soon followed, increasing financial aid by as much as 50 percent for families with financial need.
Many students were pleased by Yale’s and Harvard’s tuition reductions and some students hope Carnegie Mellon will similarly reduce its tuition.
“We pay an incredible amount to come to this school and many of us will graduate with thousands of dollars of debt,” said Robert Persaud, a first-year H&SS student. “Maybe these endowments can be used to pay for some of our tuition, relieving us of much of this burden.”
Endowments are used for a variety of projects, from building maintenance and new facilities to the daily operation of a college campus.
Jarrett Adams, a first-year information systems major, agreed with Persaud about the opportunities available with a larger endowment.
“More endowments can mean more opportunities for students, whether it be for financial aid or new equipment for sports and activities,” Adams said. “These endowments are a great sign for us students and hopefully this trend will continue.”
However, while rising endowments are a good sign for colleges, many universities, including Carnegie Mellon, are still dependent on tuition dollars and smaller donations as part of the operating budget for the university.
In 2003, the total operating revenue of the university was $577 million, $41.7 million of which was from endowment funds. In 2004, tuition and fees made up 34 percent of the budget, according to the Carnegie Mellon Factbook. Tuition makes up a substantially smaller portion of Harvard and Yale’s budgets, according to their fact books.
Yet only a certain portion of a college’s endowment can be used and invested each year. The endowment itself is comprised of money-endowed funds, with their purposes decided by the donors.
These endowment funds limit the amout of money colleges can spend, but the U.S. Senate Finance Committee — inspired by the rising endowments — aims to limit the money colleges can avoid spending.
The committee is proposing a law that would require colleges to spend a minimum of 5 percent of their endowments on financial aid.
Despite such strong reactions, some experts remain skeptical of the increasing trend.
Gordon Weinberg, a professor of statistics, questions the recent pattern as an indicator of the future.
“Does this reflect a change in giving or investment practices?” Weinberg asked. He also mentioned changes in government regulations such as interest rates as possible explanations.
Weinberg believes that these endowments may just be a reflection of the favorable economic state.
As larger institutions like colleges, arts organizations, and hospitals see record increases in charitable funding, social-service groups are seeing a decline in funding — supporting Weinberg’s theory.
According to Inside Higher Ed, declining tax revenue in many states, including Arizona, Michigan, and Minnesota, have prompted a decrease in state grants to social-service organizations.
Additionally, the rising costs of gas, food, and other necessities have prompted many more middle-class families to look to charity for aid. The combination of such actions on charities has only negatively effected the money they have to spend.
While charities are suffering financially, colleges continue to soar with their endowments.