Will the Rebound in Endowments Impact the Best Colleges Rankings?

Schools with large endowments tend to do better in the rankings' financial resources indicator.

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It looks like the value of college endowments, which had fallen very sharply during the recession, is starting to recover. This conclusion comes from the newly released 2010 NACUBO-Commonfund Study of Endowments, produced by the National Association of College and University Business Officers.

It turns out that 2010 ended up being a very good year for the performance of college endowments. According to the NACUBO study, the endowments of the 850 institutions that were surveyed had an average increase of 11.9 percent in the year ending June 30, 2010. This represents a significant improvement from the average decline of 18.7 percent reported in endowments in 2009. Yet, despite last year's recovery in the overall stock market, endowments have yet to return to the levels that existed prior to the recession.

What role does a college's endowment play in the methodology that is used to calculate the U.S. News Best Colleges rankings? The absolute size and annual performance of a college's endowment are not factors in the college rankings.

However, that is not the full story. A decline in a college's endowment can have a negative impact on the school's budget, since institutions use income from their endowment to supplement tuition from students and other funding sources. Since schools typically spend about 5 percent of their endowments each year, colleges with large endowments are able to supplement their tuition income and can spend more per student on educational services than schools without endowments. So if a school's endowment shrinks, it may have less money to spend on its students.

One of the factors in the Best Colleges methodology is financial resources per student, which has a weight of 10 percent in the overall rankings. This factor measures the average spending per student on instruction, student services, academic support, research, and related educational expenditures. U.S. News believes that generous per-student spending indicates that the college can offer a wide variety of academic programs and services. So, schools with large endowments tend to do better in the rankings' financial resources indicator than schools without any endowment.

In addition, schools with large endowments tend to be private universities. By contrast, many public universities are still facing tight or decreasing state appropriations due to sizable deficits in many state budgets. As a result, some public universities have implemented significant tuition increases to try to offset these state budget cuts. Budget cuts have led to cuts in academic programs and reduced spending per student at some schools.

Click here to see the list of the universities with the largest college endowments and how much their market value changed between 2009 and 2010.

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