Half of Endowment Spending Supports Financial Aid

Amid a national outcry for higher education institutions to do more to increase access for poor students – especially elite schools with billion-dollar endowments – new data show that nearly half of all endowment spending by colleges and universities supports financial aid.

"This was the largest single area of endowment spending," Susan Whealler Johnston, president and CEO of the National Association of College and University Business Officers, said this week in a call with reporters. "This clearly demonstrates the deep commitment colleges and universities make to support financial aid and student success."

The endowment spending data was included for the first time in the annual endowment report, published Thursday by the National Association of College and University Business Officers and the investment firm TIAA. Colleges and universities reported that 49 percent of their endowment spending went to support student scholarships and other financial aid programs, and 16 percent for academic tutoring and other similar student support programs.

The new data comes at a time when higher education policy experts, especially those who advocate for greater access for low-income students, say colleges and universities can and should be investing even more of their endowment spending to bolster scholarships and recruitment efforts that focus on poor students, especially the top tier schools with mega endowments.

"Forty-nine percent sounds big," Robert Shireman, director of higher education excellence and senior fellow at The Century Foundation, says. "It makes a dent, but it's not going to change the world."

Topping the charts for largest endowments are all of the usual suspects: Harvard, with an endowment of more than $38 billion, took the No. 1 slot, while the University of Texas System came in second with an endowment of $30.8 billion. Six Ivy League schools, the Texas A&M University System and the University of Michigan rounded out the top 10 largest endowments.

"In some cases, colleges have more money than they can spend," Martin Van Der Werf, associate director of editorial and postsecondary policy at Georgetown University's Center on Education and the Workforce, says. "That's a very elite college that has more money than it can spend, but it does happen. It's sort of an embarrassment of riches almost."

Van Der Werf underscored that only the wealthiest colleges truly have the ability to push a lot of money toward increasing access for low-income students, but those that can should.

"If you're just serving the same population over and over and over again, you're just sort of creating an entitled class in this country and not really bringing the education achievement of all society to a higher level," he says.

In the past, development and business officers have pushed back on such criticism, arguing that often there are restrictions on endowment use, as large gifts often come with strict directions from donors about how the money can be spent. In addition, they say, endowments are are meant to sustain schools through booms and busts and must be managed with a long-term outlook.

"When you start to think about how colleges use their endowments, their hands are tied to some degree," Van Der Werf agrees. "It's a perpetual fund for supporting the college."

Even still, he says, "It's important for colleges to think about what is their role in the wider education system and society. I would argue part of it is sharing more of their wealth and allow more students to attend."

The endowment report includes data from 802 colleges and universities that collectively hold $616.5 billion in endowment assets.

The size of school endowments varies widely: The median endowment was approximately $140.2 million, but 41 percent of schools reported endowments that were $101 million or less. Overall, 66 percent of schools reported they increased their endowment spending, with the median increase at 6.6 percent.

"Endowments are playing a bigger role in institutions' operations, funding an average of 10 percent of the operating budget in 2018," Kevin O'Leary, CEO of TIAA Endowment and Philanthropic Services, said.

Whealler Johnston said that while the percent of endowment spending supporting scholarships should be celebrated, the amount of overall endowment spending is cause for concern.

For one, the median increase in spending is well above the 2.8 percent rate of inflation, as measured by the Higher Education Price Index, she said, but also, more importantly, the increase in spending occurred alongside a 4 percentage point drop in returns on endowments. Endowments returned on average 8.2 percent in fiscal year 2018, compared to 12.2 percent in fiscal year 2017.

She also underscored that the increased endowment spending comes at a time when many colleges and universities are struggling with stagnant or declining enrollment and state investment. Moreover, she said, presidents, development and business officers are wary of how the new tax law, which will prevent many taxpayers from claiming a charitable contribution as a deductions, will impact the stability of endowments.

"This significant increase in spending from endowment demonstrates the commitment colleges and universities have to increase access and success," Whealler Johnston said. "But we may be sacrificing future generations by placing a priority on funding for the current generation."