College and University endowments are necessary to maintain quality and excellence in American higher education. For more than 350 years, endowments have supported the mission of colleges and universities by providing funding to assist students; hire faculty; conduct research; construct facilities; and carry out other educational activities that would not have been possible if institutions had to rely solely on tuition, direct private philanthropy, or government funding.
There is a misperception by many that college and university endowments are simply slush funds that can be used by institutions however and whenever they please. There is particular attention being paid to private colleges' endowments. Many believe that most private nonprofit colleges and universities have billions in endowment funds, while in reality the median private college endowment is about $26 million, compared to $25 million at public colleges. (FY 2013 – IPEDS)
A variety of proposals on and off Capitol Hill suggest that federal legislation should either: (a) require mandatory endowment payouts to be used to lower tuition; or (b) impose a new tax on the endowments of private colleges.
Endowments and Higher Education
Typically, endowments consist of hundreds – and, in many cases, thousands – of individual funds provided by charitable gifts, as well as some institutional funds that are invested to support an institution’s mission in perpetuity. A significant portion of an endowment is usually legally restricted by donors for specific educational or research purposes.
At private institutions, an average of 55 percent of endowment assets were restricted. While some may mistakenly believe institutions “hide” or “hoard” money in restricted accounts to avoid spending it, colleges and universities actually prefer unrestricted donations which provide them with the greatest flexibility to use funds that best achieve their mission over time.
In 2016, the House Ways and Means Subcommittee on Oversight took the lead in sending a questionnaire
to 56 private colleges and universities with endowments over $1 billion. The letter only went to private colleges; public colleges and universities with endowments greater than $1 billion were not contacted. Each institution receiving the questionnaire successfully responded.
What You Can Do
Let your Members of Congress and their staffs know about the complexities of private college endowments. Educate legislators on their use, common restrictions, and average payout rates.
submitted to the Senate Finance Committee on behalf of: the American Council on Education, the Association of American Universities, the National Association of Independent Colleges and Universities, and the National Association of State Universities and Land-Grant Colleges (10/10/07)