College Endowment

Many factors are considered by college-bound teens when choosing institutions, from tuition costs to location.

It’s rare for a school’s endowment to be looked into.

College endowment refers to an institution’s financial assets. Also sometimes known as an institutional endowment, it comes from the donations of alumni members, friends, organizations and other benefactors.

The school uses the income it generates for various purposes, oftentimes as per donors’ specifications.

Harvard University has the largest endowment among all institutions of higher education in the US, with a whopping $49,444,494 in the bank.

The Ivy League is then followed by the University of Texas System ($42.668 billion), Yale University ($41.383 billion), Stanford University ($36.300 billion), Princeton University ($35.794 billion) and MIT ($24.739 billion).

But what do these figures mean to your college education?

Importance of College Endowment

College endowment is important because it provides financial stability, especially in terms of support for their various academic programs and operational requirements.

It allows them to invest in research and infrastructure as well as provide institutional scholarships and grants.

Endowment funding is also important for college students in that it allows them to have access to high-quality education no matter their socioeconomic status through generous financial aid.

According to the American Council on Education (ACE) academic institutions are not the only ones that can benefit from endowments but also local communities.

It’s not uncommon for some colleges and universities in the country to have units with public service objectives, and most of which are supported by institutional endowment funding.

Needless to say, endowments can secure the financial health not only of institutions but also the communities they’re in.

And thanks to the financial cushion that endowments bring, postsecondary schools are able to work with towns and cities in order to enhance the quality of local education and also to revitalize neighboring industries.

What Happens If Endowment Significantly Reduces

The institution’s financial health suffers if its endowment significantly drops, resulting in budget cuts, limited resources, etc.

The endowment becoming less than the principal or corpus, which is the original amount donated whose generated interest is spent by the college, is known as being under water, and the school will spend no funds until the principal is restored.

Two Types of College Endowment

College endowment funds can be categorized into two different types, depending on where the money given by donors such as alumni members and friends can be spent — it’s not uncommon for donors to inform the colleges and universities to which they are donating as to how they can expend the amount they will receive as gifts.

Restricted Endowment

The vast majority of college endowments are restricted.

Simply put, a restricted endowment means that the donor has designated where his or her money can be spent by the academic institution.

For instance, the donor may restrict the fund’s use to research conducted by faculty members for a specific amount of time or throughout their tenure at the school.

Unrestricted Endowment

Compared to restricted endowments, unrestricted endowments are far less common as far as college endowments are concerned.

What it means is that the endowment fund can be spent at the discretion of the institution for opportunities that it otherwise wouldn’t be able to afford.

So, in other words, the donor does not specify the manner by which the gift should be used.

Different Uses of College Endowment

College endowment funds provide financial stability to an academic institution as well as allow it to support programs and activities that require money to be executed.

Of course, the interest generated by the principal, which is the amount of an endowment intended to be maintained and managed in perpetuity, allows the college to rake in profit.

In this part of the post, we’ll take a quick look at the various uses of a college endowment:

Financial Aid

It’s not uncommon for most of an institution’s endowment fund to be restricted by donors as well as the college itself to student financial aid.

Institutional aid programs, such as scholarships and grants that do not require students to pay back the award money they receive as well as monthly interest, generally rely on a school’s endowment.

Research and Innovation

Scientific and scholarly research usually doesn’t come cheap.

A lot of colleges and universities rely on their own financial resources to assist faculty members in coming up with their research programs for the welfare of the institution and its students.

Most endowment funds are restricted to research, also as a result of them being the reason why they were gifted.

Teaching

Another primary purpose for which a college endowment is designed is professorship.

Simply put, a portion of the endowment fund is allotted to the institution’s leading scholars and scientists who are contributing substantially to teaching and research in their respective disciplines.

Professorship endowment also allows state funds and tuition to be used for other purposes.

Athletics

There are some alumni members and donors who hand endowment gifts to their alma maters for the restricted purpose of supporting athletic programs and related pursuits.

For instance, some colleges may use designated gifted money to fund athletic scholarships, facilities and equipment as well as for the salary of coaches, team physicians, etc.

Public Service

Some colleges and universities have public service programs and activities — after all, many of them are on the hunt for students with leadership skills and a passion for community involvement.

At these institutions, a portion of their endowment fundings are allotted to civic and philanthropic missions as well as services and research for the community’s wellness.

Difference Between Endowments and Annual Fund Gifts

An endowment provides long-term financial stability and support to a college for its programs, departments, scholarships and others.

Meanwhile, an annual fund gift is intended for immediate use by the institution.

In addition, it’s also usually expended in its entirety.

Both endowments and annual gifts, however, are essential for student and college success.

Colleges With the Highest Endowment

Most colleges and universities with the highest endowment funds are some of the most prestigious and highly ranked institutions in the country.

A lot of them are also some of the largest, with some being university systems.

Inside Higher Ed says that these schools have the largest endowments:

Rank	Institution Name	Total Endowment
#1	Harvard University	$49,444,494
#2	University of Texas System	$42,668,276
#3	Yale University	$41,383,300
#4	Stanford University	$36,300,000
#5	Princeton University	$35,794,186
#6	Massachusetts Institute of Technology	$24,739,862
#7	University of Pennsylvania	$20,724,351
#8	Texas A&M University System	$18,243,191
#9	University of Michigan	$17,347,188
#10	University of Notre Dame	$16,729,299
#11	University of California	$15,417,663
#12	Northwestern University	$14,121,488
#13	Columbia University	$13,279,846
#14	Washington University	$12,252,329
#15	Duke University	$12,116,260
#16	Vanderbilt University	$10,206,067
#17	Emory University	$9,997,742
#18	University of Virginia	$9,858,442
#19	Cornell University	$9,838,198
#20	Johns Hopkins University	$8,244,472
#21	Dartmouth College	$8,065,743
#22	Rice University	$7,814,267
#23	University of Southern California	$7,319,123
#24	Ohio State University	$6,960,782
#25	Brown University	$6,141,243