Academically, does endowment matter?

College Search & Selection
1

<p>I think that with the inclusion of endowment size as a large component to the USNWR rankings, endowment has become more and more of an issue with every year. Students sometimes base their decisions on colleges based on the size of the endowment or the per-capita endowment available on the endowment per student. </p>

<p>However, what I think needs to be made clear is that endowment, in most cases, is only a very very small component to the academic budget of a university (less so for a college). For research universities like Penn, Columbia, Hopkins, Georgetown, etc, the endowment usually only contributes 5-10% to the annual operating budgets.</p>

<p>Also, up to 70-90% of the endowments that you see on paper are actually legally bound to be used for specific purposes OTHER than academic spending, such as faculty endowment, deanships, buildings, etc. The actual true spendable amount of endowments are actually pretty low for colleges even the likes of Stanford, Harvard, etc when compared to the massive billions that we see on paper.</p>

<p>More so, take a look at schools like Georgetown, with a supposedly meager 600-700 Million dollar endowment and its ability to outcompete schools like George Washington U, NYU, etc when it comes to academics, even though it has a much smaller endowment.</p>

<p>Also, schools like Brown and JHU offer, relatively, stronger academics than Notre Dame, Emory, and Vanderbilt, and are on par with Cornell, Northwestern, UPenn, Duke, Dartmouth, etc, despite their smaller endowments.</p>

<p>The main point? Endowment is really not a large factor at all. Endowment looks pretty on paper and is fun to divide by the number of students and such, but the "real number" of useable money is not shown, and its clear from the quality of academics at the top schools that endowment is not as telling as a lot of other qualities.</p>

<p>edit: I will say, however, that endowment does play a larger role in financial aid. however, that is another topic in and of itself. A school's ability to give great aid shouldn't be used to judge the academic quality or prestige of a school.</p>

2

<p>I’d love to be able to agree with you, but I can’t. Look at it this way: each $1 billion in endowment at a 5% annual payout rate is worth $50 million in annual spending. At a $40K/yr private school, that’s as much money as you’d generate from the tuition from 1,250 full-pay students. At a $10K/yr public university, it’s as much money as you’d generate from the tuition from 5,000 in-state students. That’s not peanuts.</p>

<p>Colleges arrange their finances in different ways. At some, the uses to which endowment funds can be put are highly restricted; at others less so. But whether restricted or not, endowment payouts buy things the school would otherwise need to pay for from other funds—e.g., scholarships and faculty salaries. To that extent they’re a critical part of any college or university’s budget–at least if it has an endowment to speak of. </p>

<p>An interesting question that doesn’t get discussed much, though, is the relationship between endowment and annual giving. Some schools produce a very large annual revenue stream from alumni annual giving, which often does not go into endowment but is instead treated as current income. A reliable stream of $50 million in annual alumni giving is just as valuable to a college or university as an endowment of $1 billion. Yet one almost never sees comparisons among schools in annual giving levels; instead, we see figures on total endowment value, endowment per student, percentage of alumni who give, and expenditures per student. But it’s quite possible that some of the schools you mention could have very substantial annual giving levels that in effect operate as an endowment substitute, producing a pretty reliable revenue stream—subject to some fluctuation with the economy, of course, but then so do endowment values and payouts.</p>

<p>I’m a neophyte at college and university finances, but this is something I’d like to see explored more thoroughly by those who know.</p>

3

<p>Perhaps the better measure is budget for undergraduate academics per student?</p>

<p>That would be extremely difficult to determine since colleges and universities are not that transparent about finances, however, using a model like faculty salary (multiplied by percentage of course load dedicated to undergraduates, increased by a course if undergraduates work in their labs or if they’re an undergraduate advisors), research funds provided to undergraduates, fellowships and other stipends, etc could be interesting.</p>

<p>Endowments are almost always not particularly liquid, and at the higher endowment schools (>1bn), greater than 6% of the endowment is rarely used as a portion of the operating budget (Brown hovers from 4-6%. Universities recently had a fit over the talk about the federal government mandating the spend a minimum of 5% of their endowments each year to hold onto their tax exemptions as per the norm in other sectors). Not only that, but using a large percentage of the total operating budget (which higher endowment schools can do) results in significantly more dependence on the endowment and on the economy at large to continue to function effectively. For instance, Princeton has recently had to borrow 1bn dollars and some Ivies are talking about yearly operating cuts that are larger than Brown’s five-year cut to the yearly budget. So while using endowment works well during economic boom times, it actually makes the university’s yearly stability lower.</p>

4

<p>I’d like to see any data that suggests (or even just hint) that about 4%-6% of endowment fund go to educational expenses of the undergrad.</p>

5

<p>It doesn’t. 4-6% of the endowment is what is spent each year as part of the yearly operating budget at Brown. The 2009 budget uses 5.5% of the endowment. So basically, if the endowment is worth 2bn at the start of the year, we intend on using 110 million from the endowment toward our yearly operating budget. I thought that was clear in my post. This number/range is typical.</p>

6

<p>^ you’re talking about the annual budget, which does not solely come from endowment. Of course there are other sources that the school can tap for funding. Let’s say about 40% of Brown students pay the full price. That would come out to several millions of dollars already. Plus some private companies donate to the school too. What I’m really saying is, the 110 million figure you got for Brown would not solely come from endowment fund. But more than that, i’d like to see if there is some truth to the claims here that earnings from endowment would go to undergrad operating expenses.</p>

7

<p>You’re right and you’re wrong, RML. That $110 million dollar figure is nowhere near the total annual budget at Brown, and like I said, it represents only the portion which comes from the endowment. </p>

<p>Our overall operating budget during 2009-2010 is $758.7 million dollars ([Brown</a> Corporation Restrains Tuition Increase, Approves 0.9% Budget Increase for FY10, Calls for Additional Reductions | Brown University Media Relations](<a href=“http://news.brown.edu/pressreleases/2009/02/tuition]Brown”>http://news.brown.edu/pressreleases/2009/02/tuition)). As the URC report linked to in that article says:

</p>

<p>Are you going to continue to lecture us on issues you don’t have a clue about?</p>

<p>You’ll also note that I never said that 110 million from the endowment went to undergraduate education. In fact, I proposed a rudimentary set of information that would be required to determine undergraduate education expenditures which did not mention the endowment. Since you don’t read my posts before responding, I’ll requote that part here:

</p>

<p>When I was talking about endowment, I never mentioned undergraduate spending, I always used the phrase, operating budget.</p>

8

<p>melody relax. I was merely asking. Why do you have to sound so defensive all the time? lol…</p>

<p>BTW, thanks for answering my question.</p>

9

<p>Endowment usually does not have that much to do with the academics. Usually, the schools with very very large endowments have medical schools and much of the spending is on the medical school, not on improving the academics.</p>

<p>That being said, the endowment helps universities like Berkeley to remain top-flight (along with federal research money) even when state funding cuts occur and during times of budget cuts can help the university to maintain its academic standard. The endowment also usually means that there is a great pool of distinguished alumni, and this can be VERY helpful perhaps in finding a first job.</p>

10

<p>Since when has endowment been part of the US News Ranking?</p>

11

<p>

Mostly because I write one thing, then you come in assuming you know where I’m coming from and comment based on your expectation rather than what I write. Considering you challenge just about every comment I make on here, I would just hope you were doing a slightly closer reading before making assumptions.</p>

12

<p>Endowments have very little impact on the actual quality of education since the way they are used is to rank the school on how big its stockpile of money (educational resources and faculuy resources or some other indirect if not direct measure , and many already alluded to in an earlier post, depending on the rating) is rather than whether the school actually expends the money on programs and education. No school dares spend anything significant since that would reduce the stockpile and lower the ranking in the following year. The portfolio managers who squeeze their seven figure pay packages are paid largely in proportion to the size of the endowment itself. Ben Stein wrote a magnificent column in the NY Times detailing this huge scam. Alumni are suckered into contributions they think are improving education. The system works very much in the same way that the Forbes 400 listing reduces actual philanthropy since to spend on a cause would reduce one’s closely watched rating on the list.</p>

<p>Schools in conjuction with this also race each other to raise tuitions since a higher tuition along with a higher endowment signifiies “class” to many status obsessed families.
This year with the economic catastrophe, I think the game will change for the better as families no longer play along with this endowment/tuition trap</p>

13

<p>The key number to look at is the percentage of the universities budget that is made up from endowment earnings . The reason that number is important is that in good times it represents a large “kick” to a universities budget. Lets compare Harvard and Brown in round numbers. With similer sized undergrad populations last year earnings from Brown’s 2b endowment made up about 9% if revenue and with all funding sources considered had a budget of about 750 million. While Harvard with about the same number of undergrads had 35% of its 1.2billion undergrad budget funded by it’s 35B (then) endowment. The difference in spending between Harvard and Brown was mostly made up of the difference in spending from endowment earnings. This gave Harvard its Quantitative edge in faculty salaries, student teacher ratios, star profs etc. But!!!</p>

<p>This last year when endowment earnings went negative it created a much larger hole to fill at Harvard. Brown’s financial cuts are fairly modest representing about $20-30 million per year over the next four years. While Harvard must cut $150 this year while borrowing 1 billion because there endowment is so hard to liquidate that they can’t get to most of the principal. The rich earnings at Harvard created a bloated cost structure at harvard that will be painfull to strip away if earnings stay down for several years. Just like the Dinosours the kings of the jungle often fall the hardest.</p>