<p>This is kind of a dumb question..but I really don't know what a college endowment is. One person told me it's the average amount of donations they receive each year..but that makes no sense. My take on it..is like..the amount of money the college has in the bank, not to be touched, and that only the INTREST on an endowment should be used, the principal (endowment) is never touched unless it's an emergency. Is this correct?</p>
<p>And if so..shouldn't Connecticut have given some of that 2.3 Billion dollar gift to UConn just to endowment...I mean..giving them just 700 million for endowment would have increased it to 1 billion, which would have been enough to compete with other flagship universities.</p>
<p>Yeah thats a good way of looking at it. </p>
<p>One thing is that while a university's aggregate endowment may total X amount of dollars, the individual endowments may have stipulations that require the interest to be spent on a specific area.</p>
<p>But yes, the idea is for the principal to remain, with the interest spent or reinvested.</p>
<p>Ok..so like..they could have like "100 million endowment for financial aid" out of a total of say..500 million, and the intrest from that 100 million can be used ONLY for financial aid?</p>
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One person told me it's the average amount of donations they receive each year..but that makes no sense.
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<p>Yeah, some people donate 90 billion to Harvard each year, some only 500 million (the shame -- why donate at all?).</p>
<p>The endowment the money that's donated, the money from investments, etc. See this:</p>
<p><a href="http://en.wikipedia.org/wiki/Financial_endowment%5B/url%5D">http://en.wikipedia.org/wiki/Financial_endowment</a></p>
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Ok..so like..they could have like "100 million endowment for financial aid" out of a total of say..500 million, and the intrest from that 100 million can be used ONLY for financial aid?
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<p>Well, not just interest, but investment returns too. Typically 5% of the endowment is spent each year.</p>
<p>Here's another old but good article concerning one of the largest endowments (Stanford's):</p>
<p><a href="http://www.stanford.edu/dept/pres-provost/president/speeches/endowment-00.html%5B/url%5D">http://www.stanford.edu/dept/pres-provost/president/speeches/endowment-00.html</a></p>
<p>The endowment is a large sum of capital, usually above $1M, accumulated over years and years of donations and funding from tuition, that academic institutions invest in the financial markets. Universities usually set up an investment company for the endowment, and the university uses the returns on the profits from the market, and the interest acquired on the endowment over time. If you have a large endowment like Harvard's ($27 Billion), the interest and returns can be billions of dollars a year. These returns fund most of the costs of running a university. The returns on Princeton's 12.7 Billion dollar endowment are around 15% total, so they get $1.9 Billion in returns a year. </p>
<p>I hope this explains endowment pretty well, I always found how it worked to be simply mind-boggling.</p>
<p>Here is the Finances Page at Princeton that has all of the numbers: <a href="http://www.princeton.edu/pr/facts/profile/06/33.htm%5B/url%5D">http://www.princeton.edu/pr/facts/profile/06/33.htm</a></p>
<p>Enjoy.</p>
<p>JW</p>
<p>P.S. Since it is late, I accidentally mistook "budget" for "expenses". Sorry.</p>
<p>Thanks everyone, really great answers, I think I get it now..except..</p>
<p>kyledavid, you said "typically 5% of the endowment is spent each year"
5 percent of the principal..or 5 percent of the intrest?</p>
<p>5% of the principal</p>
<p>So then..endowment goes down every year? If they are spending the principal..</p>
<p>The endowment itself doesn't go down, because you add much more to it: the investment returns, etc.</p>
<p>I'm not sure whether the 5% spent is the principle, or the principle + returns.</p>
<p>Fun fact: Harvard has almost 11,000 separate funds in its portfolio.</p>
<p>If you have an endowment of 10 Billion, and spend 500 millions (5%), but you have returns on capital of 1.5 billion (~15%), then your endowment continues to grow. Schools with large endowments (especially LACs) can spend more per undergrad, because they make more in returns each year.</p>
<p>brass puts it perfectly. Also new gifts help keep the endowment growing.</p>