<p>I wish my returns were that good !</p>
<p>Given such good returns, they should not raise tuition, right?</p>
<p>HA!!!!!!!!!!!!!!!!! (I have to add more !!! to make it 10 characters.)</p>
<p>I think that parents and students are getting used to see little changes in tuition increases or decreases when the endowment funds do well. While negative performance might be used as an excuse for raising tuition and reducing financial aid, the opposite does not happen when the endowment record massive earnings. </p>
<p>An astute reader might find a review of Harvard's endowment disbursements instructive. The ratio between the compensation of the funds' money managers and the disbursements towards financial aid is ... interesting. The good news is that, after much outcry, the managers took a pay cut this year. However, do not get the handkerchiefs out yet, they are not about to have to live in a cardboard box next to the river. </p>
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Harvard University paid its top money managers $78.4 million in the last fiscal year, or 27 percent less than in the previous year, when their compensation provoked alumni criticism, the New York Times reports.</p>
<p>The university ties compensation of its money managers to the performance of its endowment, which, thanks to a more than 21 percent return on investments, grew to $22.6 billion at the end of Harvard's 2004 fiscal year. That performance trumped the previous year's, when the school's investments earned a 12.5 percent return and its top money managers were paid $107.5 million.
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<p>PS The Harvard endowment grew from to 19.3B to 22.6B or a net increase of $3,300,000,000. Divide the return by the number of students, and it does not take long to figure that the endowment clearly surpasses the needs of the school, and for that matter their entire annual bugdet. </p>
<p>They do not owe anyone an excuse for preferring to grow their nest egg, but rising tuition has an easier explanation: they do it because they can. Power to them!</p>
<p>If all of the endowment income were allowed to be spent on the same sorts of things that tuition covered, then sure. But that's rarely the case. Colleges don't spend all of their earnings, usually only a small portion, in order that the endowment principal can continue to grow. And some of those earnings are specifically designated to be spent on things the donor(s) felt were important. </p>
<p>A year of great returns certainly puts colleges on firmer financial ground. You may be getting more for your tuition dollars in the long and the short run, so there is that to feel good about. </p>
<p>There is a school of thought that institutions with huge endowments should revisit their stance about spending only a small percentage of the interest each year--and use the increased spending to keep tuition increases lower. I'm not sure how much that idea has gained any ground, but you could certainly make a strong argument for it.</p>
<p>I do know that in the past two years, because investments had not done as well, we had a restriction in the % my college could spend from endowment to cover some costs. So, now that endowment returns are up, perhaps we can go back to the previous % amount.</p>