<p>So we are comparing two different Midwest LAC's. Similar size of enrollment, but one has an endowment of ~$100M, and the other is at ~$800M.</p>
<p>Obviously they don't necessarily spend that endowment money on each and every student, but I can't help but think that the school with 8 times the endowment is more likely to have superior maintenance, more updated technology, better dorms, etc.</p>
<p>Am I out to lunch on this, or is there some wisdom in comparing the respective endowments of similar schools?</p>
<p>It’s not unlogical, although I’ve heard from some people that some schools with huge endowments aren’t exactly putting it where you can see it and their dorms are pretty awful. So don’t automatically assume that’s the case in every case - inspect it with your own eyes.</p>
<p>In general, a bigger endowment is better. That may mean more money spent now or more money spent in the future, which would be good for the reputation of your school. Also, a school with a big endowment is unlikely to run in to financial difficulties in the future in case something like the 2008 recession hits again. Not as certain for the school with the small endowment.</p>
<p>Major faculty cuts while you are in school(or even after you graduate) would not feel good.</p>
<p>More money is always better, but you cannot assume that the managers of the money are spending it–or spending it the way you would like them to. 25 years ago, one of the best endowed schools in the world had buildings that were falling apart because administrators had decided not to spend the money necessary to, basically, point the bricks. Pointing bricks ain’t sexy; you cannot go to your donors and alumni and say, “look how nice those bricks look. they’re good for another 50 years of service.” Nor can you assume that an LAC with a 2 Billion endowment will spend that money on financial aid support, or that its residual costs will not be worse than any other school to which you’re applying by more than ten thousand dollars.</p>
<p>Check out their respective Moody’s or S&P ratings. Chances are, the college with the higher endowment is also the one loaded up with the most debt. Those bright, shiny new buildings are seldom paid for entirely by cash.</p>
<p>Well, I checked out the Moody’s ratings, which led to links to a couple Forbes articles on the financial health of colleges…Yikes. That was eye-opening. The last thing you want to do as a parent is have your child graduate from a school that may disappear down the road. Makes one wonder whether it might be smart to spend a bit more/accept a bit less to attend a more financially sound school. Very eye opening.</p>
<p>A well run college manages its endowment to last forever. Each year it uses some of the income from its endowment for current expenses (e.g. salaries, utilities, materials, maintenance, financial aid,…), while plowing the rest back into the endowment for growth and as a hedge on inflation. Prior to the Great Recession, a rule of thumb was to “avail” 4 to 5% of the endowment each year for the operating budget and to keep any gifts and income beyond that in the endowment. A college that used 6% or more of its endowment for current expenses was living dangerously. Its endowment might not last forever.</p>
<p>Many highly-endowed colleges support a large fraction of their operating budget, as much as 40%, with the annual avail from the endowment. When gifts for current expenses and ancillary income (grants, rent for facilities,…) are taken into account, a well-endowed college might support only half of its operating budget from tuition and other student fees. A well-endowed college can be a good deal for students because they and their families pay only half the cost of running the college.</p>
<p>Each college has its own priorities, including financial aid, a low student-faculty ratio, and building maintenance. You will find differences in how colleges allocate the resources they have. In general however a well-endowed college will have more resources to allocate to current expenses.</p>
<p>Most colleges do not dip into their endowments to pay for capital projects, such as new buildings. Instead they try to raise money from donors and borrow the balance. Annual payments of interest and principle however are part of the operating budget and are supported partly from the avail on the endowment.</p>
<p>That’s probably more than the OP wanted to know about endowments. Without knowing more about the two colleges he is comparing, I would say that the $800M endowed college is in better shape.</p>
<p>Thanks, Fifty. I don’t want to get into a flame war on the specific schools, but when one school has 8 times the endowment and is rated A by Forbes, and the other is a C, I know where I want my S do to go, and where I want to spend my own money for his education…</p>
<p>Schools with large endowments can afford to run boutique courses with small class sizes, because they don’t have to economically rationalize every seat in every section. Tuition driven institutions have to make money off of students, so they only offer courses that are required or popular with large numbers of students. Endowment-supported instructional spending is a of a kind you can’t “see” (unlike dorms, physical plant etc.) but it makes a qualitative difference in academic offerings.</p>
<p>The other thing I read, for example, Trinity University with over a Billion in endowment, is that they “overpay” their best professors to keep them from defecting. That certainly is an advantage for a student.</p>