<p>Ok, I'm going to skip right over the "size matters" jokes. My question is what should endowment size tell me as a parent about a college? What if two of the schools kid is looking at have roughly the same number of students but one school has more than three times the endowment? Does it mean the facilities will be nicer, more opportunities for kids, etc.?</p>
<p>I think that the size of endowment shows that alumni really care about the school and what I’ve found is that there is less likely to be nickel and diming by the school and generally better perks. For instance my daughters small private that she did for undergrad was extremely well endowed. Tuition was pretty reasonable, merit aid was very good, no charge for washers and dryers, beautiful four year housing dorms, very low cost for quality study abroad’s, excellent speakers brought in and a very diverse group of students, not just by skin color but also financially.</p>
<p>At my older son’s college he had many of the same advantages as his sisters school except for the diversity. </p>
<p>My youngest son, however, is at a younger college that has a fairly low endowment. Merit aid is not nearly as good and there is a charge for washers and dryers. In general, it just seems that it’s not as well funded. Not really complaining because my son is happy there and I think the education he is getting is comparable and he will most likely have the best job prospects.</p>
<p>Usually it means that their financial aid system is stronger. Whether that means they tend to meet 100% of student need or are “need-blind” in admissions, you’d have to read the website. It also generally means they have a lot of alumni support. However, back in 2008 when we were looking at schools for S, some schools (Amherst) had a massive endowment but the liquidity of that investment was not very good and they were essentially borrowing to pay the light bill. Also, they had capital projects they put immediately on the back burner that are only now coming back into fruition. So… it’s just one thing to look at, but surely not everything IMO</p>
<p>S’s school, for example, didn’t have a HUGE endowment, but they had also just completed a number of capital improvements and so they were actually in a good position to weather the storm of the economic meltdown to some degree. I was concerned, however, that what they promised in the literature of 2008 would be impossible to keep up amid the realities of 2009 and 2010. To some extent there have been some cuts, but overall, I think they withstood things quite well.</p>
<p>hmm… free laundry? Now that’s a hefty endowment. And I mean that in all sincerity. I swear S only washes his clothes when they’re stiff enough to meet him in the laundry room!</p>
<p>This often comes up in the context of Wesleyan, which has one of the smallest endowments per student of any of USNews’s “National Liberal Arts Colleges” yet, remains as one of the most competitive LACs in the nation (tied at #11 last year) despite the heavy reliance that poll has on financial imputs like “expenditures per student”, “faculty compensation”.</p>
<p>Wesleyan has remained strong in the running for the same reason Modadunn alluded to in post #3: that when it did have huge sums of endowment money, it made strategic investments in organization and program that would enable it to “ride the tide” of economic events. It provided seed money for graduate programs in the natural sciences that today pretty much pay for themselves, even during economic downturns; and, it weaned itself away from being totally dependent on endowment income at about the same time that it increased the size of its student body in the seventies and eighties. Today only 17% of the Wesleyan’s annual operating budget is derived from endowment income, in contrast to about 50% at Amherst. The result, as reported by Modadunn, is that Amherst, Swarthmore, Pomona and just about every other “big endowment college” scrambled to make the same kinds of cuts in services and deferrals in capital programs that lesser endowed colleges made when things tanked in 2008. </p>
<p>I admit that it’s counterintuitive and if it’s any consoloation, it continues to baffle and bemuse the Wesleyan CC forum :):
<a href=“http://talk.collegeconfidential.com/wesleyan-university/1191404-what-has-happened-wesleyan.html[/url]”>http://talk.collegeconfidential.com/wesleyan-university/1191404-what-has-happened-wesleyan.html</a></p>
<p>I don’t know that endowment size tells you much. Schools vary widely in the amount of their endowment they use for operating expenses. It also depends on how much of the endowment is restricted, and to what purpose. If an endowment includes lots of endowed chairs in the law school, that’s not much help to you as an undergraduate. I suppose it’s a rough measure of alumni support, but there are a lot of schools who have big endowments by virtue of one or two windfall gifts.</p>
<p>FWIW, Harvard charges for its washers and dryers.</p>
<p>Davidson has a free laundry service for students. Drop off dirty clothes, pick them up clean and folded. Also no student loans in FA package.</p>
<p>Publics typically have smaller endowments, but they have a state behind them.</p>
<p>I strongly differ regarding publics having a state behind them. That is only if the state is both solvent and interested in students and education. The state I reside in has a complex higher education system. The state “owned” are 14 small schools that do have reasonably low tuition, but proportionally higher fees (and nickles and dimes). Only about 31 percent of the student’s education is backed by the state. Then there are the “state-relateds,” the gigantic big-name research universities that generally graduate future legislators, who remain favorable to them for a lifetime. Most people do not know that these big schools are not technically “state” schools – regardless of their unfortunate names - nor are they supposed to be getting the Lion’s share of the state subsidy. So, no publics, do not necessarily have a state behind them. Unless you live in a solvent state, find a school with a big endowment that is used to fund student financial aid.</p>
<p>" but they have the state behind them"…Unless you live in California…:-((</p>
<p>Larger endowments tend to mean happier alumni/a. They usually mean more scholarship money for students and depending on how they allocate their endowments, nicer educational facilities. I think there is also some correlation to the “success” of their alum and their ability to donate and their desire to donate. It also provides a financial backing when the economy is difficult, meaning they don’t have to be cutting programs to stay within budget like you see happening at pretty much every state school these days.</p>
<p>Most colleges and universities take an annual payout of about 5% (more or less) from their endowment, calculated on the basis of a 3-year rolling average of the estimated fair market value of endowment assets. Some use a longer averaging period, which tends to smooth out the roller-coaster effect of market volatility. So figure for each billion dollars in endowment, about $50 million per year goes into the school’s operating budget.</p>
<p>A few public universities have quite large endowments; most are quite modest. But an annual state appropriation of, say, $300 million is the equivalent of the revenue stream from an endowment of $6 billion at a 5% payout rate.</p>
<p>Nor do all private schools have large endowments; most have pretty modest endowments, it’s really only a handful that have big war chests. And you need to consider not just the total size of the endowment, but also how widely that money needs to be spread. For that reason many people look at endowment-per-student–though this can be a bit misleading, too. Because bigger schools can achieve economies of scale in some areas, it’s just more expensive on a per-student basis to run a small school than a larger one.</p>
<p>Another problem with publicly reported endowment assets is that for some asset classes, the reported value is just an estimate. For publicly traded equities, you can get an accurate market valuation (though you really just get a snapshot at the moment you take the measurement). But some large-endowment universities (HYP, for example) have tied up a lot of their money in “alternative investments” like private equity funds and real estate (e.g., timber lands in Montana) that are much more difficult to value, and may be pretty difficult to unload. They made extraordinary returns on some of these investments when markets were rising before the recent recession, but some of these assets took a beating in the downturn, and no one’s buying them now, so no one really knows what they’re worth. There’s a lot of speculation these days that the endowments of some of these schools may be overvalued because they have so much tied up in troubled asset classes. Not to say they’re going broke, but they may be worth a lot less than they claim. I’d take reported endowment figures with a large grain of salt without knowing a whole lot more about what kinds of investments that money is tied up in, which they’re generally pretty reluctant to tell you.</p>
<p>My son went to a private LAC with a large endowment. They have a rep for very good financial aid, which is probably the most important advantage. Some of the consequences I observed that affected all students were an immaculately maintained campus, wonderfully healthful food, excellent and ample staffing in all areas,
( when my son was shut out of a language class because of section scheduling conflicts, they created a new section for four students), well-supported travel abroad including airfare and cash for meals for the semester, many opportunities for students to work during the year on campus,( even for full-pay students), and a lot of school supported paid off-campus internships. There were also school-sponsored parties and trips, like the orientation week trip, that were all inclusive.</p>
<p>It tells you that they (in theory) have a lot of money. There are colleges like Berea that make the college tuition free; there are others that provide a huge subsidy to millionaires’ kids.</p>
<p>motherofcat - Pennsylvania, yes?</p>
<p>Endowments make all the difference in the world in my opinion.</p>
<p>Great professors doing cutting edge research basically want 2 things - a big fat pay check and the resources and support to do their work. Both take big bucks which comes from the endowment plus large donations for first class facilities. </p>
<p>The question is how does this impact my students 4 years at college. I think you have to take a hard look at your kids area of interest and examine whether that is an area where the University has used their financial resources to go after the best academics. For example I have seen where Notre Dame, which has a pretty sizeable endowment, has had an interest in Irish literature and they have made best in field professors from Ireland offers they couldn’t refuse.</p>
<p>sm74–Notre Dame also guarantees to meet 100% of your demonstrated financial need, your large “research” university doesn’t do that–nor do most students have access to that “great professor” . Their endowment is large enough that they can afford to have extras like the Irish Literature profs, which just enhances the overall value of the school.</p>
<p>When my kids were looking, I didn’t just see the larger endowments as offering better financial aid and the etceteras. I was concerned that if there were a hiccup, the schools with less financial strength might need to pare back in ways that affected the experience. Really saying the same thing as others, but from the other perspective. They don’t have the same safety net. After 2008, my financially secure employer cut back on room temps by a degree or two, put more lights on auto shut-off and deferred some maintenance, offered early retirements to long-term staff, etc. All barely felt by students. Knowing many families were affected by the downturn, they added to the finaid pool. In contrast, my friend’s kid’s school reduced the number of lecturers, converted some dorm doubles into triples, cut hours at the health center, altered meal services, didn’t upgrade labs and lowered finaid.</p>
<p>But, as noted, you can’t determine operating financial strength from endowment numbers alone. You’d have to know the endowment’s performance (and in what sort of categories,) how fund growths are currently allocated (eg, to building projects, faculty development, etc) and what they have already set aside in reserves. All sorts of accounting things I can’t even name.</p>
<p>sm74 wrote:
</p>
<p>You overlooked a third thing: reduced teaching load and plenty of time for sabbatical leaves. I guess, you could say, that all gets written off as “faculty compensation” of some sort since every course NOT taught by a hot professor essentially means, some other professor is taking up the slack. OTOH, it makes cross-campus comparisons difficult because different schools may, in fact, have lighter teaching loads overall than others.</p>
<p>I also think you have to consider the probability that a STEM professor is bringing in outside funding that accrues toward equipment and quite a bit of support overhead.</p>
<p>looking, I would say that the chase for high profile teachers has caused a big hiccup for small endowment colleges and big endoement colleges alike. Harvard and Yale were paying outrageous sums, based on the expectation that their endowment would grow to the sky, for high profile professors–and their contracts are causing the big endowment schools to cut back in the same way that small endowment schools are.
Harvard had already hired big money professors based on the promise of Allston being developed to provide facilities to do their research–now no Allston so they have a mighty big headache.</p>
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<p>This cuts both ways, though. Some of the most endowment-heavy schools had to make some of the biggest cuts when their investment portfolios went into the tank in the recent recession. Yale, for example, has made cut after cut after cut, and it’s still borrowing to cover operating costs, either because it’s waiting for its investments to recover rather than sell them at a deep loss, or because some of those assets are so illiquid that it can’t sell them, or both. More than the estimated size of the endowment, it’s what’s in the endowment and how it’s managed that count, and we don’t usually get to see very much of that.</p>
<p>It’s important to realize, too, that an endowment isn’t just a giant piggy back or rainy-day fund to dip into when times get tough. Every school I’m aware of uses its endowment to generate an annual payout, usually somewhere around 5% of asset value averaged over a 3-year (or in some cases longer) period, to be used toward operating expenses. So when the markets tank, endowment value shrinks, and the school has less operating income and needs to make cuts; its endowment doesn’t give it extra cash reserves to draw on. It can temper this by tweaking the payout rate a bit, but you don’t want to start taking much bigger payouts when asset valuations are low because it will just mean you’re in worse shape when asset values start to recover.</p>