I came across this paper, which I found rather interesting
http://www.stanfordlawreview.org/wp-content/uploads/sites/3/2011/03/Conti-Brown-63-Stan-L-Rev-699.pdf
The sad thing is that the paper concludes that
** Universities use their endowments as a symbol of prestige and a point of competition between peer institutions. The cultural value of university endowments means that universities will strive to avoid endowment liquidation to the fullest extent possible, even, counter intuitively, in times when they need their endowment funds most of all. **
This paper says that rich Universities will rarely use their endowments to make education more affordable, if that means lowering their endowment even a little bit, which makes one wonder the practical point of an endowment, if the primary point is to just increase its value. The incentives for University administrators to behave badly is very high if this is the primary incentive.
Interesting. There was an article in our local paper yesterday about Northwestern’s Moody’s rating being downgraded. The have an endowment of $11 billion.
https://www.chicagobusiness.com/education/northwestern-loses-top-moodys-rating
Like any wise family, U’s only spend portion of their endowments on current operating expenses - not just the cost of educating, but buildings & grounds, utilities, prof research and more.
Yes, it contriubtes to ratings on financial strength, etc. But it’s too simplistic to point to prestige…
By maintaining or increasing the endowment, the school maintains or increases the endowment’s earnings, which can mean more financial aid for students. E.g., a school may be need-aware because its endowment is not large enough to support a need-blind policy.
In the last financial crash, the endowments at many schools were decimated, affecting them negatively for years. Keeping a decent endowment makes financial sense.
It is just one more proof that elite universities are foremost business corporations first, educational institutions sadly might only come third, behind research institutions.
Most Americans couldn’t afford the tuition without FAs/loans but many still stand on the side of the institutions, SMH.
“This paper says that rich Universities will rarely use their endowments to make education more affordable…”
This past fiscal year, Princeton, for example, increased the undergrad FA to $174.2M from their endowment investment returns. If that was “for a symbol of prestige and a point of competition between peer institutions,” I don’t mind it at all.
The high endowment schools do spend a lot of dough on need-based financial aid. Which is why those schools have the fattest FA.
But they also spend that endowment cash to make those schools even more fabulous than they already are.
Spending tends to track income. The more you have, the more you spend.