While applying to college, students and parents may consider a variety of factors before enrolling. Those factors could include a school’s academic programs, location, sports programs, tuition, and potential financial aid.
But there is one more thing families may want to think about: A college or university’s endowment. Not familiar with the term?
Here’s helpful information about university endowments, how they work, how they are managed, which schools have the largest ones, and how those university endowments could potentially benefit students.
Table of Contents
Key Points
• University endowments consist of donated funds invested for long-term growth and support.
• Four types of endowments exist: unrestricted, restricted, term, and quasi.
• Endowments finance scholarships, faculty positions, research, and campus enhancements.
• Management of endowments can be handled by internal staff or external investment firms.
• Harvard University holds the largest endowment, valued at approximately $50.7 billion.
What Is an Endowment?
A university endowment refers to the amount of money a college or university receives via donations from its alumni or other interested parties. This money is then invested by the academic institution to help grow its savings and to provide funding for the future.
Some schools can have endowments well into the billions made up of potentially hundreds or thousands of individual gifts.
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Types of Endowments
Not every university uses the same endowment system. Typically, a university has one of four types of endowments. Those include unrestricted endowments as well as term, quasi, and restricted endowments.
An unrestricted endowment means the university may choose to spend or distribute the donations it receives however it wishes. With a restricted endowment, the academic institution must hold the principal of the invested donation in perpetuity.
With a restricted endowment, the academic institution must hold the principal of the invested donation in perpetuity. The earnings from the invested assets can be used, but only at the donor’s specifications at the time of giving. For example, if a donor gives a $25,000 donation specifically earmarked for a scholarship, any principal earnings must be used on the scholarship.
A term endowment means a university can use the principal after a period of time has passed or if a specific event occurs. With a quasi endowment, the university (rather than a donor) decides to retain, invest, and use earnings for a specific purpose.
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How Does University Endowment Giving Work?
If a person wants to donate to their alma mater, or just give to the academic institution of their choice, they can do so at any time. With a standard donation, however, the donor typically does not have much, if any, control over how the funds are spent.
If a donor wants control over how their donation will be used, they may prefer to give via endowment. Colleges and universities typically set a minimum when it comes to endowment gifts, and those minimums can be quite hefty.
For example, Michigan State University’s law program endowments begin at $50,000. Other universities set different minimum funding levels for different types of endowments.
At the University of Illinois Springfield, for instance, you can create an “endowed” scholarship for $25,000. You can even name the scholarship fund, perhaps in honor of a family member or someone you admire.
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Who Manages a University Endowment?
Every school decides how to best manage its own endowment. Some colleges and universities hire internal staff to manage their endowments while others hire outside firms and professional investors to oversee the money.
There may be an endowment manager or a committee or team that works to manage the funds. They will generally work with the university to decide its goals for the endowment, such as making as much income as quickly as possible, or going for more long-term sustainable growth. Then, decisions about how and where to invest the money are made to help the endowment meet its goals.
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Which Universities Have the Largest Endowments?
According to US News and World Report, Harvard University has the largest endowment at around $50.7 billion. Yale University comes in a distant second with roughly $40.7 billion, and Stanford University comes in third with approximately $36.5 billion.
Princeton University comes in at number four with $33.4 billion and Massachusetts Institute of Technology rounds out the top five with $23.5 billion.
University of Pennsylvania, Texas A&M University, University of Michigan–Ann Arbor, University of Notre Dame, and Columbia University make up the remaining top 10 with endowments ranging from around $13.6 to $21 billion.
However, these schools can be considered major outliers on the endowment scale. According to a 2024 survey of 658 U.S. colleges by the National Association of College and University Business Officers, the majority of university endowments are $250 million or less; nearly a third of schools reported endowments of less than $100 million.
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How Are University Endowments Used and Why do They Matter?
University endowments can be used for a variety of financial needs, including hiring new professors, building new buildings or upgrading old ones, offering students fellowships or scholarships, and distributing financial aid.
Beyond these uses, endowments also allow colleges and universities to look ahead into the future. It helps schools plan for faculty hiring, stave off tuition increases, plan for new facilities, and more.
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Taking Advantage of Endowments
While students will never have direct access to a college or university’s endowment, they could still reap the benefits of any and all donations. Those benefits could come in the form of having access to newer facilities and equipment, through research opportunities, or via learning from the highest skilled professors.
Of course, students can also take advantage of a university’s endowment by applying for specific scholarships funded by donors, or by applying for any and all available financial aid to help them pay for college.
The Takeaway
University endowments are donated funds that schools invest to support long-term goals like scholarships, faculty hiring, research, and campus improvements. They come in different types, each with rules on how the money can be used, and are often managed by professional investors or dedicated staff. While the largest endowments belong to a handful of wealthy universities, even smaller ones can enhance student opportunities, from upgraded facilities and academic programs to more general financial aid packages.
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FAQ
How do universities use endowments?
Universities use endowments as long-term investment funds to support their mission. The principal (original donation) is typically preserved, while investment earnings are spent on specific purposes, such as scholarships, faculty salaries, research, campus maintenance, and academic programs. Many endowments are restricted by donor intent, meaning funds must be used for designated projects.
Why does Harvard have a $50 billion endowment?
Harvard’s endowment has grown to over $50 billion due to centuries of donations, strong investment returns, and careful financial management. Alumni and philanthropists contribute large gifts, often earmarked for specific purposes, while Harvard’s investment team diversifies across stocks, bonds, private equity, and real estate. Over time, compounding returns significantly increase the fund’s value.
How is an endowment paid out?
Colleges and universities generally distribute a fixed percentage — often 4% to 5% — of their endowment’s value each year. This payout policy helps ensure consistent funding without depleting the principal investment. The distributed funds are typically used for donor-designated purposes, such as student aid, faculty support, or program funding.
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