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How Do University Endowments Work?

January 14, 2021 · 6 minute read

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How Do University Endowments Work?

While applying to college, students and parents may consider a variety of factors before enrolling. Those factors could include everything from the programs the school offers, to its location, sports programs, tuitions, and potential financial aid.

But, one more thing families may want to think about is 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.

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.

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.

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, while a quasi-endowment generally allows academic institutions to use both the principal as well as income at their discretion from the donation.

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. However, typically with a standard donation the donor does not have much, if any, control over how the funds are spent.

So, if a person does want control, 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, a person can give $25,000 for a named scholarship that provides financial support for a student or student’s tuition and fees. A donor could even provide the university with $5 million for a named deanship, which will be used for unrestricted support for the department at the discretion of the Dean.

Who Manages a University Endowment?

Every school decides how to best manage its own endowment. Some colleges and universities hire internal staff to manage its endowment 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.

Which Universities Have the Largest Endowments?

According to US News and World Report, Harvard University in Massachusetts has the largest endowment at nearly $41 billion. Yale University in Connecticut comes in a distant second with just over $30 billion, and Stanford University comes in third with nearly $27.7 billion.

Princeton University in New Jersey comes in at number four with $25.6 billion and Massachusetts Institute of Technology in Massachusetts rounds out the top five with $17.4 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 $10 to $14 billion.

However, these schools can be considered major outliers on the endowment scale. In 2019, the National Association of College and University Business Officers analyzed 774 university endowments and found the median fund balance was $144.4 million.

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 new ones, and can even be used for fellowships or scholarships.

Many schools also use their endowments to distribute financial aid. According to the 2020 NACUBO US Educational Endowments report, in 2019, university endowments distributed about $22B for schools use. Almost half of that went toward 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, help to stave off tuition increases, plan for new facilities, and more.

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.

However, sometimes, financial aid and scholarships can fail to stack up against the growing cost of tuition. And that’s where a private student loan could come in to help fill the gaps.

Private student loans are usually available via a bank or another private lender or financial institution. Different lenders will offer different terms, so students will likely want to shop around for one that fits their specific needs.

Along that search consider checking out the private student loan options available with SoFi. Private student loans are not right for everyone and should be considered after all other options, including federal student loans, have been exhausted.

Potential borrowers can see if they pre-qualify and at what rates in just a few minutes online. If a student is adding a co-signer (which could potentially improve their chances of getting their loan approved) they can add that person directly into the application.

If approved, borrowers can choose from one of four flexible repayment plans. Think of it this way: A SoFi private student loan could help you invest in yourself by filling in the gaps to help you pay for your college education.

Need more financial aid than you qualify for? Checking out SoFi’s Private Student Loan options is a one place to start.

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