Why college endowments don't cover tuition

As President Obama puts pressure on colleges to keep tuition down, schools may have to get creative about finding ways to offset price increases. So while they’re looking under all the couch cushions, why not spend more of their endowments to defray tuition costs?

There are two big questions here. There’s how much of your endowment you spend every year -- usually 4 or 5 percent for colleges. And there’s what you spend it on. Hal Hartley of the Council of Independent Colleges says schools don’t have a lot of discretion there. Money is usually donated for a specific purpose.

“And the college or university is obligated by law to spend it only for that purpose,” he says. And, Hartley says, a lot of endowment money is already earmarked for scholarships.

But within many endowments, there’s a hidden world of frozen funds, designated for outdated causes, says John Thelin, the author of “The Rising Costs of Higher Education.” 

“For example, say the children of veterans of a long distant war," he says. "Or if they have a scholarship that was devoted to polio research, but polio has been eradicated."

Thelin thinks a flagship state university could free up a few hundred thousand dollars by identifying unreasonable restrictions and having a court dissolve them -- but only if the school has the time and interest to prioritize the effort.

About the author

Kate Davidson is a regular contributor to Marketplace.

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