Some lawmakers and advocates have questioned whether Ivy Leagues like Harvard (pictured above) should spend more of their endowment funds. Joe Raedle/Getty Image
I've Always Wondered ...

What do elite colleges do with all that endowment money? 

Janet Nguyen Feb 17, 2023
Some lawmakers and advocates have questioned whether Ivy Leagues like Harvard (pictured above) should spend more of their endowment funds. Joe Raedle/Getty Image

This is just one of the stories from our “I’ve Always Wondered” series, where we tackle all of your questions about the world of business, no matter how big or small. Ever wondered if recycling is worth it? Or how store brands stack up against name brands? Check out more from the series here.

Listener and reader Scott Swisher from San Diego, California, asks:

With last year’s announcement of student loan forgiveness by the White House, I was wondering; what do private schools do with their huge endowments? Does this announcement subsidize tuition for students who went to private schools that already have massive endowments? If not, what do those schools do with that money?

Some of the nation’s wealthiest colleges have endowments in the tens of billions. Harvard has an endowment of $51 billion, Yale has more than $41 billion, and Princeton has almost $36 billion. 

The trove of resources that elite colleges have has prompted advocacy groups and lawmakers to question whether these colleges should be using more of that money to help those in need. 

“With endowments continuing to boom after four decades at our wealthiest schools, we should expect them to enroll more students from more walks of life,” said Charlie Eaton, author of “Bankers in the Ivory Tower: The Troubling Rise of Financiers in U.S. Higher Education.” 

Should elite colleges be using more of their endowment money to help students?

Last year, President Joe Biden announced a plan to cancel $10,000 in student debt for individuals making less than $125,000 a year (and families making less than $250,000). His administration also planned to cancel an extra $10,000 in student debt for those who are Pell Grant recipients. 

But this plan has been put on hold in the face of multiple lawsuits, with the Supreme Court soon planning to hear two cases that challenge the relief program. 

Should it go into effect, our listener, Swisher, had been wondering whether a plan like this would end up helping out universities with large endowments who could instead use some of their funds to help out borrowers. 

“It is fair to ask that wealthy universities provide loan relief to former students, especially now that many of these schools have gone debt-free for then-undergrads,” said Eaton, who’s an associate professor of sociology at the University of California, Merced.

Those schools use their endowments to subsidize financial aid and compensate their faculty generously, explained Eaton. 

From 2021-22, professors earned an average of almost $266,000 at Princeton, $263,000 at Harvard and $244,000 at Yale, according to data from the American Association of University Professors. Meanwhile, the average full-time professor’s salary stood at $144,000 — $100,000 lower than Yale’s average.

And thanks to their large endowments, some Ivy League institutions offer free tuition for students whose families make below a certain threshold

The websites for these colleges also point out some other ways endowment money is used, which include providing funding for art galleries, fellowships and library preservation. 

But some say there are more ways they could use that money; if not helping with student debt, then using it to enroll more students.

Eaton said that these elite private institutions reinvest their endowments — and, in his view, “hoard” the money. 

“The endowments have grown much more than our societal need for higher education has grown,” Eaton said. 

He said the endowment has become “a status marker.” 

“Spending endowment resources to enroll more students would actually undermine the elite status of our wealthiest institutions, because being an elite school comes in part from how many people you exclude from attending your school,” he said. “Exclusion is a necessary counterpart to eliteness.”

Eaton said that the endowment money that wealthy private universities receive comes from donations and the returns they receive through reinvestment. 

Eaton explained that elite schools’ endowments have grown over the years and haven’t always been this large. “If you go back to the ‘60s in particular, the relative size of endowments to the number of students enrolled was much smaller,” he said.  

But elite schools started investing in hedge funds and private equity funds. Schools like Harvard, Yale and Princeton saw their endowments “increase rapidly” beginning in the 1980s, Eaton previously wrote for the Washington Post. 

“But how we spent endowments remained the same,” Eaton told Marketplace. 

Marketplace reached out to Harvard, Yale and Princeton for comment on whether each school should be using more of their endowment funds to help with student loans, but did not receive a response by publication time. 

Organizations like the Institute for Higher Education Policy have been advocating for private colleges to spend more of their endowment money. A 2017 report from IHEP says that “colleges with large endowments should be required to spend at least the 5% that private foundations are required to spend on charitable donations each year, and invest those dollars in making their colleges more affordable and accessible for low-income students.”

The average spending rate for the 2022 fiscal year stood at 4.17%, a decrease from 4.79% the previous year, according to a study from the National Association of College and University Business Officers and financial services organization TIAA. But the study noted that total endowment withdrawals increased. 

IHEP’s president and CEO, Mamie Voight, told Marketplace over email: “Colleges with large endowments should use the funds to reduce the high cost of college on the front-end, especially for students from low-income backgrounds, so they do not leave college with high debt loads.” 

“All colleges, whether private or public, should implement policies that 1) are need-based and, thus, equity-centered; and 2) recognize that the cost to attend college is far more than simply the cost of tuition,” Voight continued. 

Some higher education finance experts, however, note that there may be obstacles when it comes to endowment spending. On its website, Harvard says that its endowment consists of more than 14,000 individual funds, but the majority are restricted.

Higher education expert Mark Kantrowitz says a donor might have entered into a legal agreement with the college specifying that their donation should be used for specific purposes, with that money having to go toward student aid, faculty salaries and buildings and equipment. 

Some have very specific stipulations attached, with Kantrowitz pointing out that some colleges have gone to court to make the requirements more lenient. 

For example, the University of California received endowment money in the late 1970s for the Malcom R. Stacey Memorial Scholarship Fund, which is supposed to help undergraduate Jewish students who are orphans and “preparing for graduate study in aeronautical engineering.” Lawyers had to get court approval that would expand the eligibility requirements, although students who meet the original requirements are still given first priority. 

Sometimes no students satisfy a scholarship’s requirements, Kantrowitz noted, which means the money keeps growing. 

But not all endowment money is restricted. Brian Galle, a law professor at Georgetown University, wrote in a Medium post that plenty of endowment money is actually “flexible,” pointing to a Congressional Research Service report that says only 45% of 2017 endowment assets were in a “true endowment.” 

Not all colleges have the means 

Biden had concerns about raising the student loan forgiveness threshold even higher after advocates pushed him to raise the amount to at least $50,000 because it could end up helping those “who have gone to Harvard and Yale and Penn.”

But back in 2021, Kantrowitz told CNBC that only 0.3% of federal student borrowers have attended an Ivy League College. 

While some have been pushing private colleges — with the means — to spend more of their money to help students, Ivy Leagues don’t represent all colleges. Private or public. 

“The typical private college actually does not have substantial endowment assets, and thus doesn’t necessarily have resources to do all that much with their endowment,” Eaton said.

Survey data from The National Association of College and University Business Officers and TIAA found that endowment assets for colleges, overall, declined by 4% at the end of fiscal year 2022 from the previous year. In total, they had $807 billion. 

If a school like Harvard decided to forgive everyone’s debt, it probably wouldn’t make a dent in the nation’s total student loan balance, said Michele Shepard, senior director of college affordability at The Institute for College Access & Success. 

Shepard said there is “a place” to hold colleges accountable for making higher education more affordable for students, but thinks we also need the federal government and states to invest in financial aid programs. 

“Real hard-working families are having to take on debt,” Shepard said. “We’re putting families in a position where the only way to get ahead is to enroll in college and get a degree. And it’s pretty much impossible at this point to do that without borrowing money.” 

Reader questions may be edited for clarity. 

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