Why Do Endowments Matter When Choosing a College?
I first learned about my school having an endowment sophomore year.
This year, especially because of COVID-19, colleges all across the country are experiencing a loss in their endowment assets. Some may even have underwater endowments, which means a fund may fall below its initial gift amount. It is also important to note, just because a school has a large endowment does not mean that all of its programs are funded equally.
During the college search, consider researching a school’s endowment. It can be an indicator of the school’s overall health and stability.
Let’s explore all basics you should know about college endowments.
What is an endowment?
An endowment is the amount of money a college receives and/or saves in donations to support the mission of the school.
Think of it as a school’s bank savings account. Although, student tuition is still seen as the revenue to expand or keep the school afloat.
On average, a school spends about 5 percent of its endowment per year. Furthermore, schools have a number that refers to their endowment per student, which can be a more specific number to reference when looking for financial aid.
Why is it important for a school to have an endowment?
Since an endowment can be comparable to a school’s rainy day fund, this can be a good indicator of the school’s financial health.
The university is typically more stable if it has a large endowment, which can ensure long-term growth.
Also, a school’s endowment per student can tell you in the short term how much wiggle room they have to offer financial aid.
What does a school use its endowment for?
A school can use its endowment money for providing scholarships, upgrading facilities, hiring professors, running programs, recruiting students, conducting research and more.
There are four specific kinds of endowments, and their key differences are how they are received and spent.
- Term endowments can only be spent in a certain time period or an event occurrence.
- Unrestricted endowments are assets that can be spent, saved, invested, and distributed at the discretion of the institution.
- Quasi-endowments are donations by an individual or institution that can only be used for a specific purpose. The money is usually controlled by the school’s board of trustees.
- Restricted endowments are given by a donor with a specific purpose for the funds to be spent.
If a school has a large endowment, why does tuition still increase?
Endowments only represent a small amount of a school’s operating budget; student tuition is meant to fill the gaps. Remember, endowments can get particular about what they can and cannot be spent on.
Final Thoughts on School Endowments
The size of a college’s endowment should not be an aspect that makes or breaks your college decision, but it can be an important number to look at when considering a school’s stability heading into the future, especially given the current global pandemic and its accompanying financial woes.
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