University Endowments: Purpose and Perplexities

The concept of university endowments is a subject of ongoing debate. Often seen as a means to ensure financial security and support academic excellence, the use and purpose of endowments, particularly those of elite universities, often raise questions. This article aims to delve into the intricacies of endowments, highlighting the practices of elite institutions like Harvard, and discussing the often-criticized use of these funds.

The Core of Endowments

An endowment is an aggregation of assets invested by a college or university to support its educational and research mission in perpetuity. It is a legal and ethical obligation that connects a donor to the institution, ensuring that the money will be used for the specified purposes now and in the future. This concept hinges on a trust that the institution will maintain the mission and goals defined by the donor.

Elite Universities and Endowments

The primary function of endowments for elite universities is often misunderstood. Many argue that these institutions grow their endowments primarily to further increase their financial reserves, rather than to support academic goals more directly. For instance, take Harvard as an example. Harvard maintains a policy of stable undergraduate enrollments for over half a century, indicating that the institution is not using endowment growth to increase student bodies.

Despite the rising costs of education—tuition at Harvard has almost quadrupled from $14,000 in 1985 to $83,000 per year in 2024—the university has not seen a notable reduction in its overall expenses per student. The average cost of attendance at US private colleges is around $50,000, while 67% of Harvard’s students come from families in the top 20% of income. Only 4.5% of students come from the bottom 20% of the socioeconomic ladder. These statistics suggest that while the endowment is growing, it is not necessarily being utilized to improve access for students from lower socioeconomic backgrounds.

Endowments as a Research Investment

Endowments are typically used to fund essential aspects of a university's operations, including research programs, infrastructure updates, and retaining high-quality faculty. Elite universities like Harvard use their endowments to support their academic missions and to maintain their standing in the global academic hierarchy. However, in the case of Institutions like Harvard, the endowment is rarely spent in a typical year. Instead, it is saved or grown "for posterity," a policy that is often seen as a strategic move to enhance their ranking and prestige.

Examples of Effective Endowment Usage

Not all universities utilize their endowments in the same way. For instance, Berea College, a small liberal arts school, has a $1 billion endowment. This substantial sum allows Berea to provide full scholarships to its students who meet financial aid criteria. In stark contrast, Harvard, with its far greater endowment, does not need to draw on these funds for operational purposes. Instead, it focuses on growing the endowment, using the returns to further enhance its standing and prestige.

It is important to note that the primary function of endowments is to ensure the institution's long-term sustainability and ability to fulfill its mission. For Harvard, the growth of its endowment is seen as a power play, a strategy to maintain its status as a top-ranking institution. This approach to endowments has been criticized for perpetuating the status quo and potentially exacerbating existing inequalities in access and opportunity.

Conclusion

University endowments serve a vital role in supporting educational and research missions. However, the growing endowments of elite institutions like Harvard raise questions about their true purpose. While these institutions can and should use their endowments to support their missions, the current approach often focuses more on maintaining and enhancing their standing rather than making a tangible difference in student access and opportunities. The debate around the use of endowments continues, and it is essential for institutions to be transparent and consider the broader impact of these resources.