College Endowments Under Fire
🚀 What’s happening: Top donors at certain universities across the country are pulling their donations and endowment funding over leadership being slow to denounce the horrific October 7th terrorist attack, while also allowing student organizations to openly praise and express their support for terrorism.
How do endowments work?
Most universities and colleges are considered non-profit organizations, which means that any donations they take or investments they make are not taxable (while this statement is not entirely true as some universities do pay some small amount of tax, it’s fair to say they are not taxed nearly like for profit entities).
Endowments are a collection of these donations that have been invested over time and grow tax free. These donations, in most cases, are earmarked for a specific purpose based on the wishes of whomever gave the gift (like if you want your donation to specifically go towards athletics), but there are usually some funds that are given without designation and can be spent as the school sees fit.
How big are endowments?
The total current value of all endowments in the United States is roughly around $900 billion. That said, similar to the current state of personal incomes in the U.S., only about the top 5% to 10% of schools have endowments over $1 billion (the median endowment in the U.S. is only around $200 million).
Endowments have been playing a larger and larger role in school budgets over time and help to support faculty, research, student scholarships, and other school priorities.
For example, Harvard, which currently has the largest endowment in the United States at around $50 billion, uses about $2 billion every year to help cover university expenses (for number geeks like us who want to check out Harvard’s endowment numbers you can read their annual report here).
👪 Closer to home: While there is a real debate around what the taxation of some of these endowments should be, our concern for families lies more with what this means for the future education of our kids.
When big time donors start closing their checkbooks, we expect one of two things to happen— these universities either meet their demands (most are asking for a change in leadership), or forgo the donation and make up the lost income in other ways.
Large universities like Harvard will probably be ok, but smaller institutions will be hurt much more as there is often a trickle down effect. We fear that many of these universities will be forced to make the decision to increase tuition rates even higher.
Times change, and we debate at our dinner table all the time if college, as we once knew it, will even be worth the investment by the time our kids get old enough (or if more acceptable alternatives will arise). These are important conversations to have at your table as well (remember, there is no “right answer”, just what is right for you).
Here are some further resources to help:
