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Endowments Are Still Massive–-So Spend!

March 11, 2009

Many people think the colleges and universities are overreacting to the sharp drop in their endowments. Lynne Munson, former deputy chairman of the National Endowment for the Humanities, is one of these critics. In a letter (subscription only) to the Chronicle of Higher Education, she argues that higher ed endowments haven’t lost much value if you put the recent drop in context of the astonishing gains of the last few years.

She writes: “College and university endowments increased, on average, 17.2 percent in the 2007 fiscal year and 10.7 percent in 2006. Taking compounded gains into account, these funds went up more than 26 percent just in the two years preceding their recent decline. And endowment increases at wealthy schools soared far past those averages. Harvard and Yale Universities increased the size of their endowments 45 percent from 2005 to 2007.

“So how concerned should we be that higher-education endowments have suffered a dramatic loss? The answer is: not very. Today college and university endowments are basically worth what they were in 2005. In other words, they’re massive….Being concerned about the value of college and university endowments today is a little like worrying about whether Warren Buffett still has enough inheritance to share among his children.”

The real problem, Munson argues, is that colleges will cite their recent losses to justify cutting endowment spending. Before the market drop, the colleges had come under heavy pressure from Congress and the public to spend at least the minimum payout required of private foundations–five percent.

In a recent survey, 27 percent of colleges and universities said they would decrease endowment spending while only 1 percent planned an increase. Munson writes: “This is the absolute reverse of the reaction they should be having at a time when students and families need help — particularly since colleges still have plenty to share.”

Munson currently studies college and university endowments for the Institute for Jewish and Community Research.

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