With College Endowments, How Much Is Too Much?

This is the VOA Special English EDUCATION REPORT.

An endowment is money from donations and investments. Colleges use endowment money for student aid and campus improvements, and for financial security.

But college costs in the United States have been rising faster than inflation. Graduates often face years of debt from student loans. Yet more than sixty colleges and universities, half of them public, have endowments worth at least one billion dollars.

Critics say schools with a lot of money should be sharing more of their wealth to ease the struggle for families. As we reported last week, some now plan to do just that. These include Harvard and Yale. They will also give money to families that earn much more than those that now receive aid.

Harvard has by far the largest endowment of any American university, thirty-five billion, followed by Yale at twenty-two and a half billion.

Yet some educational activists worry what might happen as less-endowed colleges try to compete with these changes. They say the pressure to help upper middle-class families might mean less aid for poor students.

Colleges and their endowments are excused from taxes. Other tax-exempt groups are required to spend at least five percent of their endowments each year. Some people, including Senator Chuck Grassley of Iowa, think it is reasonable to consider such a requirement for colleges.

The senator praised Harvard and Yale for their plans and said he hopes others will follow.

Senator Grassley is the top Republican on the Senate Finance Committee, which deals with tax policy. Last September, at his urging, the committee questioned experts about this issue.

One was Lynn Munson of the Center for College Affordability and Productivity. She says universities pay out only about four percent of their endowments, yet their investments earn much more than that.

A study found that endowments of more than one billion dollars earned an average return of fifteen percent in two thousand six. The average for all endowments was just under eleven percent.

But some experts say most endowment money has to remain invested so schools are not hurt when markets fall.

Also, universities point out that donors often restrict the uses for their donations. Still, Lynn Munson said forty-five percent of endowment money at private schools is unrestricted, and twenty percent at public colleges.

And that's the VOA Special English EDUCATION REPORT, written by Nancy Steinbach. I'm Steve Ember.