GAO Issues Report on University Endowments 

Endowment funds at the nation’s colleges and universities grew by an average of 6.2 percent a year in inflation-adjusted dollars since 1989, from just over $100 billion to more than $400 billion in 2008, according to a long-awaited Government Accountability Office study released today.

The report, POSTSECONDARY EDUCATION: College and University Endowments Have Shown Long-Term Growth, While Size, Restrictions, and Distributions Vary, was mandated by Congress during renewal of the Higher Education Act in 2008. Congress sought the report after questions were raised about the size and use of large endowments at some institutions at a time when the cost of college was growing. The report attempts to characterize three aspects of endowments: size and change in value during the last 20 years, extent and manner of restrictions on the funds, and asset distribution. Data was collect from the Department of Education and other sources.

With no industry-wide information available on endowment restrictions and distributions, GAO selected 10 colleges and universities for case studies, reviewing documents and interviewing officials at those institutions. The University of Texas, University of Colorado, University of Kentucky, and University of Virginia were among the 10 institutions selected as case studies. GAO states that the information from these schools cannot be generalized to all U.S. colleges and universities.

Among the key findings:

• In 2008, most four-year postsecondary institutions in the United States had endowments of less than $100 million, while only 70 had endowments of $1 billion or more.
• Private institutions tended to have larger endowments than public universities, while schools with high minority enrollment tended to have smaller endowments than other schools.
• Endowments at the case-study institutions declined by an average of more than 27 percent from 2007 to 2009, adjusted for inflation. Despite these recent losses, endowments at case-study schools showed average, inflation-adjusted long-term growth of 6.2 percent per year since 1989.
• Most endowment growth at case-study schools was from investment earnings.
• Most endowment assets at case-study schools were restricted by donors, with restrictions for financial aid covering from 12 to 70 percent of endowment assets in 2009. Some restrictions are broadly-worded, designating funds to be used for financial aid, for example, while others are very specific, such as funding for a scholarship for students from a particular area. Schools have some ability to modify restrictions when a restriction outlives its purpose.
• Case-study institutions had mechanisms to smooth the effects of market fluctuations and ensure a reliable stream of funding for operations, such as basing distribution targets on the endowment’s market values for multiple years instead of just the most recent year. Over the past 20 years, inflation-adjusted distributions from these schools have shown steady growth.

Resources:
POSTSECONDARY EDUCATION: College and University Endowments Have Shown Long-Term Growth, While Size, Restrictions, and Distributions Vary 
Summary 
Full report