College endowments over the moon with continued growth

According to a January 2014 report, the nation’s college and university endowments, often used to fund scholarships and professorships, had strong growth in 2013.

Amid some enrollment declines, that could be welcome news for higher education institutions, which are under pressure to hold down tuition costs. Survey participants said that the endowments contribute a portion to the operating budget of large private schools. Meanwhile, the higher education community is beginning to feel the heat as the Obama administration pressures it to curb costs and improve student outcomes.

The reduction in the number of high school graduates has contributed to the reduction in the number of college students.  Only 19.5 million students were enrolled in college last fall compared with a little more than 20 million two years earlier, as reported by the National Student Clearinghouse.

Endowments from the 2013 budget year, valued at more than $1 billion, were reported by more than 80 institutions. Overall, an average of 11.7% was returned by endowments. According to an analysis by the National Association of College and University Business Officers and Commonfund, using data from 835 colleges and universities, returns held relatively steady, with less than a 1% decline a year earlier.

For large private schools, endowments, managed as permanent assets, are important. Often, money donated to them is designated for certain uses and using this money generally doesn’t translate to lower tuition prices. On average, nearly 9% of the institutions’ operating budgets are funded by endowments, according to survey participants.

Harvard University, with $32 billion, was the highest performer among the endowments. That was followed by Yale University at $21 billion, the University of Texas at $20 billion, Stanford University at $19 billion, and Princeton University at $18 billion.

Pressure has been mounting on colleges and universities to release more endowment money to help students pay for college as tuition prices have increased. According to Verne Sedlacek, president and CEO of Commonfund, in 2013, about two-thirds of endowments distributed more money than a year earlier, with much of that going to scholarships.

It used to be that only the larger endowments were created by fundraising, but that is no longer true, says Sedlacek.

“Everybody is either raising money or thinking about raising money,” Sedlacek said.

The College Board said that in the fall, tuition prices on average continued the upward trajectory they’ve been on, but the increases were moderate.