Gifts, Endowments, and Financial Aid

Attending a college that receives major gifts from deep-pocketed benefactors and has a multi-billion dollar endowment has advantages for students. Among these is the possibility that some of that money will trickle down as financial aid. As busy as high school seniors are, they canstill find the time to determine if a college-of-interest is financially stable,has a fat endowment, and receives substantial gifts from donors.

Has the college recently been the recipient of major gifts? How is it obligated to spend the funds? How does the college spend the income generated by its endowment? Researching the answers to such questions can provide insight into how a college’s financial assets may be used for the benefit of its students. This mayindicate how generous the college can afford to be with financial aid.

The Importance of Endowments

A college’s endowment is a trust structured in a manner that suits its status as a nonprofit entity. It allows for withdrawals from principal and earnings, but it must abide by its own bylaws. Based on the rules in the bylaws, a college can usually use funds for purposes like the construction of new facilities and the initiation or expansion of educational programs.

There are three types of rules in the bylaws of endowments. The first is the investment policy, which stipulates the type of investments that the fund manager is permitted to make. It dictates the level of risk that can be assumed by the manager in striving to achieve a targeted rate of return. The second set of rules is the withdrawal policy, which establishes themaximum dollar amount or percentage of total funds that the institution is permitted to withdraw annually. The third set is the usage policy. These rules govern the purposes for which withdrawals may be used.

A criticism that’s directed at institutions with large endowments is that the funds could be used to lower tuition for all students or even just for groups of disadvantaged students. However, if doing so is not allowedin the bylaws, the fund manager would not be able to comply even if the institution’s CEO and the fund’s Board of Directors were to issue such an order. The action would need to be approved by a majority of the donors (or their estates) who made donations under the existing rules. Votes would be cast in proportion to the size of donations. The stringency of these rules makes changes to bylaws impractical. Even the most heavily endowed colleges asserted that this was the reason that they couldn’t bail themselves out of the pandemic’s fiscal crisisby using their own endowment funds. Most institutions were willing to use taxpayer dollars as bailout funds instead.

Donations to endowments are meant to be “Gifts that keeps on giving”. For most endowments, the income earned by the fund’s investments is to be spent, but the principal is usually intended to remain untouched. The bylaws of most endowments permit a fixed annual rate of withdrawal regardless of how the fund performed in a given year so that long-term plans such as building projects aren’t impacted by market fluctuations. The average annual rate of withdrawal from college endowment funds is 4.6%.

Using the U.S. News & World Reports (USN&WR) rankings as a proxy for academic reputation, Table A, below, shows the degree of correlation between the size of endowments and academic reputation. Since National Liberal Arts Collegesand National Universitiesare ranked separately by USN&WR, institutions in the Table are identified as C1 or C2, U1 or U2, and so on as appropriate for the institution.Only endowments of over $3 billion are included andties are indicated.

Table A

Correlation of Institutional Endowments to USN&WR Rankings (2022)

No.	College, University, or System	Fund Size ($ Billions)	USN&WR Rank
1	Harvard University	52	U3 (tie)
2	Yale University	43	U3 (tie)
3	University of Texas System	43	N/A
4	Stanford University	38	U3 (tie)
5	Princeton University	38	U1
6	Massachusetts Inst. of Technology	28	U2
7	University of Pennsylvania	21	U7 (tie)
8	University of Notre Dame	18	U18 (tie)
9	University of Michigan	17	U25 (tie)
10	Northwestern University	15	U10 (tie)
11	Columbia University	14	U18 (tie)
12	University of California System	14	N/A
13	University of Chicago	13	U6
14	Duke University	13	U10 (tie)
15	Washington University in St. Louis	13	U15 (tie)
16	Emory University	11	U22 (tie)
17	University of Virginia	11	U25 (tie)
18	Vanderbilt University	11	U13 (tie)
19	Cornell University	10	U17
20	Johns Hopkins University	9	U7 (tie)
21	Rice University	8	U15 (tie)
22	University of Southern California	8	U25 (tie)
23	Dartmouth College	8	U12
24	Ohio State University	7	U49 (tie)
25	Pennsylvania State University	6	U77 (tie)
26	University of Pittsburgh	6	U62 (tie)
27	New York University	6	U25 (tie)
28	University of Minnesota	5	U62 (tie)
29	Brown University	7	U13 (tie)
30	Univ. of North Carolina – Chapel Hill	5	U29 (tie)
31	University of Wisconsin	4	U38 (tie)
32	University of Washington System	4	N/A
33	University of Illinois System	4	N/A
34	Williams College	4	C1
35	Purdue University	4	U51 (tie)
36	Michigan State University	4	U77 (tie)
37	Boston College	4	U36 (tie)
38	Amherst College	4	C2
39	Carnegie Mellon University	4	U22 (tie)
40	California Institute of Technology	4	U9
41	University of Richmond	3	U27
42	Georgetown University	3	U22 (tie)
43	Pomona College	3	C3
44	University of Rochester	3	U36 (tie)
45	Wellesley	3	C5
46	Boston University	3	41 (tie)
47	State University of New York System	3	N/A

Source: USN&WR for Rankings and Wikipedia for Endowments

Note to Table A: Some statewide university systems aggregate their endowment fund, but USN&WR ranks each branch of the university system as a separate entity. These systems are denoted as “N/A” in the Rank column.

Table A shows a high correlation for the first 10 institutions. The next 10 correlate within four places. The lower end of the list doesn’t correlate well at all, with a few exceptions like UNC-Chapel Hill, USC, and NYU. Looking beyond the 47 schools in Table A, the degree of correlation get weaker. These findings indicate that endowment size and reputation do correlate, but only among the most elite institutions.

Private Gifts ToSupport Individual Colleges

Michael R. Bloomberg, former mayor of New York and founder of the company that bears his name, is an alumnus of Johns Hopkins University. In 2018, he bestowed $1.8 billion on his alma mater, the largest gift from an individual to a school in the history of higher education. The purpose of the gift was to make Johns Hopkins need-blind in admissions.

Nationally, gifts of more than $10 million totaled over $6 billion for the first time in 2017, continuing a post-recession surge. Gifts were up 7% in 2021, topping $52 billion. Even community colleges reported a 53% increase in gifts in fiscal 2021.

“The incredible generosity during the most challenging period in generations demonstrates how strongly alumni and other supporters value colleges and universities in the United States,” observed Sue Cunningham, CEO of  the Council for Advancement and Support of Education (CASE). CASE’s annual survey is considered the authoritative source on philanthropy in higher education in the United States.

Though gifts are only one source of income for colleges, they often underwrite new construction or initiate large-scale educational programs because of the stipulations by  donors. Students should research the major gifts that a college has received. This can help them assess the likelihood that the college can meet their educational goals.

Foundations (33%) and alumni (23%) were the leading gift-givers to colleges, accounting for a combined 56% of all reported gifts in 2021. Non-alumni individuals (17%), corporations (13%), and other organizations (14%) were the other donor categories. Giving from alumni increased 11%, the largest increase among the categories, followed by a 9% increase in gifts from “other organizations,” which are usually donor-advised funds.

Gifts to institutions are usually distinct from donations to endowments. Major gifts tend to be earmarked for specific purposes. Unrestricted gifts, which give institutions maximum flexibility, increased by 30% in 2021, but they still only represented 7% of all gifts.

Table B, below, lists private gifts to colleges of $50 million or more in 2018 and $60 million or more in 2019, 2020, and 2021.

Table B

Largest Private Gifts to Colleges 2018-21

Year	Institution	Donor	Gift	Purpose
2018	Johns Hopkins	Michael R. Bloomberg	$1.8 billion	Financial aid for qualified low- and middle-income undergraduate students, with the goal of making admissions permanently “need-blind”.
2018	MIT	Stephen A. Schwarzman	$350 million	Establish the Schwarzman College of Computing to integrate computer sciences and AI across MIT’s five undergraduate schools.
2018	Harvard	Blavatnik Family Foundation	$200 million	Support for medical research to develop tools to diagnose, prevent, and treat disease; space for biotech start-ups in Harvard Life Lab.
2018	Yale	Edward P. Bass	$160 million	Support for renovation and expansion of the Yale Museum of Natural History.
2018	University of Colorado – Denver	Anschutz Foundation	$120 million	Funds for new health-sciences building, research, faculty, and technology transfer programs.
2018	Michigan	Richard and Susan Rogel	$110 million	Support for scholarships for medical students and for research and professorships at the Rogel Cancer Center.
2018	Amherst	Anonymous	$100 million	Gift to the college’s capital campaign to raise funds for student aid, faculty support, and the new Science Center.
2018	Brown	Robert J. and Nancy D. Carney	$100 million	Support for the Carney Institute for Brain Science to research cures for Alzheimer’s disease and amyotrophic lateral sclerosis.
2018	Harvard	Anonymous	$100 million	Support for the Science Center and a fellowship in math; resources for undergraduate School of Arts and Sciences
2018	United World College System	Shelby Davis	$100 million	Support for 100 annual undergraduate scholarships for 20 years for students to attend the system’s campuses.
2018	Western State University in  Colorado	Paul M. Rady	$80 million	Support for the new Paul M. Rady School of Computer Science and Engineering, including a new building.
2018	Johns Hopkins	William H. Miller	$75 million	Endowed chair of philosophy department and 8 other professorships, support for  undergraduate philosophy students.
2018	Princeton	Perelman Foundation	$65 million	Establishment of Perelman Residential College to help advance the institution’s goal of expanding undergraduate enrollment by 10%.
2018	Amherst	Anonymous	$50 million	Gift to support the college’s Science Center, hiring of faculty, and establishment of need-based scholarships.
2018	Brown	Samuel M. and Ann S. Mencoff	$50 million	New professorships Brown Institute of Translational Science.
2018	Carleton	Wally Weitz	$50 million	Contribution to the college’s capital campaign to increase financial aid and internships.
2018	Carnegie Mellon	Tod Johnson	$50 million	Support for undergraduate scholarships and programs to help students graduate.
2018	Northeastern	Amin and Julie Khoury	$50 million	Endowment to build the undergraduate Khoury College of Computer Sciences.
2018	Oregon State	Gary R. Carlson	$50 million	Support for Carlson College of Veterinary Medicine.
2018	St. John’s of Annapolis	Winiarski Foundation	$50 million	Funds for capital campaign intended to allow the college to lower tuition by a third.
2018	Saint Louis University	Jeanne and Rex Sinquefield	$50 million	Support for the new Research Institute – the Sinquefield Center for Applied Economic Research, and the chess team.
2018	UC San Diego	Andrew J. Viterbi	$50 million	Gift for the Viterbi Department of Ophthalmology and Viterbi Vision Research Center.
2018	University of  Pennsylvania	Marc J. and Carolyn Rowan	$50 million	Support for the Wharton Budget Model, an economic-policy analysis program, and for new professorships.
2019	UCLA	Henry Samueli	$100 million	Expansion of the UCLA engineering school.
2019	NYU	Anonymous	$75 million	Establish Center for Blood Cancers, improve care, and research multiple myeloma.
2019	UVA – Darden School	Frank M. Sands	$68 million	Extend online reach through the Sands Institute for Lifelong Learning;  12 professorships, building of conference center.
2020	Stanford	John and  Ann Doerr	$1.1 billion	Establish the John Doerr School of Sustainability.
2021	HBCU’s	MacKenzie Scott	$1.5 billion	Unrestricted.
2021	Bard College	George Soros	$500 million	To encourage donors to back the college’s effort to raise $1 billion over five years.
2021	University of Oregon	Phil and Penney Knight	$500 million	To speed the transformation of scientific discoveries into medical treatments.
2021	Northwestern	Patrick Ryan	$480 million	Research in microeconomics, business, medicine, global health, and neuroscience.
2021	Johns Hopkins University	Michael R. Bloomberg	$150 million	To enhance student diversity in STEM fields.
2021	Montana State University	Mark Jones	$101 million	To expand rural nursing education. In Montana.

 

Sources: Council for Advancement and Support of Education and the Chronicle of Higher Education