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/Ain 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