Big Endowment Returns Pressure U.S. Colleges to Boost Spending
(Bloomberg) -- U.S. colleges are facing increased pressure to spend more on financial aid and salaries after their endowments posted some of the strongest returns in decades.
At least one, Washington University in St. Louis, said Monday that it will deploy $1 billion on financial aid, most of it for “need-blind” admissions, which means it won’t consider students’ ability to pay when accepting them.
Schools will be called on to spend more on financial aid and to hold down the growth of the cost of college, said Don Heller, vice president of operations at the University of San Francisco, who studies higher-education finance.
“Internally, they will also face pressure from faculty and staff,” Heller said, referring to the cuts some schools made during the pandemic.
U.S. Representative Tom Reed, a New York Republican, is among lawmakers who have taken notice of the investment returns.
“Universities should be using these record gains to lower tuition and make higher education more obtainable for everyone,” said Reed, who opposes a plan by Democrats to reduce a tax that affects about three dozen schools with large endowments.
Harvard University, the richest U.S. school, said it is giving a bigger distribution to the school’s operating budget due to stock market gains. It plans a 2.5% increase in the outlay instead of the previously planned 1% bump.
“The increase is consistent with Harvard’s intention to distribute as much of the endowment’s earnings into operations as it responsibly can every year in order to fund academics and research,” the school said in April.
Washington University, which charges almost $77,000 a year for undergraduate tuition, room and board, and fees, posted a 65% gain for the fiscal year ended June 30, boosting its endowment by $6 billion to $15.3 billion.
“Admitting the best students from all socio-economic backgrounds is obviously the first step,” Washington University Chancellor Andrew Martin said in a statement. “Making sure they have the support and resources to succeed once they’re here is also critical.”
The school will earmark $800 million to move to need-blind admissions for undergraduates and $200 million to help graduate and professional students. The share of low-income students who receive Pell Grants was 16% last year, up from 6% in the 2013-14 school year.
That’s “exactly what I’d like to see schools do with the money,” said Brian Galle, a Georgetown University law professor who specializes in taxation and nonprofits.
The median return at U.S. colleges for the last fiscal year was 27% -- and 34% for endowments with more than $500 million of assets -- driven by robust gains on investments, including venture capital. While much of the gains may be unrealized, Galle said the results should embolden schools to be more aggressive when it comes to endowment spending.
“Over time the returns will be there to cover the expenditures,” he said. “If it turns out that some endowments get a little bit smaller, it’s not a reason to be alarmed.”
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