The Wall Street Journal-20080124-Home - Family- Bulging Endowments Stir College-Aid Debate
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Home & Family: Bulging Endowments Stir College-Aid Debate
A record 76 U.S. colleges and universities had endowments valued at more than $1 billion at the end of the last fiscal year, according to a new report that is likely to further fuel demands that the schools use more of that wealth for financial aid.
Overall, college endowments posted a 17.2% rate of return on investments for the year ended June 30, 2007 -- the highest since 1998, according to a survey of 785 institutions by the National Association of College and University Business Officers. Including gifts, the value of the schools' endowments grew by $71 billion, or 21%, to $411.2 billion compared with the previous fiscal year.
Though dwarfed by Harvard University, whose $35 billion endowment is the nation's largest, 14 additional institutions joined the ranks of those with assets of at least $1 billion. They included Syracuse, Lehigh and Carnegie Mellon universities. Boosted by alternative investments like hedge funds, such well-endowed colleges had a 21.3% average return.
Wealthy, elite institutions already face congressional pressure to spend down their mammoth endowments to make college more affordable. Endowments spent an average of 4.6% of their assets last year; those with assets of $1 billion or more spent 4.4%, according to the report. Both figures were down slightly from the year before.
Observers say an economic downturn would increase demands on endowments for funding as more families find themselves in need of financial aid.
"There may be some blips in the market, but the general point is that the price of college is rising and endowments are growing and people are frustrated by those two things going on at once," said Richard Kahlenberg, a senior fellow at the Century Foundation, a nonpartisan public-policy group.
Sen. Charles Grassley, senior Republican on the Senate Finance Committee, has suggested requiring the largest college endowments to make the same 5% minimum annual payouts as private foundations. Sen. Grassley said the new report indicates such a measure "wouldn't break the bank."
Amid the scrutiny, Harvard, Duke University and a few of other well- endowed institutions have lately made high-profile moves to boost financial aid for middle- and upper-middle-class families. Earlier this month, Yale University said it would increase spending from its $22.5 billion endowment by 37% next school year to help provide additional financial aid to families earning well into the six- figures. And on Tuesday, Dartmouth College announced that it would eliminate tuition for students from families with incomes less than $75,000.
Other colleges and universities say they are also pondering spending-rate increases. "I think all the major schools, including us, are thinking about it," said Scott Malpass, vice president and chief investment officer at the University of Notre Dame, whose endowment posted one of the biggest jumps in value last year, growing 35% to about $6 billion.
Some public universities say they will find it hard to match the latest aid offers from the elite schools. Scott Sudduth, assistant vice president and director of federal relations for the 200,000- student University of California system, noted that 75% of its $6.4 billion endowment is restricted for uses other than student aid. "For the vast majority of institutions -- particularly public institutions -- that's an ambitious goal that is out of reach," he said.
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John Hechinger contributed to this article.
