{"id":76636,"date":"2025-04-23T00:27:55","date_gmt":"2025-04-23T04:27:55","guid":{"rendered":"https:\/\/world.edu\/?p=76636"},"modified":"2025-04-23T00:27:55","modified_gmt":"2025-04-23T04:27:55","slug":"endowments-arent-blank-checks-but-universities-can-rely-on-them-more-heavily-in-turbulent-times","status":"publish","type":"post","link":"https:\/\/world.edu\/endowments-arent-blank-checks-but-universities-can-rely-on-them-more-heavily-in-turbulent-times\/","title":{"rendered":"Endowments aren\u2019t blank checks \u2013 but universities can rely on them more heavily in turbulent times"},"content":{"rendered":"<p><img fetchpriority=\"high\" decoding=\"async\" class=\"aligncenter size-full wp-image-76637\" src=\"https:\/\/world.edu\/wp-content\/uploads\/2025\/04\/endowments.jpg\" alt=\"\" width=\"680\" height=\"453\" srcset=\"https:\/\/world.edu\/wp-content\/uploads\/2025\/04\/endowments.jpg 680w, https:\/\/world.edu\/wp-content\/uploads\/2025\/04\/endowments-250x167.jpg 250w\" sizes=\"(max-width: 680px) 100vw, 680px\" \/><\/p>\n<p>The\u00a0<a href=\"https:\/\/www.ed.gov\/about\/news\/press-release\/us-department-of-educations-office-civil-rights-sends-letters-60-universities-under-investigation-antisemitic-discrimination-and-harassment\">Trump administration is demanding<\/a>\u00a0that at least 60 U.S. colleges and universities change their policies or lose out on billions of dollars in federal funding.<\/p>\n<p>In Harvard University\u2019s case, the government has accused the Ivy league school \u2013 so far\u00a0<a href=\"https:\/\/www.washingtonpost.com\/education\/2025\/04\/17\/harvard-trump-grant-freeze-antisemitism\/\">without providing any specific evidence<\/a>\u00a0\u2013 of violating some students\u2019 civil rights by allowing other students to engage in what the authorities characterize as antisemitic speech. The government has demanded broad oversight of Harvard\u2019s admissions policies, along with\u00a0<a href=\"https:\/\/www.harvard.edu\/research-funding\/wp-content\/uploads\/sites\/16\/2025\/04\/Letter-Sent-to-Harvard-2025-04-11.pdf\">changes in its hiring processes<\/a>\u00a0and campus culture.<\/p>\n<p><a href=\"https:\/\/www.harvard.edu\/research-funding\/wp-content\/uploads\/sites\/16\/2025\/04\/Letter-Sent-to-Harvard-2025-04-11.pdf\">Harvard stands to lose<\/a>\u00a0out on more than US$2.2 billion. It may seem to be better insulated from this pressure than many other schools because it has the\u00a0<a href=\"https:\/\/www.usnews.com\/education\/best-colleges\/the-short-list-college\/articles\/universities-with-the-biggest-endowments\">nation\u2019s largest educational endowment<\/a>\u00a0\u2013 a reservoir of stocks, bonds and other financial assets that helps fund its operations, research and scholarships. Harvard\u2019s endowment\u00a0<a href=\"https:\/\/finance.harvard.edu\/files\/fad\/files\/fy24_harvard_financial_report.pdf\">totaled more than $53 billion<\/a>\u00a0in 2024.<\/p>\n<p>As a\u00a0<a href=\"https:\/\/scholar.google.com\/scholar?hl=en&amp;as_sdt=0%2C5&amp;q=Ellen+Aprill&amp;btnG=\">nonprofit law scholar<\/a>, who served in the Treasury Department\u2019s Office of Tax Policy in the 1980s, I study and write about both state and federal law as it applies to nonprofit organizations. I believe that the law permits most colleges and universities to increase spending from their endowments in light of the\u00a0<a href=\"https:\/\/www.highereddive.com\/news\/moodys-negative-outlook-higher-ed-trump-cuts\/743014\/\">financial pressures<\/a>\u00a0so many of them are facing.<\/p>\n<h4><strong>Precedents for boosting endowment spending<\/strong><\/h4>\n<p>Not all endowments are alike.<\/p>\n<p>They tend to be composed of an array of smaller funds, some of which are subject to legal restrictions that make it impossible for the schools they support to freely use those assets.<\/p>\n<p>Universities must respect the limits donors put on their gifts, such as tying them to specific scholarships, funding jobs held by certain kinds of professors or supporting the construction or maintenance of a particular building.<\/p>\n<p>It\u2019s up to a\u00a0<a href=\"https:\/\/www.acenet.edu\/Documents\/Understanding-College-and-University-Endowments.pdf\">university\u2019s governing board<\/a>\u00a0to decide how much of the school\u2019s endowment will be spent in a given year.<\/p>\n<p>As Harvard\u2019s\u00a0<a href=\"https:\/\/finance.harvard.edu\/files\/fad\/files\/fy24_harvard_financial_report.pdf\">financial report for its 2024 fiscal year<\/a>\u00a0puts it: \u201cThere is a common misconception that endowments, including Harvard\u2019s, can easily be accessed like checking accounts.\u201d That is definitely not the case.<\/p>\n<p>Nonetheless, some college and university boards did allow increased endowment spending\u00a0<a href=\"https:\/\/www.nacubo.org\/Press-Releases\/2021\/Higher-Education-Endowments-Provide-More-Than-23-Billion-to-Support-Students-Mission\">at the height of the COVID-19 pandemic<\/a>\u00a0and\u00a0<a href=\"https:\/\/doi.org\/10.1038\/embor.2009.17\">the Great Recession<\/a>, which lasted from late 2007 until mid-2009.<\/p>\n<p>During that downturn and the financial crisis that precipitated it, the value of endowments, along with most financial assets, plummeted.<\/p>\n<p>About 80% of\u00a0<a href=\"https:\/\/finance.harvard.edu\/endowment\">Harvard\u2019s 14,000 separate endowment funds<\/a>\u00a0are reserved for \u201cspecific programs, departments or purposes.\u201d But others\u00a0<a href=\"https:\/\/finance.harvard.edu\/files\/fad\/files\/fy24_harvard_financial_report.pdf\">are less restricted<\/a>, Harvard has stated in the financial reports it makes available to the public.<\/p>\n<p>While it\u2019s always important to proceed with care when spending money reserved for use on a rainy day or to ensure the long-term existence of a revered institution, most colleges and universities are freer to dip into their endowments than they may realize\u00a0<a href=\"https:\/\/www.wsj.com\/us-news\/education\/is-harvards-53-billion-endowment-big-enough-to-offset-federal-funding-cuts-a7fd1a27\">when conditions get stormy<\/a>.<\/p>\n<h4><strong>Leeway in an important law<\/strong><\/h4>\n<p>In\u00a0<a href=\"https:\/\/www.uniformlaws.org\/committees\/community-home?CommunityKey=043b9067-bc2c-46b7-8436-07c9054064a3\">all states except Pennsylvania<\/a>, U.S. endowments are subject to a 2006 model law known as the\u00a0<a href=\"https:\/\/blog.carnegieinvest.com\/nonprofit-investment-services-blog\/what-every-nonprofit-should-know-about-the-uniform-prudent-management-of-institutional-funds-act\">Uniform Prudent Management of Institutional Funds Act<\/a>.<\/p>\n<p>Under this law, managing and investing an endowment requires the university to consider its charitable purposes and financial needs, while respecting the intentions of the donors who provided its assets. These are state laws, not federal statutes. In most states, a university may spend as much of an endowment fund as it deems \u201cprudent.\u201d<\/p>\n<p>Exercising that prudence requires the consideration of several factors.<\/p>\n<p>They include the purposes of the institution as a whole and the particular endowment fund, prevailing economic conditions, and what other financial resources the institution can tap. However, in almost one-third of states, including California and New York, annually spending more than 7% of an endowment\u2019s fair market value, measured by a three-year average, is\u00a0<a href=\"https:\/\/www.uclalawreview.org\/use-of-restricted-assets-during-a-crisis-is-it-time-to-raid-the-endowment\/\">presumed to be imprudent<\/a>.<\/p>\n<p>But that isn\u2019t a legal maximum because the model law\u2019s drafters noted that \u201ccircumstances in a particular year\u201d could easily void that presumption. Based on my study of nonprofit law, including the laws that apply to higher education, I\u2019m confident that this caveat could easily apply to the Trump administration\u2019s\u00a0<a href=\"https:\/\/www.cnn.com\/2025\/03\/21\/us\/university-leaders-columbia-trump-cuts\/index.html\">education-related spending cuts in 2025<\/a>, just as it did during the pandemic and the Great Recession.<\/p>\n<p>What\u2019s more, endowment\u00a0<a href=\"https:\/\/www.nacubo.org\/Press-Releases\/2025\/US-Higher-Education-Endowments-Report-10-Year-Average-Annual-Return\">spending rate by universities in 2024 was 4.8%<\/a>. As a result, many universities, including those in states with a 7% cap on prudent spending, will likely be able to increase their use of endowment funds to maintain their budgets at prior levels.<\/p>\n<p>In addition, living donors can release any restriction they placed on the funds they gave universities that are still held in their endowments. Even when those funds are from donors who have died, a university can\u00a0<a href=\"https:\/\/www.nacubo.org\/Topics\/Endowment-Management\/Uniform-Prudent-Management-of-Institutional-Funds-Act\">ask a court to release restrictions<\/a>\u00a0that have become impractical or wasteful.<\/p>\n<p>The Uniform Prudent Management of Institutional Funds Act also permits institutions to lift restrictions on all endowment funds that are more than 20 years old and relatively small. This amount varies from state to state and\u00a0<a href=\"https:\/\/www.nacubo.org\/Topics\/Endowment-Management\/Uniform-Prudent-Management-of-Institutional-Funds-Act\">typically ranges between $25,000<\/a>\u00a0<a href=\"https:\/\/www.adlercolvin.com\/the-law-of-endowments-the-uniform-prudent-management-of-institutional-funds-act-upmifa\/\">and $100,000<\/a><\/p>\n<h4><strong>A bias toward accumulating<\/strong><\/h4>\n<p>In addition to Harvard, other examples of the largest higher education endowments include\u00a0<a href=\"https:\/\/www.highereddive.com\/news\/endowments-grew-4-in-fy2024-on-investment-returns-donations\/739867\/\">Yale with $41 billion, Princeton with $34 billion<\/a>\u00a0and\u00a0<a href=\"https:\/\/www.collegetransitions.com\/blog\/colleges-with-the-largest-endowments\/\">Columbia, which has some $15 billion<\/a>. All three are\u00a0<a href=\"https:\/\/www.ed.gov\/about\/news\/press-release\/us-department-of-educations-office-civil-rights-sends-letters-60-universities-under-investigation-antisemitic-discrimination-and-harassment\">among the 60 schools<\/a>\u00a0the Education Department is investigating for allegedly failing to \u201cprotect Jewish students on campus.\u201d<\/p>\n<p>Why do the boards of even these universities tend to hesitate to dip deeply into their endowments when their revenue declines?<\/p>\n<p>One explanation is that because\u00a0<a href=\"https:\/\/lawliberty.org\/the-economy-of-university-prestige\/\">endowments can enhance a university\u2019s prestige<\/a>, its leaders and endowment donors have a bias toward accumulating rather than spending. Another is that board members have an obligation to\u00a0<a href=\"https:\/\/agb.org\/trusteeship-article\/consequential-boards-adding-value-where-it-matters-most\/\">protect their institutions\u2019 long-term viability<\/a>. Boards also bear a responsibility to preserve funds for a future rainy day, no matter how severe the current turbulence may be, how large the endowment has become or how successful the school\u2019s current fundraising efforts are.<\/p>\n<p>That may explain why\u00a0<a href=\"https:\/\/www.wsj.com\/us-news\/education\/is-harvards-53-billion-endowment-big-enough-to-offset-federal-funding-cuts-a7fd1a27\">Harvard is reportedly in talks with investment banks<\/a>\u00a0about\u00a0<a href=\"https:\/\/www.harvardmagazine.com\/2025\/04\/harvard-finances-bond-market\">issuing $750 million in bonds<\/a>\u00a0that will allow the school to meet its spending needs without dipping so deeply into its endowment.<\/p>\n<h4><strong>More attacks could be on the way<\/strong><\/h4>\n<p>At the same time, the Trump administration\u2019s trade, fiscal and other policies may continue to\u00a0<a href=\"https:\/\/www.cnn.com\/2025\/04\/07\/investing\/stock-market-trump-tariffs\/index.html\">roil financial markets<\/a>, reducing the value of university endowments, for months or years to come.<\/p>\n<p>The federal government is reportedly looking into whether it can\u00a0<a href=\"https:\/\/apnews.com\/article\/harvard-nonprofit-tax-exempt-status-how-can-it-be-revoked-096614ea5ec65ec7a6ac08efd0f1e94f\">revoke Harvard\u2019s tax-exempt status<\/a>, a drastic move that\u00a0<a href=\"https:\/\/www.wsj.com\/us-news\/education\/trump-administration-asks-irs-to-start-process-to-revoke-harvards-tax-exempt-status-2a1c93cf\">would have<\/a>\u00a0<a href=\"https:\/\/www.npr.org\/2025\/04\/18\/nx-s1-5368120\/trump-harvard-tax-irs-antisemitism\">no comparable precedents<\/a>.<\/p>\n<p>In mid-April 2025,\u00a0<a href=\"https:\/\/www.thecrimson.com\/article\/2025\/4\/15\/harvard-denies-trump-demands\/\">Harvard began to push back on the Trump administration\u2019s demands<\/a>, saying that they violate the free speech rights protected by the Constitution\u2019s First Amendment and \u201cinvade university freedoms long recognized by the Supreme Court.\u201d\u00a0<a href=\"https:\/\/www.thecrimson.com\/article\/2025\/4\/18\/garber-trump-harvard-donors\/\">Harvard\u2019s donors have responded<\/a>\u00a0to the resistance of the school\u2019s leaders with a flurry of new gifts.<\/p>\n<p>In my view, it\u2019s reasonable for colleges and universities to consider stepping up their endowment spending due to the Trump administration\u2019s actions that could interfere with higher education revenue. Increasing endowment payouts now could ease, although not fully solve, the mounting crises that colleges and universities of all kinds now face.<\/p>\n<p><em><strong>Author Bio:<\/strong> Ellen P. Aprill is a Senior Scholar in Residence at the UCLA Law School&#8217;s Lowell Milken Center For Philanthropy And Nonprofit Law at the University of California, Los Angeles<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"<p>The\u00a0Trump administration is demanding\u00a0that at least 60 U.S. colleges and universities change their policies or lose out on billions of dollars in federal funding. In Harvard University\u2019s case, the government has accused the Ivy league school \u2013 so far\u00a0without providing any specific evidence\u00a0\u2013 of violating some students\u2019 civil rights by allowing other students to engage [&hellip;]\n&hellip; <a href=\"https:\/\/world.edu\/endowments-arent-blank-checks-but-universities-can-rely-on-them-more-heavily-in-turbulent-times\/\" class=\"more\">learn more&rarr;<\/a><\/p>","protected":false},"author":33,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[29],"tags":[12950],"coauthors":[11733],"class_list":["post-76636","post","type-post","status-publish","format-standard","hentry","category-higher-education","tag-endowments"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v28.2 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Endowments aren\u2019t blank checks \u2013 but universities can rely on them more heavily in turbulent times - World leading higher education information and services<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/world.edu\/endowments-arent-blank-checks-but-universities-can-rely-on-them-more-heavily-in-turbulent-times\/\" class=\"yoast-seo-meta-tag\" \/>\n<meta property=\"og:locale\" content=\"en_US\" class=\"yoast-seo-meta-tag\" \/>\n<meta property=\"og:type\" content=\"article\" class=\"yoast-seo-meta-tag\" \/>\n<meta property=\"og:title\" content=\"Endowments aren\u2019t blank checks \u2013 but universities can rely on them more heavily in turbulent times - World leading higher education information and services\" class=\"yoast-seo-meta-tag\" \/>\n<meta property=\"og:description\" content=\"The\u00a0Trump administration is demanding\u00a0that at least 60 U.S. colleges and universities change their policies or lose out on billions of dollars in federal funding. 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