Endowment Returns Make Rich Universities Richer

Endowments have long been a key source of funding for universities, providing support for everything from scholarships to research projects. And with the recent boom in financial markets, many universities have seen their endowment returns skyrocket, making already wealthy institutions even richer.

According to a report from the National Association of College and University Business Officers, endowments at U.S. colleges and universities grew by an average of 12.7% in the fiscal year ended June 30, 2021. This growth was fueled by strong performance in the stock market, which saw the S&P 500 index rise by over 35% during the same period.

For universities with large endowments, this surge in returns can mean hundreds of millions of dollars in additional funding. Harvard University, for example, has the largest endowment of any university in the world, valued at over $41 billion as of June 30, 2021. With a return of 33.6% for the fiscal year, the university saw its endowment grow by over $10 billion in just one year.

While these returns are certainly impressive, they also raise questions about the impact of wealth inequality in higher education. Critics argue that universities with large endowments are already well-funded and should focus on making education more accessible for low-income students, rather than further enriching themselves.

Indeed, the top 1% of U.S. colleges and universities hold over 70% of all endowment assets, with many elite institutions benefiting from decades of fundraising and investment growth. This concentration of wealth has led to calls for increased transparency and accountability in how endowment funds are managed and spent.

On the other hand, proponents of large endowments argue that they provide stability and long-term support for universities, allowing them to weather economic downturns and invest in strategic initiatives. Endowments can also help attract top faculty and students, enhancing a university’s reputation and academic quality.

In any case, the reality is that endowment returns play a significant role in determining the financial fortunes of universities. As long as financial markets continue to perform well, these wealthy institutions are likely to get even richer, creating further disparities in higher education funding. It will be up to policymakers, donors, and university leaders to strike a balance between harnessing the power of endowments and ensuring that all students have access to quality education, regardless of their financial background.