Federal funding cuts raise questions about university endowments

In early March, the Trump Administration canceled $ 400 million in subsidies and contracts to the University of Columbia for its management of pro-palestinian protests last year. The federal government sent a list of demandas suspend or expel students who participated in the demonstrations. Columbia agreed to the demands.

The funds are still retaining, with the federal task force stating that Columbia concessions represent only the “first step.” Dozens of medical and scientific studies in Columbia are in limbo. The Department of Health and Human Services did not respond to a request for comments.

Meanwhile, the university faces a violent growing reaction, and several critics argue that Columbia should use its immense endowment to cover the deficit instead of the capitulated. One of those opinion articles in the New York Times He was accompanied by a photo of a crushed Piggy Bank.

Columbia has an endowment of $ 14.8 billion, the twelfth largest university endowment in the United States, according to a study by the National Association of Business Officers Colleges and University, or Nacubo, and Manager of the Commonfund Association.

The study found that 658 institutions had endowments for a total of $ 873.7 billion. This wealth is highly concentrated, with 86% of a fifth of the universities surveyed.

The pure size is not the only measure of Columbia’s financial resources. While Columbia’s endowment is behind those of some public universities, the Ivy League school has a much smaller student body, averaging almost $ 500,000 in endowments per student. The University of Texas, on the other hand, has less than half per student despite having an endowment of $ 47.5 billion.

But the endowments, especially in the richest institutions, also have a substantial portion of ilequid assets.

In the case of Columbia’s endowmentWhile global actions constitute the largest allocation (31%), private capital and real assets represent 26%and 12%, respectively. Fixed and cash represent only 2% and 1%, respectively, and the remaining 28% is assigned to Absolute return strategy fundsthat include coverage funds and a part of which is also illegid, according to Audit documents.

Education historian Bruce Kimball provides much of the wealth concentration at the disposal of universities to invest in more risky assets. Traditionally, university endowments were invested in a very conservative way. When Harvard changed its allocation to 60% variable income and 40% bonds in 1951, it was considered a bold movement. In the 70s, the Ford Foundation guided some rich universities away from the actions that pay dividends to growth actions.

“The universities that did not want to assume that the risk was left behind,” said Kimball, Professor Emeritus of Philosophy and History of Education at Ohio State University.

In the 1990s, Yale University began investing in alternative assets such as coverage funds and natural resources. This “Yale model” was lucrative, but only universities with great endowments could afford to assume the risk and due diligence that alternative investments entails, according to Kimball.

In large and small universities, the endowments are not Granño funds. The endowments are actually made of hundreds or even thousands of funds, and most of them are restricted by donors, to areas such as chairs, scholarships or investigations.

“Most of that money was put for a specific purpose,” said Scott Bok, former president of the University of Pennsylvania. “Universities do not have the ability to open the Piggy Bank proverbial and simply take money as they want.”

The endowments often follow a habit of spending only 5% per year, also a practice that dates back to the 1970s, according to the economist and former president of the University of the Northwest, Morton Schapiro. Assuming that high percentage investment yields of a single digit, spending only 5% allows the main provision to grow and maintain the rhythm of inflation.

University administrations often point to donor restrictions when pressed to increase spending. But Schapiro said this excuse is exaggerated.

“It is true that a lot of money is restricted, but it is restricted to things in which you will spend as help based on need, study abroad, libraries,” he said.

In addition, some funds are not subject to donor restrictions, but are intended for universities for specific purposes.

“It is not really restricted,” Schapiro said about these Casi Cants. “In fact, you could spend it at any speed you really want.”

And although most states have guidelines on how the provision assets are spent, few have an established rank or expense limit, according to Brian Galle, professor of fiscal policy at Georgetown’s law. It is also possible to obtain the approval of the Court to increase spending and use restricted endowments if it is crucial for the University’s mission, Galle said.

It is possible that universities increase their endowment expense in times of crisis. Several did it during the pandemic, including Northwestern and Penn. Donors can also give their written consent to raise endowment restrictions, according to Micah Malouf, Schell Bray special advisor.

That said, while restrictions can be exaggerated, financial obligations are real, Kimball said. Universities allocate almost half of their endowment expense in financial aid for students, according to the Nacubo study.

Kimball described the expenses or income income to cover the short term as “reckless.” He compared the stage with an employer who cancels a previous expense and asking employees to cover it with their savings and income.

“That regular salary is already destined for other purposes, so it would have to reduce food, rent, etc.”, he said.

The exhaustion of the endowment could have the cost of the future cash flow, since the university has less to invest. But Galle told CNBC that he believes that this reasoning does not contain water.

“When your roof is dripping, you don’t say: ‘I’m not going to spend the money now, because then I can’t buy an umbrella in three years,” he said.

Schapiro, who withdrew from Northwestern in 2022, said it is easier to justify the most of the endowment when it comes out of a strong market, which is currently the case.

However, it depends on how long the university deficit lasts.

“If it is going to be in the long term, you are just delaying the inevitable,” he said.

It is not known when or if the financing will be restored. The National Health Institute is also implementing A 15% limit on research refunds for indirect costs, such as salaries of support personnel and laboratory maintenance.

Other storm clouds are in the overload, said Bok, who renounced Penn at the end of 2023. To begin with, several members of the Congress have proposed to increase a endowment tax that currently only applies to about 50 universities.

Since the first Trump administration, private universities that meet certain conditions, such as $ 500,000 or more per full -time assets, have been subject to a 1.4% tax on income from net investments. One proposal would increase the rate to 21%and other It would increase the 10%rate, but reduce the student’s threshold endowments to $ 200,000, which would submit many more universities to the tax.

In addition to the challenges, many universities depend financially on international students, who generally pay full registration. Student’s international registration decreased during Trump’s first administration and international requests recently decreased for the first time in five years, according to Common application data.

All these challenges are a perfect storm, Bok said.

“I think universities will be reluctant to say: ‘Oh, we will simply reduce more in the endowment’ because it can fill a small hole but cannot fill a large hole,” Bok said. “Actually, there could be a great hole for time, all these things develop.”

It is uncertain if rich donors are uncertain. Galle, citing the investigation that the poor returns of the endowment are a donation predictor, said that donors “tend to open their wallet” when they know that the university trusts them.

However, Bok and Schapiro said that covering canceled subsidies is a more difficult release for donors than building a library.

“In my 30 -year experience raising money, people give when they trust the future,” Schapiro said. “They don’t give money to avoid a disaster.”