In coordination with its official college rankings, U.S. News annually collects data on school endowment funds. These amounts range from several thousands to tens of billions of dollars.
In the 2024 rankings, Harvard University in Massachusetts topped the list of the largest endowment funds, with $50.9 billion. That’s more than the gross domestic product of many countries, such as Sudan, a nation of more than 49 million people.
For students and others who may not understand what an endowment is or why some are so large, here’s what to know.
What Is an Endowment Fund?
An endowment fund is a collection of financial assets that the school can periodically pull from to cover an array of costs while intentionally growing the fund over time. In other words, a school’s endowment is a “super-charged rainy-day fund,” says Andrew Gillen, a senior policy analyst at the nonprofit Texas Public Policy Foundation.
Endowments are “under the control of either the university, or a group closely tied to the university,” he explains. “The idea of the endowment is to generate a continuous source of resources for the university to spend.”
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These assets can vary from real estate and stocks to money collected through private donations and fundraising campaigns. Assets can be anything of value that a college or university can claim, Gillen says.
An endowment fund is different from tuition funds raised, which go toward a school’s everyday expenses such as utilities and employee pay.
Who Contributes to Endowment Funds?
The core contributors to endowment funds are alumni and people who care about the college or university. Contributing to an endowment fund reflects a belief in the school’s mission, experts say.
At Vassar College in New York, the endowment was established after the school’s founder, Matthew Vassar, bequeathed a gift from his estate following his death, according to Bryan Swarthout, Vassar’s vice president for finance and administration.
“Vassar is fortunate to benefit from the generosity of alums and other donors who make gifts to the College. … The endowment is made up of over 1,400 gifts from various donors over the course of the College’s history,” Swarthout wrote in an email.
Today, Vassar’s endowment tops over a billion dollars.
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Sometimes a state government will give to a school’s endowment fund, seeing it as an investment in the community and a jumpstart for the state’s education base, Gillen says.
Who Benefits From Endowment Funds?
The short answer is the school.
Endowments allow schools to depend less on tuition and fees to pay for overarching expenses. Payouts for endowments are typically restricted to a certain percentage a year, which allows for a stable flow of revenue for the institution, according to Paul Friga, clinical associate professor of strategy and entrepreneurship at the University of North Carolina Kenan-Flagler Business School.
“Usually the university spends off of investment earnings from the endowment to support their mission,” Friga says, “which could include such things as financial aid to students, research, professorships for faculty, strategic initiatives.”
[READ: 10 Colleges Where the Most Alumni Donate]
Additionally, indirect benefits often come from a healthy endowment. Large endowment funds “can decrease the need for taxpayer contributions” — giving a public school more autonomy from state and federal appropriations — and elevate strategic initiatives that can benefit the surrounding community, Friga says.
Why Are Some Endowment Funds So Large?
Fundraising campaigns and aggressive investing by universities are the leading contributors to massive endowments, according to Bruce Kimball, emeritus professor of philosophy and history of education at The Ohio State University. U.S. college endowment funds date back to 1636 with Harvard. Schools have always maintained assets for their institution, but endowments didn’t start to grow exponentially until private wealth grew during the industrial revolution in the late 19th century.
Harvard and Yale University in Connecticut were early adopters of alumni fundraising. Their annual alumni funds and fundraising campaigns in the early 20th century inspired the pursuit of wealthy alumni to continue giving to their alma mater, says Kimball, who discusses endowments in “Wealth, Cost, and Price in American Higher Education,” a new book he wrote with co-author Sarah Iler, assistant director of academic planning and institutional research at the University of North Carolina School of the Arts.
“After 1950, more aggressive investing strategies were developed for endowments,” Kimball says.
Those strategies snowballed over time. The 60/40 rule of investing was introduced in the 1950s, the total return investing model was adopted in the 1970s and private equity and venture capital became mainstays in endowment strategies in the 1990s, Kimball says. Wealthy alumni give more money more frequently, which allows schools with more affluent graduates an advantage in growing their endowment funds, Iler says.
“As wealthy schools are accumulating money in the market, they are also continuing to fundraise at a rapid clip,” Iler says, adding that wealthier schools spend less per dollar raised in these campaigns than less-endowed schools.
Of the top 15 largest endowment funds in the U.S., per U.S. News data, a third are Ivy League schools. These schools, founded prior to the nation’s independence, had a generous head start on collecting gifts that support their endowments and investing in themselves.
Today’s endowment fundraising strategies, including investment in private equity and venture capital, are high risk and high reward. Wealthier schools are able to spend more and make more, which keeps the greatest concentration of wealth among only a few schools, according to Kimball.
While this notion of wealth concentration often draws social criticism, an endowment fund is not a pile of cash for the college to frivolously use. The controlled payout of these endowments ensures institutions have savings to access when the need arises, and that they are able to achieve their goals without running out of money along the way.
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What Is an Endowment for a College? originally appeared on usnews.com
