When University Endowments Go Up, Why Won’t Tuition Go Down?
Aided by the recuperating stock market, the financial performance of university endowments was extremely strong in calendar year 2014.
While this is welcome news, documented by the National Association of College and University Business Officers (NACUBO), it does beg the question: Why is it that if university endowments are up, tuition won’t go down?
First of all, most schools have strict restrictions on the manner in which they can spend endowment funds.
These restrictions have a practical purpose, often rooted in long and complicated histories, but which nevertheless come down to a simple premise: without rules, the endowments might be spent in a relative flash, causing a loss of confidence in the university’s business practices and an erosion of trust from its many constituents, including you.
Think of a university endowment as a sort of rainy day fund, albeit one with more zeroes in it than you and I can reasonably comprehend. Knowing that a rainy day fund (with tight spending constraints on it) exists can cause other university money sources, such as line-of-credit providers or state legislatures to feel better about the money that they provide to a school. It’s the old rule of nobody wants to put “good money after bad.”
So, with university endowments performing better in 2014, mostly because of the healthy growth of stocks, bonds and hedge funds in which those endowments were invested, the end result is a more tightly knit school safety net, protecting somewhat against larger future tuition increases, but not necessarily having any impact on tuition decisions for the 2015-2016 academic year.
And, of course, not all endowments performed at the same growth clip; the law of averages means that some did much better and other lagged behind.
How did your students’ favorite schools’ endowments perform? One place to look is on the university Web site, under finances. In the case of a public university, there will likely be financial information contained in various state budget documents, also available on the Web.
So the bottom line on endowment growth for higher education is that it is better than the alternative, which seems to cause tuitions to go up at a higher clip than they would have otherwise. As The New York Times once put it, “last year’s healthy (endowment) returns helped restore a sense of normalcy for university officials who have occasionally felt that they were fighting, and losing, a war on two fronts: in the legislature and with the stock market.”
When “university officials” believe that they are fighting and losing a battle, it is your students who suffer the collateral damage. Part of our job at Explore Colleges is not only to brace you for the onslaught but to give you some hope that the constant rat-a-tat-tat of tuition increases will soon begin to subside.
Kathie Boozer is the founder and president of Explore Colleges, a premier college group tour operator. Explore Colleges’ customized tours help students experience the unique cultures, environments, and opportunities on each campus and inspire them to follow their dreams. Contact Kathie at kboozer@explorecolleges.org
