Endowment Figures for 2008 Now Available: Should you care?

The National Association of College and University Business Officers releases statistics about the endowments of over 700 colleges each year. The information for 2007 (link to pdf) just became available. Your first question may be, 'what is an endowment?' The simple answer is that a college's endowment represents the amount of cash it has to spend. This cash can be spent to build new buildings or, as would be important for students, fund financial aid programs or reduce tuition. This leads naturally into the second question, 'should you care about a college's endowment?'

The short answer is no.

Colleges are allowed to spend typically about 5% of their endowment per year. This varies from school to school and usually depends on what their board of directors approves. With 76 colleges boasting more than $1 billion in endowments, it seems that most colleges should have quite a bit to spend on financial aid. And yet, despite the average endowment increasing 18.4% this year, tuition will still go up about 7-8% -- twice the rate of inflation. In fact, most colleges spend an average of only 1% of their endowment on financial aid each year.

What, then, are colleges doing with the money if not spending it to allow more students to attend with fewer loans?

Unfortunately, the size of a school's endowment is one of the contributing factors to its US News ranking. With stiff competition among colleges for the top ranks, this certainly provides incentive to horde money. It comes as no surprise, then, that the top three colleges' endowments -- Harvard's, Yale's, and Stanford's -- grew at rates higher than the average and belong to those that top US News' list.

Endowments are important to the school itself, of course. However, you as an applicant should put little weight into these statistics. While larger endowments represent a higher possibility for a generous financial aid package or lower tuition, it hardly ever translates in this way. Instead, it is best to wait until you receive an actual financial aid offer and use only that to aid in making your final decision. The endowment information should never influence your application decisions.

Source: National Association of College and University Business Officers (link to pdf)

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