While applying to college, students and parents may consider a variety of factors before enrolling. Those factors could include a school’s academic programs, location, sports programs, tuition, and potential financial aid.
But there is one more thing families may want to think about: A college or university’s endowment. Not familiar with the term?
Here’s helpful information about university endowments, how they work, how they are managed, which schools have the largest ones, and how those university endowments could potentially benefit students.
What Is an Endowment?
A university endowment refers to the amount of money a college or university receives via donations from its alumni or other interested parties. This money is then invested by the academic institution to help grow its savings and to provide funding for the future.
Some schools can have endowments well into the billions made up of potentially hundreds or thousands of individual gifts.
💡 Quick Tip: When shopping for a private student loan lender, look for benefits that help lower your monthly payment.
Types of Endowments
Not every university uses the same endowment system. Typically, a university has one of four types of endowments. Those include unrestricted endowments as well as term, quasi, and restricted endowments.
An unrestricted endowment means the university may choose to spend or distribute the donations it receives however it wishes. With a restricted endowment, the academic institution must hold the principal of the invested donation in perpetuity.
The earnings from the invested assets can be used, but only at the donor’s specifications at the time of giving. For example, if a donor gives a $25,000 donation specifically earmarked for a scholarship, any principal earnings must be used on the scholarship.
A term endowment means a university can use the principal after a period of time has passed or if a specific event occurs, while a quasi-endowment generally allows academic institutions to use both the principal as well as income at their discretion from the donation.
Recommended: Finding Free Money for College
How Does University Endowment Giving Work?
If a person wants to donate to their alma mater, or just give to the academic institution of their choice, they can do so at any time. With a standard donation, however, the donor typically does not have much, if any, control over how the funds are spent.
So, if a person does want control, they may prefer to give via endowment. Colleges and universities typically set a minimum when it comes to endowment gifts, and those minimums can be quite hefty.
For example, Michigan State University’s law program endowments begin at $50,000. Other universities set different minimum funding levels for different types of endowments.
At the University of Illinois, a person can give $25,000 for a named scholarship that provides financial support for a student or student’s tuition and fees. A donor could even provide the university with $5 million for a named deanship, which will be used for unrestricted support for the department at the discretion of the Dean.
Recommended: How to Pay for College With No Money Saved
Who Manages a University Endowment?
Every school decides how to best manage its own endowment. Some colleges and universities hire internal staff to manage their endowments while others hire outside firms and professional investors to oversee the money.
There may be an endowment manager or a committee or team that works to manage the funds. They will generally work with the university to decide its goals for the endowment, such as making as much income as quickly as possible, or going for more long term sustainable growth. Then, decisions about how and where to invest the money are made to help the endowment meet its goals.
💡 Quick Tip: Need a private student loan to cover your school bills? Because approval for a private student loan is based on creditworthiness, a cosigner may help a student get loan approval and a lower rate
Which Universities Have the Largest Endowments?
According to US News and World Report, Harvard University in Massachusetts has the largest endowment at around $53 billion. Yale University in Connecticut comes in a distant second with roughly $42 billion, and Stanford University comes in third with $32.8 billion.
Princeton University in New Jersey comes in at number four with $37 billion and Massachusetts Institute of Technology in Massachusetts rounds out the top five with $27.4 billion.
University of Pennsylvania, Texas A&M University, University of Michigan—Ann Arbor, University of Notre Dame, and Washington University in St. Louis, make up the remaining top 10 with endowments ranging from $13.7 to $20.5 billion.
However, these schools can be considered major outliers on the endowment scale. In 2022, the National Association of College and University Business Officers analyzed 678 university endowments and found the average fund balance was $1.2 million.
Recommended: 11 Strategies for Paying for College and Other Expenses
How Are University Endowments Used and Why do They Matter?
University endowments can be used for a variety of financial needs including hiring new professors, building new buildings or upgrading new ones, and can even be used for fellowships or scholarships.
Many schools also use their endowments to distribute financial aid. Beyond these uses, endowments also allow colleges and universities to look ahead into the future. It helps schools plan for faculty hiring, help to stave off tuition increases, plan for new facilities, and more.
Recommended: What Is the Average Cost of College Tuition in 2023?
Taking Advantage of Endowments
While students will never have direct access to a college or university’s endowment, they could still reap the benefits of any and all donations. Those benefits could come in the form of having access to newer facilities and equipment, through research opportunities, or via learning from the highest skilled professors.
Of course, students can also take advantage of a university’s endowment by applying for specific scholarships funded by donors, or by applying for any and all available financial aid to help them pay for college.
However, sometimes, financial aid and scholarships can fail to stack up against the growing cost of tuition. And that’s where a private student loan could come in to help fill the gaps.
Private student loans are usually available via a bank or another private lender or financial institution. Different lenders will offer different terms, so students will likely want to shop around for one that fits their specific needs.
If you’ve exhausted all federal student aid options, no-fee private student loans from SoFi can help you pay for school. The online application process is easy, and you can see rates and terms in just minutes. Repayment plans are flexible, so you can find an option that works for your financial plan and budget.
SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.
SoFi Private Student Loans
Please borrow responsibly. SoFi Private Student Loans are not a substitute for federal loans, grants, and work-study programs. You should exhaust all your federal student aid options before you consider any private loans, including ours. Read our FAQs.
SoFi Private Student Loans are subject to program terms and restrictions, and applicants must meet SoFi’s eligibility and underwriting requirements. See SoFi.com/eligibility-criteria for more information. To view payment examples, click here. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
SOIS0723040