To many, a university’s endowment can seem like an arbitrary measure of its rank, without any real meaning or relevance to students’ day to day life. However, the endowment can often serve as a true indicator of university’s financial health.
Northwestern has one of the fastest growing endowments in the nation, currently estimated at around $10 billion. But what does that really mean? And more importantly, how can that affect student life and family finances? Here are some commonly believed myths and a few FAQ’s about endowments:
1. If the university spent more money from the endowment on tuition, it would lessen the financial strain on lower and middle income families.
We’ve all heard other students complain about the astronomically high tuition, and then cite the huge endowment as a means to reasonably lower the financial strain on families. This is the biggest myth associated with endowments – for many families, it’s hard to stomach giving tens of thousands of dollars each year to an institution that touts its huge and ever-growing coffers of cash and investments. The cost of a college education is much more expensive than is charged to students in the form of tuition. According to the 2015 Annual Financial Report, Northwestern University received $567,750,000 from tuition and fees (total tuition and fees – scholarships and fellowships). In the same year, Northwestern had $2,033,333,000 in operating expenses. This deficit of nearly $1.5 billion is covered in part by gifts, grants, and of course, a portion of the returns from the endowment. In 2015, $473,875,000 from the investment returns were designated for operations.
Although dipping directly into the endowment could temporarily lower tuition, eventually the endowment would dry up, leaving the school and the students in much worse shape than before. The earnings from Northwestern’s $10 billion endowment help provide a source of predictable income to further the University’s primary mission of education and research.
2. By capping spending of the investment earnings, Northwestern is placing more importance on the future needs of the school, and not the current students.
Although nearly all private universities are nonprofit institutions, they are all run as businesses. As such, the administration works to not only cover the expenses incurred in the present time period, but also to expand the possibilities and academic reach of the school in the future. The endowment is a tool to do just that – on a year to year basis, it provides the school with enough money out of its earnings to sustain existing programs, as well as a hefty chunk that is added back to the endowment and reinvested for the future.
The endowment is also supported by donations and gifts from alumni and friends of the university. As students, we often receive emails when the school receives a particularly large donation – most recently about the $10.25 million gift from the Galvin family, and in January, the school received over $100 million from Roberta Buffett Elliott, the largest donation in the history of Northwestern. In many cases, the donors bequeath their money to certain schools or causes within the school; Galvin’s donation went mostly to Kellogg and the program NUseeds, and Elliott’s to start a new institute for global studies.
3. The endowment is largely a collection of investments. What does the school invest in?
Although the Investment Office does not disclose specifically what they invest in, they provide a general overview of where the money is: stocks, bonds, real assets, etc. If you want a more detailed look at the Northwestern endowment, check out the endowment website!
4. What is the We Will. campaign? Is this money just going to be added to the endowment?
The campaign has a goal to raise $3.75 billion across 141,000 individuals. As of September 26th, over $3 billion from over 121,000 donors had been raised. This is a huge amount of money – what is the university administration planning on spending it on?
A majority of the money is going to help make Northwestern more accessible and diverse, in the form of financial aid, with another $1.2 billion going towards “facilities for biomedical research, innovation and entrepreneurship, performance, and collaborative learning.”
Much of this money is going towards capital projects (that is, new facilities and dorms). These projects include buildings that have already been completed, like the Ryan Center for the Musical Arts and the Garage, and others are still in program, like Ryan Fieldhouse and Walter Athletics Center, the Kellogg Global Hub building, and the new residence hall on 560 Lincoln.
The description on the campaign’s website doesn’t discuss adding of the fundraised money to the general endowment fund.