Stanford: University endowment expands to $14 billion
San Francisco Chronicle
The university endowment increased 15 percent over the prior year, while Harvard's grew 13.5 percent to $28.9 billion, and Yale's grew 18 percent to $18 billion, according to a report released today by the National Association of College and University Business Officers in Washington. The report looked at the endowments -- essentially the investments -- of 765 public and private colleges and universities across the country.
As these mega-rich universities have grown ever wealthier, education experts say the schools have started to give low-income students steep tuition breaks, although some argue it's not enough. The vast sums have also contributed to something of an arms race in fundraising because a school's financial resources play a large role in college rankings.
"The status of universities is substantially a function of their financial resources," said Kevin Carey, research and policy manager for Education Sector, a nonprofit education think tank in Washington. "There's a self-sustaining winner-take-all dynamic: The more money you have in the endowment, the higher it will grow, the more money you can spend, the higher your rankings will be, and the easier it is to raise more money. Money and status are very interrelated in higher education."
A very good year
University endowments generally did well in 2006, generating a 10.7 percent average rate of return, with much of the endowments invested in stocks and bonds. But increasingly, the wealthiest universities are investing in hedge funds, natural resources and private equity, which are helping to push their returns ever higher.
Stanford has seen its endowment more than quadruple from $3 billion in 1995. Of the hundreds of colleges and universities that participated in the survey, only a fraction -- the top 26 -- have multibillion-dollar endowments. The 27th-richest university -- Ohio State University and its foundation -- has just $1.9 billion, paling next to those at the very top.
Other heavy hitters in California include the University of California, at No. 8 with a $5.7 billion endowment, and the University of Southern California at No. 22, with more than $3 billion.
As many of the nation's universities grow wealthy, some education experts increasingly question whether these institutions, most of which have significantly raised tuition, are doing all they can to educate the best and brightest among the working class.
"The rich get richer," said Pat Callan, president of the National Center for Public Policy and Higher Education in San Jose.
Callan doesn't fault the schools for their wealth but says that having money comes with a special responsibility. "They're increasingly becoming institutions that serve primarily the highest-income strata of American society, and we've thought of them historically ... as avenues of social mobility. Clearly, this is a problem for all of American higher education."
Low-income students
A number of universities, including Harvard, Stanford and Princeton, have announced steep tuition breaks for low-income students in recent years. At Stanford, students whose families earn less than $45,000 annually now pay about $16,000 over four years for tuition and living expenses, instead of roughly $180,000.
And while Callan applauds such changes, he said they're still "a drop in the bucket" when it comes to creating economic diversity at elite private universities, which have relatively few low-income students.
One indicator of such diversity is a university's percentage of students receiving federal Pell Grants, whose families generally make less than $40,000 a year. At Harvard, Pell Grant recipients made up 6 percent of the student body in 2004-05, and at Stanford, 12 percent. In comparison, those figures were 29 percent at UC Berkeley and 31 percent at San Francisco State University.
Education experts say elite universities need to do a better job of recruiting highly qualified low-income students, who are sometimes discouraged from applying by sticker shock. However, Stanford's chief financial officer, Randy Livingston, said he believes the perception of skyrocketing tuition is "worse than the reality."
Yet Stanford's tuition alone increased from $19,695 in 1995-96 to $31,200 a decade later -- nearly $6,000 more than the rate of inflation.
Where it all goes
As many universities do, Stanford spends roughly 5 percent of its endowment earnings each year on school operations. In 2006, Stanford spent $586 million from the endowment payout, which made up 19 percent of the university's operating budget of more than $3 billion.
Stanford will spend $66 million on scholarships this year, about two-thirds of it from endowment funds. That's roughly 7 percent more scholarship money over the year before.
The rest of the endowment money will go toward everything from Stanford's famously cutting-edge research to instruction and technology. The endowment is critical to its mission, said Livingston: "In many ways, we've been one of the engines of innovation in this country, and that has really led to America's leadership in technology and health care."
The large endowments at institutions such as Harvard, Yale and Stanford have placed pressure on less wealthy universities to raise more money, said Carey at Education Sector. One reason is that U.S. News and World Report considers how much colleges spend on students for its highly publicized annual school rankings.
Because nonprofit universities don't pay taxes, elite, wealthy institutions need to think about their responsibility as an institution with a "public trust," Carey said.
"How does their sense of obligation and identity inform their choices when they spend their bounty of resources?" he asked. "What are you going to do with all that money?"
On the Web: To see the full report, go to www.nacubo.org.