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A financial endowment consists of funds or property donated to an institution or individual, with the stipulation that it be invested, and the principal remain intact. This allows for the donation to have a much greater impact than if it were spent all at once.
College and University EndowmentsThe total endowment can be over a billion dollars at many of the United States' richest universities.1 However, each university typically has numerous endowments, each of which are frequently restricted to funding very specific areas of the university. The most common examples are endowed professorships (also known as chairs), and endowed scholarships or fellowships. At universities, typically 5% of the endowment's assets are spent every year, and any excess earnings are reinvested to compensate for inflation and recessions in future years and to grow the endowment.2 Restricted EndowmentsEndowment revenue can be restricted by donors in numerous ways. Professorships and endowed scholarship/fellowships are the most common restriction on large donations to an endowment. ProfessorshipAn endowed professorship (or endowed chair) is a position permanently paid for with the revenue from an endowment fund specifically set up for that purpose. Typically, the position is designated to be in a certain department. The donor is allowed to name the position, which typically takes the format: First-name Last-name professorship of Department-name. Endowed professorships aid the university by providing a faculty member who does not have to be paid out of the operating budget, allowing the university to either reduce its faculty-to-student ratio, a statistic used for college rankings and other institutional evaluations, or direct money that would otherwise have been spent on salaries toward other university needs. In addition, holding such a professorship is considered to be an honor in the academic world, and the university can use them to reward its best faculty or to recruit top professors from other institutions.3 Currently, a donation of $1-3 million is required at most universities to endow a professorship. Endowed Scholarship/FellowshipAn endowed scholarship is tuition (and possibly other cost) assistance that is permanently paid for with the revenue of an endowment fund specifically set up for that purpose. It can be either merit-based or need-based (which is only awarded to those where the college expense would cause their family financial hardship) depending on university policy or donor preferences. Some universities will facilitate donors meeting the students they are helping. Given the cost of college, finance is frequently a factor when students decide where to go to college. By offering them money, colleges are sometimes able to lure students away from other universities. The amount that must be donated to start an endowed scholarship can vary greatly. Fellowships are similar, although they are mostly commonly associated with graduate students. In addition to helping with tuition, they may also include a stipend. Fellowships with a healthy stipend can lure students away from the workforce, to work on a doctorate. Frequently, teaching or working on research is mandatory part of a fellowship. CriticismsOfficials in charge of the endowments of some universities have been criticized for "hoarding" and reinvesting too much of the endowment’s income. Given a historical endowment performance of 10-11 percent, and a payout rate of 5 percent, around half of the endowment’s income is reinvested. Roughly 3 percent of the reinvestment is used to keep pace with inflation, leaving an inflation-adjusted 2 percent annual growth of the endowment. At some universities, if this growth rate was turned into current spending, tuition could be cut in half. Two arguments against inflation adjusted endowment growth are:4
References1National Association of Colleges and University Business Professionals' Endowment Study - Contains list of colleges ranked by endowment size, and information about endowment performance. 2So Nicely Endowed! Newsweek: Kaplan College Guide 3Cornell's "Celebrating Faculty" Website 4University endowment returns are underspent - Challenge, July-August, 2002, by Donald Frey See alsoUniversity Endowments - A US/UK Comparison - Sutton Trust A Primer for Endowment Grantmakers - Ford Foundation, 2001 What does Financial endowment mean ? Search with Google !Article on Financial endowment, category, different spelling or sense |
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