Trump's college funding threats can't be offset by their endowments
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The top universities President Trump is targeting for federal funding cuts are sitting on billions in endowments, but schools often can't tap that cash to fill the gaps.
Why it matters: Endowments, also under a federal microscope, largely help offset students' tuition costs.
What they're saying: "Endowments are not a savings account," said Steven M. Bloom, assistant vice president of government relations at the American Council on Education. "There's a common misperception generally and among policymakers in particular."
Catch up quick: Trump in January ordered federal investigations of diversity, equity and inclusion programs at schools with endowments of at least $1 billion.
- DOGE head Elon Musk, tasked with streamlining government spending, criticized federal funding toward universities with significant endowments in a post on X last month.
Zoom in: Endowments are permanent investment funds that comprise hundreds to thousands of separate accounts, per the American Council on Education. They're made up of donations from individuals or foundations.
- Most funding held in endowments is restricted by the original donors for specific uses, like student financial aid, student activities or research.
- "Schools can be sued and have been sued in the past if they don't spend the money the way the donor intended," Bloom said.
Zoom out: Schools typically spend no more than 4% to 5% of their endowment income per year, said Tim Yates, president and CEO of asset management fund Commonfund OCIO.
- "It's intended to exist in perpetuity, to support future generations at the same level as today's generations" he said.
State of play: Endowment dependence has grown with the increasing costs of private colleges, according to a 2024 analysis from Cambridge Associates.
- In 2023, the average growth rate in financial aid kept pace with the growth in tuition charges.
- "Highly endowed private institutions charge students from lower- and middle-income families less than elsewhere," Phillip Levine, a senior fellow at the Brookings Institution, wrote in an analysis last year.
By the numbers: In fiscal year 2024, 48% of endowment spending funded student financial aid, and 18% was distributed to academic programs, according to a February survey by the National Association of College and University Business Officers and Commonfund.
- 11% funded endowed faculty positions, 7% went to operation and maintenance of campus facilities and the remainder supported other purposes.
Context: Endowments were largely exempt from taxation until a Republican-led change in 2017 for wealthy schools at a 1.4% tax rate.
- Republican House members have proposed legislation to raise excise tax rates.
- Rep. Troy Nehls (R-Tx.) proposed an increase to 21%, arguing that it would hold universities to the same standard as corporations. Rep. Mike Lawler (R-N.Y.) said his 10% proposal would increase the financial incentive for universities to spend their endowments on academic programs.
- Critics of endowment taxes argue that large endowments help allow high-quality, accessible educations.
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