What Endowments Are Actually For

Every few years someone points out that a university has billions in the bank while raising tuition, and everyone agrees this is outrageous. Both the criticism and the defense usually misunderstand what an endowment is.

An endowment is not one pool of money. It is thousands of separate gifts, most of them restricted by donors to specific purposes, pooled for investment and spent under a rule that is designed to last forever. Roughly 4-5% is drawn each year. The rest stays invested so the same 4-5% is available a century from now.

This is a defensible design. It is also frequently used as an excuse. 'Restricted' is a real legal constraint, but restrictions are negotiated at the time of the gift. An institution that ends up with a hundred small restricted funds for things nobody needs has a fundraising strategy problem, not a legal problem.

The useful question is not 'why don't you spend it,' but 'what does this endowment let you do that a tuition-dependent school cannot?' The honest answers are: take pedagogical risk, hold prices below cost for students who need it, and survive a bad decade. If a large endowment isn't buying those three things, it isn't doing its job — it is a scoreboard.