The American Council on Education has released an updated brief providing answers to frequently asked questions about college and university endowments. The brief discusses the purposes of endowments as well as how endowments are used, clarifying many common misconceptions about the charitable funds universities use in a host of ways to help accomplish their educational and research missions.
“An endowment is an aggregation of donated assets invested by a college or university to support its mission in perpetuity,” ACE explains. Donors usually place restrictions on how their charitable donations can be used, and their gifts “allow an institution to make commitments for educational activities now and far into the future with the knowledge that the resources to meet those commitments will continue to be available.”
The brief also answers questions about how institutions use endowments. According to the 2023 NACUBO-Commonfund Study of Endowments, nearly half of all spending from endowments (47.7%) went toward funding student financial aid programs in FY23; 17.5% of all spending went to academic programs and research; 11% to endowed faculty positions; and 7.4% to campus facilities’ operation and maintenance. As ACE notes, “At colleges and universities, endowments make a tangible impact on students, faculty, and campuses in myriad ways to support the aims of the institution.”
The brief addresses several other questions related to endowments, including how they’re created, how institutions balance spending for the present vs. spending for the future; which institutions have endowments and how big those endowments are; and how endowments are invested.
ACE’s brief is relevant for understanding why proposals in Congress to expand an excise tax on investment incomes from endowments (often known as the “endowment tax”) are misguided. AAU President Barbara R. Snyder wrote in a 2023 blog post that “the impetus behind these proposals … is often based on a fundamental misunderstanding of what endowments actually are, how they work, and what they support.” As President Snyder noted, government revenues generated from the endowment tax “go directly into the United States Treasury’s general fund and are not designated to support any particular educational or social program.“
AAU has been a vocal opponent of the endowment tax and will continue working to fend off proposals in Congress to expand it.
Kritika Agarwal is senior editorial officer at AAU.