National Edition

New trend: Colleges taking money from scholarship funds

Published: Tuesday, Nov. 26 2013 5:05 p.m. MST

William Gann, who lives in Independence, Mo., talks about fees involved with financing college scholarships. Gann is in Salt Lake City working on genealogical research. Scholarships help many students who can't afford college to get ahead but now colleges and universities are beginning to take a percentage of the money.

Jeffrey D. Allred, Deseret News

Alison Tatum can't see William R. Gann as she plays the violin in a performance of Shostakovich's Piano Quintet in G minor, but in some way he is present.

Tatum received the William R. Gann Music Scholarship a few years ago when she was studying the instrument at the University of Missouri-Columbia.

Gann, however, isn't happy about a new trend that siphons away 3 percent of his donations to the University of Missouri. It isn't a practice that is unique to Mizzou, but it isn't quite yet universal either.

"They are taking that money away from the student," says Gann, a former dean at Harvey Mudd College (a member of The Claremont Colleges in Claremont, Calif.), who graduated in music from the University of Missouri in 1953. "It may seem like a small amount of money they are taking out, but for some students that can amount to lunches and dinners."

Statistics from the National Association of College and University Business found that 39 percent of higher education institutions received less gifts to their endowment funds in fiscal year 2012 than in the previous year, while 41 percent reported an increase. With average gifts at $8 million, even small percentages going to fees can mean a lot of money.

Like cold water

Carrie M. Collins doesn't think the practice taking a percentage of money donated for student scholarships is a good idea and wonders how it would affect fundraising for colleges.

"I think it throws cold water on fundraising," says Collins, vice president of institutional advancement at University of the Sciences in Philadelphia. "It isn't exactly a warm fuzzy."

Scholarship donations are usually endowed funds — meaning the money is invested and managed in perpetuity and the scholarship awards are taken from the interest made on the investments. A gift fee percentage (usually in the range from 1 percent to 5 percent) are taken out of the money when it is donated.

Collins says it would be awkward to talk to potential scholarship donors and tell them all the good their money would do for students and then tell them that 5 percent will be taken off the top of the donation.

"You shouldn't be passing the operating costs onto the donor," she says. "There are other ways to increase operating revenues."

Unlike Gann, however, Collins doesn't see any ethical problems, if donors are notified and agree to the practice.

"As long as the universities are upfront in the gift agreement, then it is above board," she says. "I just don't think it is the optimal way to operate. You'll get more money, if you can tell donors it is all going to the student."

A search on the Internet for universities and colleges charging gift fees find a wide mix of institutions.

UCLA, for example, announces on its foundation website: "As is customary with universities and other non-profit organizations across the country, a one-time administrative fee is applied to all new gifts, providing essential support to UCLA's overall operation. The fee is currently 6.5 percent."

The University of Arizona charges a 6 percent "University Development Fund fee" on charitable grants.

Lane Community College in Eugene, Ore., assesses a 5 percent "administrative fee."

Collins says it seems that taking percentages of scholarship money is being implemented more often in public institutions rather than private institutions. But she says this distinction may not last forever: "It may be, in 15 years, that private schools might be saying, 'Of course we take a percentage,'" she says.

Money costs money

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