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Growth in colleges' endowments is not bringing lower tuitions

Published: Thursday, Aug. 27 2015 1:29 p.m. MDT

Scholarship recipient Steven Phelps takes a class from Pete Nicholas at the University of Utah's College of Social Work.   (Laura Seitz, Deseret News) Scholarship recipient Steven Phelps takes a class from Pete Nicholas at the University of Utah's College of Social Work. (Laura Seitz, Deseret News)

Steven Phelps is accustomed to overcoming obstacles. A progressive disease that is stealing his eyesight didn't impede Phelps' plan to earn dual graduate degrees at the University of Utah. Thanks to donors to the U.'s endowment fund, financial need won't stop him either.

Retinitis pigmentosa has reduced Phelps' visual field from the usual 180 degrees to a mere 15 degrees, and the disease is still advancing. Undaunted, Phelps is working toward master's degrees in social work and public administration with help from an endowed grant, the Maurice & Inez Warshaw Scholarship for graduate students studying social work.

College and university endowments were hit hard by the recession, but many have recovered well and are posting large gains, according to a report by USA Today. Tuition rates continue to climb, however.

Steven Phelps takes a class from Pete Nicholas at the University of Utah's College of Social Work in Salt Lake City on Thursday, Sept. 20, 2012.  Phelps is attending the university on a scholarship provided by a university's endowment donor. (Laura Seitz, Deseret News) Steven Phelps takes a class from Pete Nicholas at the University of Utah's College of Social Work in Salt Lake City on Thursday, Sept. 20, 2012. Phelps is attending the university on a scholarship provided by a university's endowment donor. (Laura Seitz, Deseret News)

"In 2011, 74 U.S. schools had endowments of more than $1 billion, compared with 54 schools in 2009 after the recession hit," according to data collected annually by the National Association of College and University Business Officials and analyzed by USA Today. "By 2011, nearly 70 percent of schools had either recovered from losses or were within 5 percent of their previous maximum amount. Gains include both investment returns and fundraising."

Gifts keep giving

Endowments comprise money donated to an institution, often by alumni or friends of the school. Interest from unrestricted endowment funds can be used for operating expenses and capital expenses. Frequently, though, endowments come with restrictions made by their donors, often to created scholarships or endowed professorships.

In the money game, Harvard is in its own league, with $32 billion in its war chest. That's enough cash to give a full-tuition scholarship to every student at the school without touching the endowment's principle funds. It's not likely to happen, though. Colleges and universities are sitting on swelling endowment funds, although tuition and fees rose an average of 30 percent above inflation between 2006 and 2011, according to the National College Board as cited by USA Today.

Steven Phelps takes a class from Pete Nicholas at the University of Utah's College of Social Work in Salt Lake City on Thursday, Sept. 20, 2012.  Phelps is attending the university on a scholarship provided by a university's endowment donor. (Laura Seitz, Deseret News) Steven Phelps takes a class from Pete Nicholas at the University of Utah's College of Social Work in Salt Lake City on Thursday, Sept. 20, 2012. Phelps is attending the university on a scholarship provided by a university's endowment donor. (Laura Seitz, Deseret News)

One of the voices calling for increased tuition accountability belongs to Sen. Chuck Grassley, R-Iowa, who has questioned whether increased access to student loans allows schools to spend their endowments on fancy facilities instead of using them to lower tuition.

"In addition to the benefit of income tax exemption, private, tax-exempt colleges and universities are able to raise capital through tax-exempt bonds and tax-deductible contributions," Grassley said in a December 2011 statement. "It's important to understand whether these tax benefits are fueling the tuition increases by subsidizing high salaries for college leaders and rock-climbing walls and other non-educational amenities to try to attract students," he said.

"In 2007 and 2008, before the markets crashed, Grassley had built some congressional support for a minimum endowment payout rate despite fierce pushback from higher education groups — and some of the best-endowed colleges raised their endowment payouts through increased spending on financial aid," according to the Inside Higher Ed blog.

Steven Phelps exits the office of the University of Utah's College of Social Work in Salt Lake City on Thursday, Sept. 20, 2012.  Phelps is attending the university on a scholarship provided by a university's endowment donor. (Laura Seitz, Deseret News) Steven Phelps exits the office of the University of Utah's College of Social Work in Salt Lake City on Thursday, Sept. 20, 2012. Phelps is attending the university on a scholarship provided by a university's endowment donor. (Laura Seitz, Deseret News)

Public vs. private

That helps explain why students who can get in, top private schools such as Harvard, Yale and Princeton can be a better bargain than some state universities for students who can meet their academic requirements. These schools have begun using their endowments to offset tuition costs for middle-class students, prompting talk of a role reversal:

"The private schools are in some respects really more 'public' than the so-called 'public' or 'state' universities," said Richard Vedder, author of "Going Broke by Degrees: Why College Costs Too Much."

"Moreover, schools like Harvard, Yale, Princeton and Williams are able to offer lower tuition fees because of their vast wealth, which, in turn, was largely accumulated as a result of tax-exempt privileges granted by the federal government."

Steven Phelps is attending the University of Utah on a scholarship provided by a university's endowment donor.  Photo taken at the University of Utah's College of Social Work in Salt Lake City on Thursday, Sept. 20, 2012.  (Laura Seitz, Deseret News) Steven Phelps is attending the University of Utah on a scholarship provided by a university's endowment donor. Photo taken at the University of Utah's College of Social Work in Salt Lake City on Thursday, Sept. 20, 2012. (Laura Seitz, Deseret News)

Although some public schools have large endowments, many have little or no money in endowment funds. There are 2,719 four-year colleges in the U.S. and another 1,690 two-year colleges, and most have no endowment, said Time magazine, citing NACUBO statistics. Elite schools with multiple billions drive the conversation about lowering tuition through endowments, but the idea isn't feasible for most schools, the report said.

The median endowment size of the 823 U.S. colleges and universities surveyed by NACUBO was $90 million, a size that generates about $4.5 million spendable dollars per year. That's not enough to significantly reduce student debt at most schools, if it were available for that purpose. Typically, from 4 to 4.5 percent of a college endowment's total is available for spending in a given year. In many cases, though, endowment funds are restricted by their donors for particular uses such as endowed chairs and scholarships, or buildings.

Steven Phelps sits in the front row during a class taught by Pete Nicholas at the University of Utah's College of Social Work in Salt Lake City on Thursday, Sept. 20, 2012.  Phelps is attending the university on a scholarship provided by a university's endowment donor. (Laura Seitz, Deseret News) Steven Phelps sits in the front row during a class taught by Pete Nicholas at the University of Utah's College of Social Work in Salt Lake City on Thursday, Sept. 20, 2012. Phelps is attending the university on a scholarship provided by a university's endowment donor. (Laura Seitz, Deseret News)

Local focus

The University of Utah's endowment grew from $601,469,000 to $668,683,000 between 2007 and 2011 — a 9.5 percent increase fed by increased giving as the economy improved. Annual undergraduate tuition at the U. is $6,200 for 2012-13.

"Endowments are gifts to the university, and the donors place restrictions on their gifts which mandate how and for what the earnings are to be expended," said U. communications director Keith Sterling. "Approximately 28 percent of endowment earnings is used for student aid/scholarships."

The situation is similar at Utah State University, where the endowment stood at $187,415,000 in 2007 and grew to $208,986,000 by 2011. The majority of the school's endowment is restricted by donors. USU's endowment isn't applied to overall tuition, but it helps many students, said USU communications director Tim Vitale. "There is a very direct tuition break for a lot of our students," Vitale said. "As the endowment grows, so does the number of scholarships we give to students. There are definitely scholarships directed toward students who have financial need, but most have an academic component, and are open to any student."

Steven Phelps chats with Sheryle Bauer at the University of Utah's College of Social Work in Salt Lake City on Thursday, Sept. 20, 2012.  Phelps is attending the university on a scholarship provided by a university's endowment donor. (Laura Seitz, Deseret News) Steven Phelps chats with Sheryle Bauer at the University of Utah's College of Social Work in Salt Lake City on Thursday, Sept. 20, 2012. Phelps is attending the university on a scholarship provided by a university's endowment donor. (Laura Seitz, Deseret News)

Brigham Young University, sponsored by The Church of Jesus Christ of Latter-day Saints, has never released an endowment figure and does not discuss financial matters publicly.

Around the nation

University of Texas leads the list of wealthy public schools, with more than $16 billion in its coffers. The University of Montana saw its endowment rise from $123,528,000 in 2007 to $136,310,000 in 2011. The school spends 4.25 percent of its endowment each year on buildings, faculty salaries and students support. As at other schools, criteria for spending endowment funds is established by donors.

Georgia State University's endowment increased from $98,634,000 in 2008 to $113,199,000 in 2011, a 14,8 percent increase. In addition to scholarships, the fund provides retention funds to help students who have been dropped form classes for lack of payment, and programs to reduce costs for first-generation and Latino college students.

Steven Phelps chats with Sheryle Bauer at the University of Utah's College of Social Work in Salt Lake City on Thursday, Sept. 20, 2012.  Phelps is attending the university on a scholarship provided by a university's endowment donor. (Laura Seitz, Deseret News) Steven Phelps chats with Sheryle Bauer at the University of Utah's College of Social Work in Salt Lake City on Thursday, Sept. 20, 2012. Phelps is attending the university on a scholarship provided by a university's endowment donor. (Laura Seitz, Deseret News)

Endowed scholarships often connect recipients and donors in powerful ways. Phelps said he has long admired the Warshaw Foundation's financial support of organizations that help people with disabilities, in his home state of Utah, and around the globe.

"I'm honored to be spoken of in the same sentence as those people," he said.

Phelps plans to work in government administration to affect policy in the social work arena after he completes his two master's degrees.

Email: cbaker@desnews.com

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