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College endowments aren’t piggy banks. But some experts say wealthy schools could spend more.

Princeton University has one of the five largest endowments in the nation. (Seth Wenig/AP)
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Wealthy universities are under pressure to use more of their dollars to increase access for the neediest students. Although nearly half of endowment spending funds financial aid, some experts say elite institutions can dedicate more of their investment returns to boost racial and economic equity on their campuses.

University endowments have experienced volatility in the last decade but were on a tear in 2021. Average annual returns at 720 colleges and universities soared 30.6 percent in the 12 months ending June 30, up from 1.8 percent the prior year, according to a survey released Friday by TIAA and the National Association of College and University Business Officers (NACUBO). Meanwhile, their spending rate has remained roughly the same.

While endowments of all sizes recorded returns of more than 20 percent, those with more than $1 billion in assets posted the strongest results.

Harvard, with an endowment of $51.9 billion, held the top spot, followed by the University of Texas System with $42.9 billion. Private universities dominated the top 20 largest endowments, but a handful of public institutions rounded out the list, including the University of Virginia with a $10.5 billion endowment.

Universities maintain endowments, a collection of tax-exempt donations and investments, to pay for salaries, research, financial aid and other expenses. Portions of endowments are restricted to uses that donors stipulate. The money also helps colleges weather ups and downs in economic cycles.

Record annual yields and 10-year returns nearing double digits for the biggest endowments proves the wealthiest schools can afford to loosen their purse strings, said Charlie Eaton, a sociology professor at the University of California, Merced, who studies endowments.

“A lot of these schools have room to spend more from their endowments,” said Eaton, author of “Bankers in the Ivory Tower.” “If they enrolled more students from low-income backgrounds, they could make a further contribution to equity.”

Undergraduates at the most selective schools can graduate virtually debt-free, Eaton said, but so few students with financial need are admitted that generous aid policies have limited reach.

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And it’s not just grants and scholarships that matter, said Anthony Abraham Jack, an assistant professor at Harvard University’s Graduate School of Education. Elite schools, he said, must look beyond financial aid to holistically support students from low- and middle-income families, making sure they are not going hungry or missing out on collegiate experiences that wealthier peers can afford.

“The problem with a number of elite places is they presume that their students don’t have to worry about the most basic things,” said Jack, author of “The Privileged Poor: How Elite Colleges Are Failing Disadvantaged Students.” “There are students staying on campus over spring break with no access to food. Invest more in the services that will help students deal with these disparities.”

Some wealthy schools say they are stepping up their recruitment and support of students who are the first in their families to attend college and those with the greatest financial need.

Johns Hopkins University in Baltimore, with an endowment of $9.3 billion, said it has expanded support systems for its first-generation and low-income students, ensuring equal access to research opportunities, internships and study abroad programs.

“We continue to work on inclusion and experiential access issues for limited income students to ensure that all of our students feel part of the Johns Hopkins community,” university spokesperson Jill Rosen said in an email.

Ending an admissions policy that favored the relatives of alumni in 2014 helped the university create a more diverse student body. As of October 2021, Johns Hopkins said first-generation and low-resource students make up nearly 27 percent of the undergraduate population, compared with 16.1 percent in 2013.

Donors are showing greater interest in philanthropy that supports racial and economic equality on campuses.

Sixty-five percent of respondents to the NACUBO survey said they received gifts for their endowments specifically earmarked for diversity, equity and inclusion initiatives in fiscal 2021. Such gifting was especially common among the smallest endowments, 80 percent of which reported DEI-related gifts. In contrast, 36 percent of the largest endowments reported those gifts.

Institutions have held the line in the last two years on drawing down their returns. The average annual spend rate remained at 4.5 percent in 2021, despite hefty yields on endowment investments. That approach is sure to fuel long-standing criticism from lawmakers and activists that wealthy schools hoard cash while families struggle to cover the cost of attendance.

Susan Whealler Johnston, president and chief executive officer of NACUBO, argues that universities are being wise with the management of their endowments to maintain them in perpetuity.

“The pandemic suggests that endowments will continue to take a conservative approach to managing their spending,” Johnston said on a call with reporters Thursday. “Endowments are managed with an eye on the very long term and to ensure intergenerational equity, not privileging today’s students or today’s institutional needs over those of the future.”

At Princeton University, with the fifth-largest endowment, at $37.6 billion, endowment funds cover over 80 percent of the undergraduate financial aid budget, which supports efforts to increase socioeconomic diversity, said university spokesman Ben Chang.

Among the students offered admission to Princeton’s Class of 2025, 22 percent hail from low-income households, compared with 6.2 percent in 2001. The Ivy League school’s no-loan policy, adopted in 2001, was made possible by the long-term growth of the endowment, Chang said.

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Eaton at UC Merced said upping the spend rate poses little risk to the long-term growth of endowments at the richest schools. The connections that big elite schools have with top private equity and hedge funds help them net higher returns, he said. Between that and their size, Eaton said their endowments are going to keep growing.

It is not unprecedented for schools to increase their endowment spending, he said. Harvard did in 2009 during the Great Recession and Princeton upped its spend rate to 6 percent at the start of the coronavirus pandemic, but even then Princeton President Christopher L. Eisgruber said it was not a sustainable move. We therefore need to reduce the University’s operating expenditures, especially because there is a substantial risk that greater economic distress may lie ahead,” Eisgruber wrote the Princeton community in May 2020.

Jack, at Harvard, said while elite privates must earmark more funding to foster equality, wealthy public systems also need to do their share.

“Think about how many public school systems are on the [top endowment] list. And think about how much inequality exists within those system. If you are not at the flagship, it’s a very different experience,” Jack said.