I know the short answer might just be that federal funding makes up a larger chunk of their overall funding but it just seems like they’d have some kind of leverage, especially private universities with generous endowments. I don’t know much about how all these funding sources differ and how they’re used.
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Why dont the top X amount of executives take a massive paycut first….
You could for maybe one year but it’s not sustainable. Harvard, for example, gets a ton of federal NSF money for research but if that all got pulled their endowment would be pretty quickly drained in a couple of years if they had to make up the shortfall.
Endowments are not there to be used as a bank account. It is money that’s invested in a variety of stocks and bonds, and the interest made from that is used to fund the school.
Why don’t you quit your job and use your retirement savings to pay your bills?
Pretty much the same reason. It can work for a short while but that money will dry up eventually if you run at a deficit.
Some may for some of the shortfall, but that also means foregoing other initiatives the money may have been earmarked for. Also, much of the endowment money is tied to specific uses, eg. somebody donates money to endow a specific professorship position, or build a specific building. A school can’t just take the $4m given to endow the Smith Professorship in Sociology or shift funds meant for the upcoming Richguy Chemistry Building and spend it on cancer research that had its funding cut.
What others have said, and also: endowments aren’t necessarily fungible. Endowments largely come from donations, and those donations might have constraints associated with them. There might be $100mn that can only be used for constructing new buildings, $100mn that can only be used for need-based tuition aid, $50mn that can only be used for the lacrosse team because a wealthy donor was on the lacrosse team when he attended.
IOW: it’s not just strategic/policy; some of this money is by contract not usable.
a) like others said, it’s like a farmer eating their seed corn, so the phrase goes. yeah, they could theoretically dip into it now, but at the cost of their future. it’s not a sustainable practice, they would have to cut their spending sooner or later.
b) what a lot of people don’t understand is that large amounts of endowments are for specific purposes. like X billionaire donated a lot of money to endow a specific chair or program for like, i dunno, cancer research, or the university fund-raised for tuition assistance for needy students. For a lot of stuff many universities are actually legally tied in how they can actually use their endowments, they can’t just change stuff up and dip into it willy-nilly for general operations or unrelated research.
eli5: we could eat the chicken right now and starve tomorrow, or we can eat the eggs every day and live forever.
the endowment is the chicken, the eggs are the interest it generates.
Because FREE handouts! GOOD for multi-billion dollar corporations and institutions swing on money. BAD for individuals needing it to literally survive
Imagine you are an alumnus at Harvard. You want to provide a scholarship for people from your home town to attend.
You fund the scholarship with $10m. You and Harvard sign a contract that states that the funds may only be used for that purpose.
That is an endowment. Schools like Harvard have thousands of these separate endowments that have specific uses.
The school does not have a giant slush pile of money that they are too greedy to spend, they have thousands of funds that are designated for specific uses.
If I donated money for a specific restricted use, say, fund this particular cancer research because I lost a relative this way, and made sure that they are only using the interest, because I want this fund to be available in perpetuity, I would be livid if they use the money for something else.
It’s also illegal, by the way.
True endowments (as opposed to Board-designated endowments) are subject to donor-imposed restrictions that typically permit use of interest only so that fund will last in perpetuity and not diminish over time. Some states have processes that will allow an organization to dip into principal when facing financial challenges, but that is an extraordinary step and not used frequently. As some others pointed out, it also might not be sustainable, but the primary issue is that it is a violation of the donor’s intent and law governing use of charitable assets.
They absolutely *can* but universities are all run by people with business-brain who think the only purpose of the institution is to “grow” financially, more students, more buildings, more donors, bigger endowment.
The idea of sacrificing some heft/status to run a smaller institution that is true to an actual principled vision of education they’d view as silly and naive.
This is silly. The money we are talking about is not money to “run Harvard”, it is money the Federal Govt pays to have research done on their behalf. The school will be fine, but tons of research the Goverment wanted/needed done will stop and all the researchers will be out of work. The reality is that lots of what they were wroking on will be shopped to corp america and the research will continue. But now the results will not be public but be owned by the company
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Endowments are an income generating asset (in the form of interest/dividends), not a rainy day fund.
It’s mainly because the “Endowment” is largely a collection of other funds that have been given to the University for specific purposes. So, if I give $1M to the university to be used for scholarships for people from my home town, that $1M adds to the endowment. But, the University can’t decide that, say, their nuclear physics program needs the money more than those scholarship recipients from my home town.** Collectively, all those gifts are the “endowment,” and (depending on the university) very little of it is actually unrestricted.
But, also, recognize that this withdrawn money was going to be used for specific research. You can certainly use other money to pay graduate students, but unless they have specific research to conduct, they’re just going to be sitting around doing nothing.
(** Sometimes they can. But, if they do that, then they’re killing the golden goose — nobody would give them money any more if they knew that the directions on that money aren’t going to be followed.)
Let’s say I give you 2million dollars, you invest it and make 100k a year and spend that money every year for the rest of you life, living a great life. Or you can just spend 2 million in one year and now you need to go back and work at Wendy’s cause your broke.