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Debunking 5 Myths about Endowments

With concerns about college costs growing, policymakers and other public figures have turned their attention to endowments. Republicans and Democrats at both the federal and state levels have proposed taxing endowments or mandating how endowed funds are spent. One such proposal has actually become law. The Tax Cuts and Jobs Act of 2017 enacted a new endowment excise tax on certain private colleges and universities with large endowments.

There is a significant level of misunderstanding about endowments driving federal and state policy debates. Here are five of the most common myths about endowments:

  1. Myth: An endowment is one large pot of money. An institution's "endowment" is actually a collection of hundreds to thousands of funds set up through the generous charitable gifts of donors. These gifts help institutions fulfill their missions of life-changing learning and life-saving research.
  2. Myth: Institutions don't use endowments to reduce tuition and college costs. The exact opposite is true: Endowed funds help keep college costs down for students. Tuition-even for students who don't receive aid-covers only a portion of the cost of a student's education. The rest is covered by endowment earnings, gifts from donors and alumni and other non-tuition sources. 
  3. Myth: Endowment totals represent the amount of cash a university has on hand. When an institution receives an endowed or capital gift, the full value of the gift is not immediately available for the college or university to use. Institutions spend a portion of their endowments each year to meet current teaching and learning needs, and they invest the rest to meet the needs of future generations. In addition to endowed charitable gifts, institutions also receive a significant amount of current gifts that support scholarships, academic programs and other needs. 
  4. Myth: Schools can spend endowment funds however they please. Donors typically give endowed gifts for specific purposes: creating scholarships, professorships, starting new programs or building new facilities. Only 6 percent of income from endowments reported by 2017 Voluntary Support of Education Survey respondents was unrestricted. 
  5. Myth: All schools have large endowments. The overwhelming majority of colleges and universities do not have large endowments. Institutions that do have larger endowments often use them to provide substantial student financial aid to enhance access, particularly for low- and middle-income students.

Endowments provide colleges and universities stable and long-term support to fulfill their missions of teaching, learning and conducting vital research. Countless life-changing learning experiences and life-saving research have happened thanks to endowments and other charitable support for education.

Resources on Endowments
Higher education leaders and advancement professionals have an opportunity now to talk about the role and importance of endowments. With this in mind, CASE is developing new resources that members can use to effectively communicate about endowments with students, alumni, faculty, staff, donors, lawmakers, the press, and the general public. Visit our new endowments resource page for talking points, a sample collection and other resources.

Feedback and Your Stories
Additionally, with the results of our Voluntary Support of Education Survey and the National Association of College and University Business Officers (NACUBO)-TIAA Study of Endowments due out in the coming weeks, CASE will be highlighting the importance charitable giving and endowments to educational institutions. As part of this effort, we hope to hear from you! Please share with your colleagues and us your endowment stories and expertise. What are your best practices for communicating about endowments? What myths do you hope to dispel? What resources would be helpful to you? Do you have any stories that highlight the importance and real-world impact of endowments? Feel free to connect with us by filling out the Resource Submission Form on the endowments resource page.

This article is from the January 2019 BriefCASE issue.

Member Profile: Charles Diab

Charles Diab is the executive director, advancement and alumni affairs at the American University of Sharjah, United Arab Emirates.

Charles Diab is the executive director, advancement and alumni affairs at the American University of Sharjah, United Arab Emirates.

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