Ohio University's $553 million endowment could make tuition cheaper for students if a bill makes it through congress.
Endowments are a large part of universities’ finances, and they just might be the answer to many students’ cries for a more affordable education. Some, such as U.S. Rep. Tom Reed, R-New York, want to reconfigure university endowments so they focus more on student aid.
As they sit now, endowments don’t focus on making college more affordable.
“A small proportion of endowments truly go to lessening the cost of college,” Richard Vedder, distinguished OU professor of economics emeritus, said. “While there is some money that is allocated for scholarships, etc ... that doesn’t necessarily make the cost of college less expensive.”
Reed is expected to introduce a bill which would focus on using college endowments to help make higher education more affordable, according to The New York Times. The bill would affect schools with endowments larger than $1 billion, which means OU would not currently be affected by the bill, but the university has plans to grow its endowment to that level, according to university documents.
Endowments are usually made up of lots of smaller funds that each have their specific purpose. For example, the Scripps Innovation Challenge awards $25,000 annually to the winners of the challenge, and is funded by a $15 million portion of the university endowment.
Each of the individual dollars that make up the $553 million OU endowment has a specific purpose, like the Innovation Challenge, which makes Reed’s plan a bit harder.
“(Individual dollars are) already tied to specific academic units, research purposes, or various forms of student aid,” limiting the ability to use that money for other purposes impossible, Candice Casto, OU's chief finance and investment officer for foundation operations, said in an email.
An endowment is not like a checking account. The money in an endowment is invested, and the earnings from that investment are the only things spent. The principal, or the original money that is donated, is never actually touched.
The university has guidelines for how to spend the money made from investing the endowment, decided upon by the university Board of Trustees. In 2007, the university was able to spend five times more money on various projects than it did running the fund. Since 2012, it’s only been about two times as much.
It takes a lot of money to run the endowment, Casto said. It has to pay the people who do the investing and support fundraising efforts. But since 2012, when the current guidelines were voted on, spending on running the endowment has grown 309 percent while the amount the university could spend grew only 81 percent.
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The sharp increase is necessary, according to Casto, in order to continue growing the endowment. OU’s endowment has outperformed the national average of other universities over the past five years, growing by 35 percent, but some think the growth is not being allocated enough to students.
“If you’re a cynic you can say some of that money is going to pay the investors,” Vedder said. “Everyone wants a piece of that money.”
Vedder added that Reed’s bill may not be a perfect solution, but that something should be done to lower the cost of higher education and endowments might be a part of that answer.
sa587812@ohio.edu
