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Analyzing College Endowments: Do’s and Don’ts

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You’d be forgiven for thinking higher-education reporting is a game of billion-dollar bingo, with each aspect of the beat pegged to insane sums, such as the $1.3 trillion in student loan debt.

One way of answering whether students are getting a fair shake is to see if the colleges that educate them are spending the institution’s resources in ways that enable more college-goers to afford the cost of a postsecondary degree.

Scrutinizing college endowments is one part of that answer. At more than $500 billion, the total amount of endowment money held by the nation’s colleges and universities could arguably go a long way toward educating more students for less. But like most things data-related, finding the numbers reporters need is hardly straightforward.

This week’s webinar on covering endowments unpacked the process of determining how much of a college’s endowment is spent on student financial aid. Such data sleuthing was central to a report Andrew Nichols, director of higher-education research at Education Trust, co-wrote this summer. The report’s findings were illuminating, and controversial: Colleges view endowments as long-term investments necessary for their financial health, which may mean spending it all on low-income students could become a case of poor fiscal management. However, the report questioned whether the particularly well-off private colleges, those with more than $500 million in endowment assets, were exploiting their tax-exempt status by not spending more on student financial aid.

The report also underscored the current tension between colleges and the federal government. A congressional hearing this week will look into whether postsecondary institutions should be held to minimum spending standards (private nonprofit foundations by law have to spend 5 percent of their endowment wealth annually).

To get started with scrutinizing the endowments of the colleges you cover, first determine the tax identification numbers, or EINs, of the schools in question, said Nichols [see his slides]. Then find the 990 forms that are associated with those EINs. Because nothing in journalism is easy, one university or college may have multiple 990s and each is a piece of the endowment puzzle, so you’re tasked with hunting down each document. The company Citizen Audit can amass the files for you for a fee, or you can try your luck using Foundation Center’s 990 tracker. The information you need is in the document section of schedule D, part V.

The webinar has far more information on finding and interpreting 990 data, and includes important caveats. One of the biggest is this: Be sure to fact-check your endowment numbers that you gleaned from 990 forms by comparing the total you compiled with the total endowment figures published in the federal government’s IPEDS data center or via NACUBO, the organization of college business officers. Another point of caution: Public universities may not have all their endowment data in 990 forms, but rather 990T forms. Also, private colleges’ 990 forms will tell you how much they spend on student financial aid, but won’t distinguish between merit and need-based aid (though you can ask the college for that information once you’ve gotten this far).

Liz Clark of NACUBO told reporters during the webinar that endowments shouldn’t be thought of as simple savings accounts, but rather sums of money colleges promised donors to use according to their specific instructions. Endowment dollars can have restricted and non-restricted accounts, meaning a benefactor gave the school money to hire more science professors, for example – money that can’t really be shifted to student aid. [See her slides.]

Also, there might be some friction between a college’s mission to educate a diverse set of students and the safekeeping of investments: A set of laws known as the Uniform Prudent Management of Institutional Funds Act (UPMIFA) in 49 states compel colleges to manage their endowments prudently, said Clark. An aggressive campaign to spend more of an endowment to underwrite tuition may run against the nature of UPMIFA.

There’s a lot more context, important numbers, and overall smart banter that you’ll find in the webinar recording. An hour for a primer on $500 billion? A pretty fair investment, if we do say so ourselves.