What is a College Endowment and Why is it So Important?

A pile of dollar bills.

Flickr user Nick Ares

As you get into college prep, you may come across the term “college endowment” quite a few times. But what exactly does it mean?

What is a college endowment?

An endowment refers to the amount of money a college receives in donations. This endowment is then used for a variety of things—scholarships, upgrading facilities, hiring professors, and more.

Endowment policies and restrictions

Donors can dictate just how they want their donation to be spent. This ensures that the money is used for worthwhile causes. So if an alumnus who got into a college on scholarship wants to donate their money towards that scholarship program so other students can benefit, that donation will definitely go towards the scholarship fund. There are also spending limits and restrictions run by the university administrators.

Why are college endowments so important?

College endowments allow universities to give out scholarships and set tuition amounts (among other things). Therefore, colleges with larger endowments can often give students bigger financial award packages. Donations from alumni and others create a sort of pool of funding that the college can use, build, and get returns on.

Endowment per student

College endowments on their own don’t tell us much. Endowment per student is a better indicator of the college’s ability to help and invest in its students.

A university might have a $2 billion endowment but have 20,000 students, so it would have $100,000 per student. But endowment per student also relies on how many full-time students are attending. Grinnell College, for example, has a nearly $2 billion endowment but only has about 1,700 students, so the endowment per student is a little over $1,000,000.

If a college earns 5% per year on its endowment, a college with $100,000 earns $5,000, but a college with a $1,000,000 endowment would earn $50,000, which means that college could likely fully-subsidize a $50,000/year tuition without losing money.

If you’re in need of institutional financial aid, it’s a good idea to do some research into the endowments of the colleges you’re interested in. College Raptor can help show you what sort of financial aid/scholarships you might earn from any college in the country, partially based on a college’s endowment!