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Harvard’s Endowment Fund Hoard

Last updated by on December 31, 2013

Recently, Harvard announced that their endowment dropped 30% last year from $36.9 billion to $26 billion. Due to their financial hardship, they eliminated 275 staff jobs and a put a freeze on salaries. At the same time, Harvard’s announcement of planned across-the-board budget cuts of 10% to 15% in all Harvard’s departments and a 3.5% tuition increase for the 2009-2010 academic year (much higher than the rate of inflation). Please excuse me while I rant.

This Begs the Following Questions be Asked to Harvard’s Endowment Fund Administrators

Harvard Endowment1. Why the #$%@ does Harvard need $26 billion in endowment funds? At a time when tuition rate increases have far exceeded inflation, Harvard is sitting on a huge pile of cash that has still earned 9% annualized over the last 10 years, even after the decline.

2. Why is Harvard cutting operational budgets and staff? Since when is a $26 billion pile of cash simply not big enough? These are donated funds and the university is charging enough in tuition to not draw from the base, so why would market fluctuations result in a menial 275 jobs being cut?

3. If Salaries are frozen and inflation is actually declining, why is Harvard raising tuition?

4. Is Harvard planning to start their own country? Become a publicly traded stock? Go to war against Canada? What is the motive for hoarding this obscene amount of cash? Yes, it does present opportunities to grow the university, improve facilities, and provide scholarships, but when do you draw the line?

Harvard’s Endowment Fund Story is not Unique – So here is what I’d Love to Ask University Presidents and Endowment Managers

I’m picking on Harvard here because they happen to have the largest endowment in the nation, but the truth of the matter is dozens of universities have well over $1 billion in endowment cash on hand. Here are some questions I would love to ask:

  • Why are you increasing tuition at double the rate of inflation when you are sitting on billions of dollars in endowment funds?
  • If you’re a public university (I realize Harvard is not, but many public universities have endowments far exceeding $1 billion), how can you accept government funds and raise tuition and sit on this cash? Don’t you owe it to the lower and middle classes and the United States of America as a public university to provide a world class education at an affordable price??
  • At a time when our nation is struggling the most since the Great Depression, what are you waiting for? What better time is there than now to show your commitment to helping our country once again become the leader in education so that we can be leaders economically, ethically, and environmentally for centuries to come?
  • Who is deciding whether or not to, and how much of this money to spend? Do they have a conflict of interest? Are their interests matching the welfare of the students that you’re supposed to be serving?
  • Are you Scrooge McDuck?

{deep breath}

Harvard Endowment Discussion:

  • What do you think of these endowment funds?
  • Am I missing something here? Is there a strong case for a $26 billion endowment?
  • Should endowments be capped? How much would you cap them at?

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About the Author
I am G.E. Miller, & this is my story. My goal is financial independence ASAP. If you share that goal, join me & 10,000+ others by getting FREE email updates. You can also explore every post I have written, in order.

  • Steve says:

    yeah, that is a bit ridiculous. A cap of $5 billion or something seems like more than enough.

  • Corin says:

    Yes, you are missing something. I worked in my college’s endowment office during my undergrad years, so let me try to explain. Think of an endowment like your personal retirement spending. When you retire, you will spend a certain amount of the interest accrued and a certain amount of the principal. Every time you spend principal, then you are diminishing the amount of potential returns (interest on less money is less interest). That’s ok, because you’ll die.

    College and universities though invest as if they are going to exist into perpetuity. They can’t cut into their principal, they can only spend interest. And with inflation, they can’t spend all of the interest accrued.

    The endowment is there to support students in the future, not student’s today. Colleges can’t rely too heavily on their endowments- that would be like you raiding your Roth IRA.

  • G.E. Miller says:

    @ Corin – One of my points is why not support students today? What is the point of sitting on $26 billion? Do you think cutting staff, freezing wages, increasing tuition (in a deflationary period), and sitting on this cash is completely justified?

  • Texas Wahoo says:

    One thing that should be noted is that a lot of the money spent from these huge endowments is actually used to give tuition breaks to needy students. By increasing tuition instead of eating into the endowment, they are actually probably lowering the cost of attendance for the truly needy (and raising it for others). This is particularly true at private schools such as Princeton and Yale (and Harvard?) who give free tuition to those students who meet the federal government’s needs-based standards.

    Another point I would make is that it’s worth considering whether the fact that these Universities have such huge endowments helps them in the eyes of the general public/applicants. Would Harvard be considered one of the top schools in the country if it did not have such a huge endowment? What about the University of Carlifornia or Texas? It’s worth thinking about whether merely being known for having so much money improves status.

    People donated this money knowing what Harvard would do with it. If you give them a million dollars and say you want it to go to scholarships, would you rather have that money spent to send 100 kids to school this year or would you rather use the interest to endow a permanent scholarship for one student at a time (most people will probably choose the latter).

    As for public schools taking government money, most of the schools that have large endowments are not getting much money from the government anymore. Since that amount is shrinking by more than the price of tuition is increasing, the schools have to think way into the future for times when the government will not be providing them any money.

    All that being said, 26 million is probably enough. Now if you could only get people to stop giving Harvard so much money and give it to other institutions…

  • allen says:

    I get, and appreciate needing to keep your principle. I also do not think that there should be a cap.

    HOWEVER; it’s HIGHLY irresponsible for the university to be cutting jobs & to be raising tuition at a time like this! This is a temporary patch; they have enough funds to cover themselves during this. They could have implemented the highering/wage freeze without loosing a single job, if they so desired. Instead, they sit on it.

    Lets face it, though; Harvard could charge 100% more next year, and they’d still find students to fill all their seats; they are Harvard.

  • George says:

    Harvard is obviously closing the doors to the general American public by raising tuition fees on purpose. It’s no secret how a university like Harvard and others effectively keep better education distant from more Americans. It’s both sad and pathetic. Harvard has become some sort of a corporation over the years.

  • Deirdre says:

    Much of that money is invested, which means they can’t actually use it. Plus @George, part of Harvard’s whole thing is that they ensure that every should be able to go there, regardless of how much money their family makes. So yes, maybe a little greedy. But hardly THAT greedy.

  • Adam says:

    Totally agreed. Well this is some big money you talkin about.

  • MLR says:

    ”Not applying to schools with high sticker prices that offer significant financial aid could actually lead families to pay more for their children’s education, not less. With Harvard’s new pricing structure, a family making $100,000 will pay about $10,000 for total charges (tuition, room and board, and fees). This compares to the average charges at public four-year colleges and universities in 2008-09 of $14,333…”

    Seems like Harvard is doing a fine job to ensure that middle-class and under folks can afford going to their college!

  • A 5% risk free return on $26 billion is only $130 million in income. You can only pay 130 professors a million a year with that type of income 🙂

  • Wise says:

    Financial samurai 5% of 26 =1.3bn

  • michael says:

    You also have to look at the spending they were doing. During the last decade, Harvard was getting ridculously high rates of return on its investment and went on a huge spending spree that assumed high rates of return would continue forever. New buildings, new staff, new professors higher pay etc. Now, with the endowment showing a loss they can’t pay for all this expansion out of their tuition and interest any more. All of the jobs they are cutting probably didn’t even exist 3 or 4 years ago. As for tuition increase, they’ve been doing ridiculous tuition increases for decades. This year isn’t any different.

  • R.Will says:

    Several points:

    1) Endowments are LEGALLY entailed by donors…rarely are such funds discretionary. Translation: universities generally have ZERO discretion as to how to spend the funds. Ask Princeton about their $900MM predicament in the IR school;

    2) Time value of money: as noted by endowment worker above, money spent today earns no future income. Universities try to grow the total pot on the theory that they have, as I agree they do, a duty to provide in perpetuity. Funds will compound over time such the total number of students eventually helped will vastly exceed those helped by quickly spending down the corpus.

    3) As to publics, why rant on them? Rant about the private schools. In a time when state’s have no money to spend and the publics are getting absolutely decimated ($800MM cut coming for the Cal. system), why should the privates (with open ended ability to price) get ANY public money?

    4) Capping is a silly idea for reasons too numerous to count, but here are a few: a) how would you manage the investment mandate and portfolio constraints; b) how would you convince donors to not walk away; c) how would you deal with spending entailments…

    5) Even at over $1,000,000,000, the average public endowment is paltry at a per capita level: almost always under $5,000 per annum. With true cost running $50,000 per student per annum fully cost loaded, that is generally well South of 10%. The volatility in the past year, if it taught us anything, is that these funds are many orders of magnitude too small, not too large!

    Using the exception that proves the rule, the richest institution, is incredibly simplistic and not dispositive of the overall conundrum: education funding is in deep trouble and a kneejerk response to endowment spending is not the answer

  • Jeff says:

    G.E. Miller,
    I just wanted to open this discussion back open because Harvard released their FYE 2010 report. What surprised me was that harvard increased investments in emerging markets and real estate. These investments seem pretty risky after losing 30% in 2009.

  • Julie says:

    wow – i’m impressed their not running on a budget deficit…

  • Brent says:

    Harvard should be embarassed to be short cutting it’s students while it has a an endowment that could easily weater the downturn in the economy without impacting it’s long term funding. It’s clear Harverd is no better then a greedy corporation at this point. Shame on them

  • Don Kosky says:

    Harvard has to pay people like Elizabeth Warren $450,000 a year for teaching one class. Harvard has the right to pay a few teachers obscene amounts of money and raise tuition rates. Why not. The media is not going to cover it because institutions like this create Obama’s that get elected twice. It’s a powerful political organization, let’s call it what it is. Teaching is secondary.
    But I agree all donors be aware where you donation is going and don’t be fooled into thinking it’s about “education” don’t be naive. To all conservative donors you are fools. Complete fools, for donating to an organization that is out to destroy conservatism.

  • Gray Corpian says:

    More than 60% of Harvard undergraduates received scholarship aid, according to the university, with one-fifth of the students paying no tuition at all, “based on economic need.”


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