As student loan debt climbs, so does the strength of college endowments.
In total, more than 90 colleges and universities have an endowment valued at more than $1 billion, according to Education Watchdog.
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In a time of rising tuition — a 46 percent increase from 2001-2012, adjusted for inflation — those endowments look too high to be justified. Colleges, it seems, feast on federal money to engorge themselves and leave students with debt in a difficult economy.
Federal loans do seem to push tuition increases. When students have access to more funding, they’re willing to spend more on an education. If enrollments remain steady or increase, colleges can keep increasing tuition to pay for more personnel and services demanded by students and administrators alike.
However, endowments aren’t determined by tuition and fees. They follow stock markets and donors as well. The average endowment saw a 15.5 percent return on their investments for 2014, according to Inside Higher Ed. Wealth begets wealth, too. Richer colleges had higher endowment returns, and a quarter of all donations went to 20 colleges.
The Bennett hypothesis that argues more tuition aid drives higher tuition prices can bloat endowment funds as students struggle. That universities have no responsibility for accepting loans for tuition that students default on is problematic, and some steps have been taken to reform incentives.
Whether using funds from a college endowment to lower tuition will benefit students, or be politically feasible, remains an open question. If universities reallocate endowment funds, future returns will be lower, leaving them with less capital in the future.
If it’s true that universities are conservatively stockpiling money for a vague future, diverting some funds to lower the burden on students makes sense. The value of a college education is becoming more suspect as wages stagnate and prices rise, and some relief could encourage enrollment.
