The large university endowment is simultaneously an institutional asset and an institutional accountability problem. Its governance reveals what universities are optimising for.
The Endowment Architecture
An endowment is not a single vault of unrestricted cash. It is usually a collection of invested funds: some restricted by donors to particular purposes, others designated by governing boards, all managed to provide support over time. The distinction matters. It prevents the easy claim that every endowment dollar can simply be spent, but it does not remove the governance question. It identifies where that question belongs: in spending rules, investment policy, fundraising priorities, and the allocation of resources that leaders can control. ([irs.gov](https://www.irs.gov/instructions/i990?utm_source=openai))
The scale is considerable and unevenly distributed. In fiscal year 2024, the 658 institutions and affiliated foundations participating in the NACUBO-Commonfund study reported $873.7 billion in endowment assets; the median participating endowment was $243 million. Their portfolios were diversified across public securities, fixed income, private equity, venture capital, marketable alternatives, and real assets. Alternative strategies collectively represented 55.7 percent of reported assets, with the largest endowments more heavily weighted toward private investments than smaller ones. ([nacubo.org](https://www.nacubo.org/Press-Releases/2025/US-Higher-Education-Endowments-Report-10-Year-Average-Annual-Return?utm_source=openai))
Endowments convert accumulated wealth into institutional discretion by producing a comparatively stable stream of operating support. Across the fiscal-year 2024 study, endowments funded 15.3 percent of participating institutions’ operating expenses on average. At the wealthiest universities, dependence can be much greater: Harvard reported that its endowment supplied 37 percent of revenue in fiscal year 2024; Yale reported endowment spending equal to 35.9 percent of operating expenditures; and Princeton states that endowment earnings provide about two-thirds of its net annual operating revenues. ([nacubo.org](https://www.nacubo.org/Press-Releases/2025/US-Higher-Education-Endowments-Report-10-Year-Average-Annual-Return?utm_source=openai))
This income does not make a university independent of tuition, research funding, philanthropy, or enrollment. It does, however, give institutions with very large endowments a degree of budgetary autonomy unavailable to most colleges. They can absorb shocks, sustain programmes through downturns, and make commitments over longer horizons. Endowment wealth is therefore not merely wealth. It is institutional power: the power to preserve options and to operate under fewer immediate constraints.
The Governance Problem
Universities generally use spending rules intended to balance present needs against future ones. In fiscal year 2024, participating institutions reported an average effective spending rate of 4.8 percent. Yale describes its policy as balancing a stable flow of operating income against protection of the endowment’s real value; Princeton reported a 5.04 percent spending rate for that year. These policies serve legitimate purposes. A permanent institution should not treat a strong market year as permission to make permanent commitments that cannot survive a weak one. ([nacubo.org](https://www.nacubo.org/Press-Releases/2025/US-Higher-Education-Endowments-Report-10-Year-Average-Annual-Return?utm_source=openai))
But prudence is not neutral. A rule that protects future purchasing power also determines how much is available to students, faculty, research, and facilities now. In fiscal year 2024, study participants reported that 48.1 percent of endowment spending supported student financial aid, demonstrating that endowments already finance access as well as institutional continuity. The accountability question is therefore not whether universities spend their endowments at all. It is how they rank competing claims on endowment-supported resources, and who bears the cost of caution. ([nacubo.org](https://www.nacubo.org/Press-Releases/2025/US-Higher-Education-Endowments-Report-10-Year-Average-Annual-Return?utm_source=openai))
The same precision is required when discussing tax treatment. Nonprofit status does not mean complete exemption from every tax: federal law imposes an excise tax on the net investment income of certain private colleges and universities, with revised tiered rules applying to taxable years beginning after December 31, 2025. The defensible question is not whether endowments are literally untouched by taxation, but what public obligations should accompany the legal and fiscal privileges granted to educational institutions. ([congress.gov](https://www.congress.gov/119/plaws/publ21/PLAW-119publ21.pdf?ftag=MSFd61514f&utm_source=openai))
Revealed Priorities
The endowment’s governance becomes most revealing when defensible objectives conflict. Preserving purchasing power, limiting risk, expanding financial aid, restraining students’ net price, supporting research, increasing compensation, and constructing new facilities can all be described as mission-serving. They cannot always be maximised simultaneously.
No single spending decision proves an institution’s complete objective function. Donor restrictions, liquidity needs, contractual commitments, and market conditions may constrain the choice. But a repeated pattern across spending policy, tuition and aid, fundraising, borrowing, and capital allocation reveals the hierarchy more reliably than a mission statement does.
If an institution invokes intergenerational equity whenever current students seek greater support, but relaxes restraint for projects favoured by trustees or donors, the asymmetry is evidence. If it treats endowment preservation as inviolable while presenting access, affordability, or academic labour as adjustable, that ordering is evidence too. The point is not that the endowment should always be spent faster. It is that preservation is itself a choice whose beneficiaries, costs, and alternatives should be made visible.
The university endowment is a measure of institutional priorities as much as institutional wealth. What an institution repeatedly chooses to do with the resources and discretion its endowment provides—and what it declines to do—is stronger evidence of what it is optimising for than its public language alone.
Discussion