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Encyclopedia > Financial endowment

A financial endowment is a transfer of money or property donated to an institution, with the stipulation that it be invested, and the principal remain intact. This allows for the donation to have a much greater impact than if it were spent all at once. Did you mean? decal Population transfer Manhattan Transfer List of Latin words with English derivatives Transfer (movie) Electron transfer Fare transfer A technique in propaganda This is a disambiguation page — a navigational aid which lists other pages that might otherwise share the same title. ... An example of Money. ... // Use of the term The concept of property or ownership has no single or universally accepted definition. ... This article is about institutions as social mechanisms. ... Investment is a term with several closely related meanings in finance and economics. ... A principal is: The head of an educational institution. ...

Contents


College and University Endowments

The total endowment can be over a billion dollars at many of the United States' richest universities.[1] However, each university typically has numerous endowments, each of which are frequently restricted to funding very specific areas of the university. The most common examples are endowed professorships (also known as chairs), and endowed scholarships or fellowships. Note: The term scholarship can mean either the methods employed by scholars (see scholarly method) or an award of access to an institution and/or money for an individual for the purposes of furthering their education. ...


At universities, typically 5% of the endowment's assets are spent every year, and any excess earnings are reinvested to compensate for inflation and recessions in future years and to grow the endowment.[2]


Restricted Endowments

Endowment revenue can be restricted by donors in numerous ways. Professorships and endowed scholarship/fellowships are the most common restriction on large donations to an endowment.


Professorship

An endowed professorship (or endowed chair) is a position permanently paid for with the revenue from an endowment fund specifically set up for that purpose. Typically, the position is designated to be in a certain department. The donor is allowed to name the position, which typically takes the format: First-name Last-name professorship of Department-name. Endowed professorships aid the university by providing a faculty member who does not have to be paid out of the operating budget, allowing the university to either reduce its faculty-to-student ratio, a statistic used for college rankings and other institutional evaluations, or direct money that would otherwise have been spent on salaries toward other university needs. In addition, holding such a professorship is considered to be an honor in the academic world, and the university can use them to reward its best faculty or to recruit top professors from other institutions.[3] Currently, a donation of $1-3 million is required at most universities to endow a professorship. A professor (Latin: one who publicly professes to be an expert) (or prof for short) is a senior teacher, lecturer and researcher, usually in a college or university. ... In higher education, college and university rankings are listings of educational institutions in an order determined by any combination of factors. ...


Endowed Scholarship/Fellowship

An endowed scholarship is tuition (and possibly other cost) assistance that is permanently paid for with the revenue of an endowment fund specifically set up for that purpose. It can be either merit-based or need-based (which is only awarded to those where the college expense would cause their family financial hardship) depending on university policy or donor preferences. Some universities will facilitate donors meeting the students they are helping. Given the cost of college, finance is frequently a factor when students decide where to go to college. By offering them money, colleges are sometimes able to lure students away from other universities. The amount that must be donated to start an endowed scholarship can vary greatly. A scholarship is an award of access to an institution or a financial aid award for an individual (a scholar) for the purposes of furthering their education. ...


Fellowships are similar, although they are mostly commonly associated with graduate students. In addition to helping with tuition, they may also include a stipend. Fellowships with a healthy stipend can lure students away from the workforce, to work on a doctorate. Frequently, teaching or working on research is mandatory part of a fellowship.


Criticisms

Officials in charge of the endowments of some universities have been criticized for "hoarding" and reinvesting too much of the endowment’s income. Given a historical endowment performance of 10-11 percent, and a payout rate of 5 percent, around half of the endowment’s income is reinvested. Roughly 3 percent of the reinvestment is used to keep pace with inflation, leaving an inflation-adjusted 2 percent annual growth of the endowment. At some universities, if this growth rate was turned into current spending, tuition could be cut in half.


Two arguments against inflation adjusted endowment growth are:[4]

  1. The future needs the money less than the present – Trends strongly suggest that the future will be much richer materially than the present due to technological innovation and specialization. Sacrificing the present for the future could be considered comparable to the poor donating money to the rich.
  2. A constantly growing endowment shields universities from competitive forces – As the endowment’s reinvestment starts becoming a larger part of its growth, the need for happy students and alumni to donate funds to the university’s budget and endowment are reduced. Therefore, traditional market forces that provide incentives to run a university efficiently may be greatly reduced and at least theoretically lead to university administration not being held accountable for its actions. (Theoretically, this might also be considered a worthy goal, as it would mean the ultimate freedom of the academia from the material world.)

Plato is credited with the inception of academia: the body of knowledge, its development and transmission across generations. ...

See also

This article does not cite its references or sources. ...

References

  1. ^ National Association of Colleges and University Business Professionals' Endowment Study - Contains list of colleges ranked by endowment size, and information about endowment performance.
  2. ^ So Nicely Endowed! Newsweek: Kaplan College Guide
  3. ^ Cornell's "Celebrating Faculty" Website
  4. ^ University endowment returns are underspent - Challenge, July-August, 2002, by Donald Frey

External links

  • University Endowments - A US/UK Comparison - Sutton Trust
  • A Primer for Endowment Grantmakers - Ford Foundation, 2001

  Results from FactBites:
 
Financial endowment - Biocrawler (741 words)
A financial endowment consists of funds or property donated to an institution or individual, with the stipulation that it be invested, and the principal remain intact.
At universities, typically 5% of the endowment's assets are spent every year, and any excess earnings are reinvested to compensate for inflation and recessions in future years and to grow the endowment.
Given a historical endowment performance of 10-11 percent, and a payout rate of 5 percent, around half of the endowment’s income is reinvested.
Spartanburg SC | GoUpstate.com | Spartanburg Herald-Journal (998 words)
A financial endowment is a transfer of money or property donated to an institution, with the stipulation that it be invested, and the principal remain intact.
At universities, typically 5% of the endowment's assets are spent every year, with any excess earnings reinvested to augment the endowment and to compensate for inflation and recessions in future years.
Given a historical endowment performance of 10–11%, and a payout rate of 5%, around half of the endowment's income is reinvested.
  More results at FactBites »

 
 

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