AP FACT CHECK: Trump off on how colleges use endowments
BOSTON (AP) — Donald Trump says colleges and universities should be using their endowments to make college more affordable but that too many are using “the money to pay their administrators or put donors’ names on buildings or just store the money, keep it and invest it.” But that’s not exactly how endowments work.
It’s true that at the nation’s wealthiest colleges, the amount of endowment money spent on student financial aid often takes up a relatively small share. Tax records show that Harvard University spent $253 million on scholarships in 2013 from its $35 billion endowment. That’s less than 1 percent. Yale, the No. 2 endowment, spent $77 million of its $24 billion endowment on scholarships, an even smaller share.
Meanwhile, Harvard spent more than $1 billion that year on programs and facilities, and earned $4.5 billion in endowment revenue. Yale posted similar numbers.
Although many schools have the resources to spend more on financial aid, they don’t have free reign over how their endowment money is used. College endowments are mostly made up of restricted money — gifts in which the donor dictates how the money is to be spent. Much of that goes to financial aid — 43 percent of restricted money donated in 2014, according to a study by the Council for Aid to Education — but it can also cover other costs, including athletics or new libraries.
If schools don’t use restricted donations as directed, donors can sue, and some have.
Other endowment money can be spent more flexibly, but their managers argue that they juggle many interests — both the short-term and long-term health of the college, for example, and both undergraduate education and research.
“Endowments go to a variety of needs. It does include scholarships and financial aid, but every aspect of operating colleges or universities requires revenue,” said Liz Clark, director of federal affairs for the National Association of College and University Business Officers, a Washington, D.C., group that represents 2,100 schools. “Not all endowment dollars go to student financial aid, but they go to the core mission of the institution.”
College endowments have come under fire recently, in part because they face little federal regulation compared with other fundraising institutions. Private foundations, for example, are required to spend at least 5 percent of their assets each year and pay a 2 percent excise tax on investment earnings. Colleges face no spending rules and, because of their educational purpose, are not taxed on their earnings.
“What a lot of people don’t know is that universities get massive tax breaks for their massive endowments,” Trump said at a rally Thursday in Pennsylvania. “These huge, multibillion-dollar endowments are tax-free, but too many of these universities don’t use the money to help with the tuition and student debt.”
His comments echo those of some Republicans in Congress who say colleges should be spending more on student aid as tuition costs increase. Rep. Tom Reed, a Republican from New York, said rich colleges should be forced to spend 25 percent of endowment profits a year on financial aid.
But Trump went further when he said that colleges are using their endowments to “pay their administrators or put donors’ names on buildings.” Schools have different policies when it comes to naming buildings, but some give the honor to donors who have made major financial contributions. Ideally, that would mean the school is profiting in some way from the donation, not spending more money.
Trump also suggested that schools are spending too much on administrators. He isn’t the only one with that critique. But some say that even those costs ultimately help students.
“When you look across the board at non-faculty staff salaries, that includes student financial aid directors, student health services staff, that includes academic affairs and advising,” said Clark, of NACUBO. “That includes all of the other aspects of operating an institution that are critical to its existence.”
In his proposal for affordability, Trump said he would pressure “huge, multibillion-dollar endowments” to spend more on aid, but ultimately that would affect a small percentage of the nation’s college students. Last year, there were about 40 colleges in the U.S. with endowments of $2 billion or more, and about 90 with $1 billion or more. And although they’re the richest, many also have some of the most generous policies on financial aid.
At Harvard, for example, students whose families earn less than $65,000 a year are expected to pay nothing. Families that earn $150,000 or less pay no more than 10 percent of their income.