When policymakers, pundits, or the average parent hears "$20 billion endowment," it sounds like the veritable pot of gold at the end of the rainbow, especially in an era of tight budgets and decreasing federal government support for research. Why, they wonder, should taxpayers be on the hook when universities are sitting on piles of cash? The truth is far more complicated, and a lot less liquid.
Elite Endowments: The $50 Billion Exception, Not the Rule — Yes, Harvard has over $50 billion in its endowment. Schools such as Stanford, Yale, and Princeton come in at slightly lower levels. The top 20 private universities in the country control roughly 75–80% of all endowment wealth in the U.S. Their investment teams rival those of hedge funds. Their annual returns sometimes exceed the entire operating budgets of regional public universities.
But these schools are statistical outliers. They don’t reflect the reality for most of the 4,000+ institutions in U.S. higher education. In fact, most institutions don't operate anywhere near that financial tier.
The Real Numbers: Median vs. Mega-Rich — The median endowment in U.S. higher ed is closer to $35–40 million—and that includes both public and private institutions. Many have endowments under $10 million. When people throw around averages in the hundreds of millions, they’re usually citing means skewed by the mega-endowed few.
At the median, endowment income supports a few scholarships, a faculty chair, or modest research activities. It doesn’t fund football stadiums or make up for major state or federal budget cuts.
Even the Giants Have Limits — It’s tempting to believe that if a university has $20 billion in the bank, it can just plug holes wherever they appear—whether in student aid or research funding. But even at elite institutions, most endowment funds are legally restricted.
At Harvard, for example, only about 20% of the endowment is unrestricted. The rest is bound by donor-imposed conditions: scholarships for students from a specific region, research in a specific field, or support for a particular academic center. These are not flexible rainy-day funds. They're locked boxes with very specific keys.
Universities are legally bound—under laws like the Uniform Prudent Management of Institutional Funds Act (UPMIFA)—to honor these donor restrictions.
Putting Endowments to Work — Even when universities can use endowment income, they typically spend 3–5% of the endowment's value per year. This is by design: to preserve the fund’s value over time and support both current and future generations. Endowment managers are expected to act prudently, smoothing out spending over bull and bear markets alike.
So What Does Endowment Spending Actually Support? — That 3–5% annual spending from an endowment doesn’t just sit in a vault. It often supports:
Need-based student financial aid
Faculty salaries and endowed chairs
Research labs, postdoc fellowships, and library collections
Academic programs that might otherwise be cut in tight budget years
Community outreach, public service centers, and even K–12 pipeline programs
Maintenance of facilities, especially those tied to donor gifts
In many cases, especially at mid-sized and smaller schools, endowment support helps keep tuition lower than it otherwise would be, or funds scholarships for students who otherwise couldn’t attend at all. It's not “extra"—it's how they make the math work.
The Bottom Line: Endowments Aren't a Panacea — Yes, endowments are valuable. They help institutions provide scholarships, hire faculty, support research, and weather unexpected downturns. But they are not a blank check. They are carefully governed, often restricted, and modest in size at the vast majority of colleges and universities.
Could the largest endowments weather increased taxation or additional federal requirements? Within reason, yes. Treating them as a cure-all for every fiscal problem in higher ed and across the country, though, risks undercutting goals around access, affordability, and research.