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Oct. 23, 2021, 8:43 a.m. EDT

The radical idea on college campuses: Using endowments to help students and staff in crisis

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By Jillian Berman

Think back to spring of 2020, when “university by Zoom” replaced the college experience of popular imagination and became the reality of students’ lives for the next year and half. 

Schools rushed to empty dorms and classrooms, while suddenly students found themselves studying through computers from their childhood homes — if they were lucky enough to have that option. The house parties, extracurricular activities and office hours had all disappeared. 

One thing that remained constant: the price students were paying. 

Student protests over paying the same amount for a different product — which turned into several lawsuits — typically featured a request that their college turn to its endowment to provide some kind of discount or refund. This urging was met with the same response across the country: A polite no. 

Drawing on an endowment to address every tuition complaint would indeed be extreme and go against the purpose of the reserve, which is to keep a university on solid financial footing for years to come. Though some colleges, now flush thanks to an extraordinary bull market over the past year or so, plan to spend their endowment funds more aggressively, most hunkered down during the depths of the early days of the pandemic. They protected their endowment resources even as they laid off faculty and staff, while accepting billions in federal relief funds. 

But what if colleges were more nimble in their approach to their endowments, allowing them to more easily help students in times of crisis? At least one school took that step during the pandemic and another is reconsidering how its endowment could be used to more directly help students long-term. And for decades one college has used its endowment essentially as a “tuition replacement fund,” allowing students to attend for free. 

These examples are few and far between, but they illustrate that in an era of growing college costs and rising student debt for families, it’s possible for universities to think more creatively about the money they’ve accumulated — if they’re willing. 

Of course, the pandemic wasn’t the first time critics and even lawmakers questioned schools’ approach to their endowments — some have quipped that elite universities are really hedge funds with colleges attached. At the wealthiest schools, endowment value reaches into the several billions, even as some students still rack up debt to attend, while the number of low-income, fully subsidized students with access to these institutions remains relatively small .  

Universities often respond to these doubts by noting their endowments are used to support financial aid and that the goal of endowments is to sustain institutions in perpetuity, not diminish the impact of a momentary crisis. Officials also argue that an endowment is a collection of funds that donors often designate for specific purposes, and not a giant pot of money that can be freely tapped.

Jennifer Bird-Pollan, associate dean of academic affairs at the University of Kentucky’s J. David Rosenberg College of Law, has heard all of these explanations and remains unconvinced after seeing the devastation caused by the pandemic.

“We should as a society be talking about the fact that we didn’t see a lot of spend out even though universities did experience a crisis,” says Bird-Pollan. “If this was not the way to solve that, then what is [an endowment] for?”

Where there’s a will to spend an endowment…

With their classrooms empty and hallways silent, academic institutions across America mostly did nothing extraordinary with their endowments during the early lockdown phase of the pandemic. In the endowment offices of the nation’s colleges and universities, it was business as usual.   

In June 2020, only 8% of institutions planned to increase their endowment spending rate, according to a survey from the National Association of College and University Business Officers. By February, NACUBO reported the average endowment spending rate ticked up slightly to 4.59% in fiscal year 2020 up from 4.36% in fiscal year 2019 — though that’s a rate in line with historical patterns. 

But in the northern Californian town of San Rafael, Calif., one small college with a modest endowment, Dominican University of California, proved that a school could spend more than usual out of its funds to stave off some of the most dire consequences of the pandemic, like faculty and staff layoffs.  

“For the first time in my decade of leadership the board authorized an endowment draw so that there wouldn’t be layoffs, as long as the staff could reimagine their jobs to provide student support,” said Mary Marcy, who was president of Dominican University of California at the time. 

For example, the school’s events team, which typically works with outside organizations interested in using the Dominican campus — a business that the early days of the pandemic shut down — pivoted to lead the school’s weekly testing program. 

Like most universities, Dominican typically draws down roughly 5% of its endowment each year, or about $1.5 million. Last year, they tapped an additional $3 million, Marcy said. 

“The idea of furloughing seemed to us that it would have a direct and negative impact on students,” she said. 

The school also used the endowment draw to direct more funding to student support services. Some of that funding went toward the work of the HOPE Team, which the school convened in the early days of the pandemic. (HOPE stands for Help Our Penguins get Educated; penguins are the school’s mascot.)

The team included members from departments across the university, ranging from financial aid to student life and academic affairs, to help Dominican respond nimbly to students’ needs. 

“Traditionally, the academic side of the house might not look at the financial side of what’s going on,” said Mojgan Behmand, Dominican’s vice president for academic affairs and the chair of the HOPE Team. “It seemed really important to build a bridge there and with the pandemic it became all the more important.” 

By meeting once a week, the group was able to identify and address pain points for students they might not have been able to see in their individual departments. For example, holds for unpaid bills that could prevent students from registering for their next semester of classes, Behmand said. 

In those cases, the school would reach out to impacted students to see how they could help them overcome that hurdle — whether through a nudge to fill out their financial-aid forms, an emergency grant or other strategy — so the students could continue their educational progress. 

Having a relatively small endowment may have actually helped Dominican think more creatively about how to use their funds, said Marcy, who is the president emerita of the school and president-in-residence at the Harvard Graduate School of Education. “We were never under the illusion that we could live off the fat of our endowment for years,” she said. “It’s hard to innovate if you don’t think it’s necessary because you’ve got something to fall back on.”

That approach to the endowment was also part of what made it possible for Dominican to use it during the pandemic. The school has been fiscally conservative over the past several years, including through narrow freezes on rehiring for faculty and staff, Marcy said. 

“Endowments can be crucial to both short- and long-term sustainability for a campus, but I also think we have to be more nimble and creative in how we use them,” Marcy said. 

Free Tuition

For decades, one college has been using a radical approach to using its endowment — at least by the standards of the higher education industry. 

Jeff Amburgey, the vice president for finance at Berea College in Berea, Ky., is blunt: “For Berea, the endowment itself is really what I would consider the tuition replacement fund at the college.”

Berea’s roughly 1,600 undergraduate students don’t pay tuition to attend the college — an objective the endowment supports. Berea’s commitment to serving students who may be blocked from accessing higher education dates all the way back to its founding in 1855 as the first interracial and coeducational college in the South. 

While students are on the hook for expenses, like room and board, they’re given a job at the school to pay those bills. The result is that just 10% of students borrow to attend Berea, according to government data . Of those who borrow, the average debt load is less than $7,000, according to the school.  

The school’s approach to the endowment was shaped in large part by two historical decisions, according to Lyle Roelofs, the college’s president. The first made in 1892, was a directive by the school’s then-president William Gooddell Frost, was not to charge tuition to Berea students. 

The second decision, made about 20 years later by the school’s board of trustees, while Frost was still president, was to require that any unrestricted bequests donated to the college be turned into endowments, or funds that were supposed to last in perpetuity. 

“That was a way of restraining administrators from the temptation of using a gift for other purposes,” Roelofs said. 

In addition to these rules, prudent financial management has also played a role in allowing the endowment to continue to serve this purpose. Since 1993, the school has spent $1.1 billion from its endowment, according to Amburgey, a level of spending that indicates the importance of ensuring the endowment’s value continues to grow. 

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