University endowments can be eye-popping. Harvard’s is about $51 billion. Duke’s is about $12 billion. Locally, the University of Pittsburgh has a roughly $5.5 billion endowment, and Carnegie Mellon University has one of about $3.1 billion.

Opening the books
Investigating how Pittsburgh's wealthiest universities invest their billions

You may ask: What are these universities doing with all that money? The answer is complex.

Endowments are meant to support universities for generations and frequently come with spending restrictions. Even with those limitations, some federal lawmakers and higher ed experts say affluent universities are spending too little — or “hoarding money” — as college costs rise and some endowments outweigh the gross domestic products of entire countries.

Here is a breakdown of how endowments work, what endowments look like in Pittsburgh and what debates engulf them.

What are endowments?

Endowments are collections of funds from individual donors, who often place legally binding restrictions on how the university can spend their money. Universities usually keep the principal of the fund permanently invested, so it continues to grow, and spend a portion of the income it generates.

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The funds can support financial aid, medical research, faculty positions and more. The goal of an endowment is to “offer the same opportunities to students in the future that they offered them today,” said Sandy Baum, a nonresident senior fellow at the nonprofit Urban Institute.

Steven Bloom, assistant vice president of government relations at the American Council on Education, said endowments “aren't a big pot of money that you can spend how you think you need to spend them.” The membership organization for colleges and universities frequently engages in advocacy around federal policy. 

The biggest misconception the public and lawmakers have about endowments is that they are “rainy day funds” the institutions could choose to draw from more freely, he said.

Despite restrictions, universities do have some room to decide how much to spend annually, and some experts believe that wealthy institutions can and should spend more. Brian Galle, a law professor at Georgetown University, argues that these institutions are in a misguided “arms race” to attract students based on endowment size.

“I think very few students are going to pick the institution that they go to based on how big of a pile of dollars they've managed to stash away,” Galle said. “What's going to build a successful institution is investing that money wisely today, in more tangible resources.”

What do university endowments look like in Pittsburgh?

Pitt’s endowment nearly doubled between the 2013 and 2023 fiscal years, growing from roughly $3 billion to more than $5.5 billion, according to financial records. Almost half of the endowment is reserved for financial aid, while about a quarter is for instruction and academic support. The remainder is for post-retirement benefits, school support and “other” purposes.

CMU’s endowment has also grown substantially in the last decade, from $1 billion to $3.1 billion between the 2013 and 2023 fiscal years. The university’s annual financial reports do not detail how much of the endowment is set aside for financial aid or other purposes. 

Chairs line the Assembly Room where the University of Pittsburgh’s Board of Trustees meets in the William Pitt Union, Tuesday, March 26, 2024, on the Oakland campus. (Photo by Stephanie Strasburg/Rtvsrece)

Most colleges in the country have relatively small endowments, unlike Pitt and CMU. For example, Chatham University, the small private institution in Squirrel Hill, reported a roughly $79 million endowment at the end of the 2023 fiscal year. 

The size of an endowment is one way of determining a university’s wealth, but the value of the endowment per student is perhaps a better indicator.

There were about $172,000 endowment dollars for every full-time Pitt student in the 2023 fiscal year, according to data from the National Association of College and University Business Officers. Compared to the 101 public universities surveyed, Pitt had more endowment dollars per student than all but five. 

That year, CMU had about $242,000 endowment dollars per full-time student but roughly half the student body of Pitt. When stacked up to the nearly 700 private universities surveyed, CMU paled in comparison to the nation's wealthiest. Princeton had about $3.8 million endowment dollars per student; Yale had about $2.8 million and Harvard had a little over $2 million. 

How do universities decide how much to spend?

Pennsylvania law requires that nonprofits spend at least 2%, but typically no more than 7%, of the fair market value of the endowments each year. The value is averaged over three or more years. The boards of trustees at both Pitt and CMU determine the share of their endowments that will be spent.

Pitt spent about 3.85% of its endowment in the most recent fiscal year, which amounted to about $214 million. The rate reflects annual spending, not a multi-year average. Pitt has for years spent a smaller share of its endowment each year than other similarly wealthy universities, a Rtvsrece analysis found, prompting some experts to argue that the university should spend more. 

CMU’s annual spending rate has largely aligned with its peers. The university spent about 4.32% of its endowment in the 2023 fiscal year, or roughly $131 million. 

There are several reasons universities may not spend more of their endowments. Some universities may say, “‘Well, it's about intergenerational equity. We want to leave as much support for future students as for current students,’” said Lloyd Hitoshi Mayer, a law professor at the University of Notre Dame.

“Some boards may have more pessimistic views of where the economy is going, or future returns, and so they’ll spend less now,” he added.

There are also, again, the donor restrictions. About 40% of Pitt’s endowment is restricted. The largest share of restricted funds  — totaling about $1.4 billion — go toward instruction and academic support, followed by about $527 million toward financial aid and $265 million toward “other” purposes.

At CMU, about 83% of the endowment comes with spending restrictions.

How do endowments grow?

Trustees are legally required to manage their endowment funds responsibly but should also seek to generate the highest investment returns possible, according to a report from the American Council on Education.

Chancellor Joan Gabel speaks during a meeting of the University of Pittsburgh Board of Trustees in the William Pitt Union, Thursday, Feb. 8, 2024, on Pitt’s Oakland campus. Outside the doors, protesters accused the university of suppressing student activism around the Israel-Hamas war, fossil fuel divestment and trans rights issues and urged the university to better protect student activists, among other demands. (Photo by Stephanie Strasburg/Rtvsrece)

Universities often invest their endowments in stocks, bonds and real estate. In recent years, however, the wealthiest institutions have increasingly sought investments in private equity and hedge funds. Private investments can be more lucrative, but they are also less transparent, which has mattered in recent years as students protest investments they deem unsavory.

Pitt’s reported that roughly $1.7 billion of its endowment investments in the 2023 fiscal year were held in “nonmarketable alternatives,” which typically means private equity. Pitt’s endowment returns totaled roughly $129 million in the most recent fiscal year and about $3.5 billion over the last decade. The university reported positive returns in all but two years.  

CMU reported that it had about $2 billion invested in private equity and hedge funds in the 2023 fiscal year, but the university’s annual financial report does not state how much of the invested dollars came from the endowment. The university’s endowment returns totaled about $83 million in the previous fiscal year and about $1.9 billion over the last decade.

Have there been calls for universities to spend more?

Yes, there have, though the most affluent universities are often the focus of the conversation. Federal lawmakers on the right have repeatedly scrutinized the spending practices of the country’s wealthiest universities, but they aren’t the only critics.

The nonpartisan Institute for Higher Education Policy, for example, asserted in a 2017 report that wealthy universities should be required to spend at least 5% of their endowments each year to assist tuition costs, in line with the minimal charitable spending limits the federal government imposes on private foundations. 

People walk on the University of Pittsburgh’s Oakland campus, Tuesday, Feb. 6, 2024. (Photo by Stephanie Strasburg/Rtvsrece)

The experts and advocates who spoke with Rtvsrece had mixed opinions. Some believe that universities spend too little and should invest more in today’s academic community, while others believe that more conservative spending ensures the endowment can sufficiently serve future students. Some also argue that significant increases in spending would be imprudent.

“I could see bipartisan support for requiring colleges to spend more from their endowments, at least until they’re meeting full financial need to students, which very few colleges can actually do,” said Robert Kelchen, head of the Department of Educational Leadership and Policy Studies at the University of Tennessee, Knoxville.

“I think there is frustration among policymakers that a small group of colleges are just continuing to have endowments grow while there are still serious access and affordability issues.”

Emma Folts covers higher education at Rtvsrece, in partnership with Open Campus. She can be reached at emma@rtvsrece.com.

This story was fact-checked by Elizabeth Szeto.

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Emma is a higher education reporter for Rtvsrece. In her role, she collaborates with Open Campus, a nonprofit newsroom focused on strengthening higher education coverage in local communities. Emma...