The Economics of University Endowments
Universities all around the world require endowments for the smooth functioning and growth of their institutions, as well as the development of the fields they are associated with.
But, what exactly are endowments and how do the universities receive them?
Endowments primarily refer to the donations and grants made by people or other institutions to universities to encourage development. Endowments are utilised by the universities in multifarious ways ranging from scholarships, research funding, faculty expansion, infrastructural alternation etc. Endowments are important as their benefits are not only central to the college authorities but also extend to students and researchers- ensuring better financial health to the institution and all the people associated with it.
How do universities get their endowments?
Most often, universities receive their endowments from donors in the form of money or financial assets as charity. These donors belong to a plethora of categories- from investors, to board members to former students. The money or property received through these donations mostly come with a set of guidelines elaborating on the terms of usage and asset investment. The donations have a defined legal structure that guarantees the productive capacities of the investment.
How do universities utilise their endowments?
The funds received through endowment donations intend to finance a part of the financial requirements of the university. Apart from a general pool of university endowments, specific fundings are also laid out for specific purposes, some of the areas where high amounts of funds are often invested are:
Scholarships
Fellowships and Professorships
Research Grants
Infrastructural Development
Program Funding
Incubation
Moreover, the University Endowments are usually divided into four different categories and the funds are invested according to the category in which they belong. The categories are divided as follows:
Unrestricted Endowments: Under these endowments, the donors give absolute liberty to the institutions regarding the decision of fund direction. The university can use the endowments however deems good to the authorities.
Restricted Endowments: Under these endowments, the terms of endowment expenditure are legally specified by the donors ensuring that the funds are invested where the donors desire them to.
Term Endowments: These follow a set of guidelines that are a combination of restricted as well as unrestricted endowments. The universities have restricted access to the first principal for a specified period but after consecutive asset investments, the increased endowment gives the managerial board flexibility over the funds and their usage.
Quasi Endowments: With respect to system and functioning, a Quasi Endowment is similar to a Term Endowment. However, unlike the term endowments, a quasi-endowment can be generated by the university itself. This capital is also known as a ‘board-designated endowment’.
The footing of university funds and endowments cannot only be justified in absolute values but are justly quantified in relative terms. A university may harbour billions of money or assets but may lack to benefit the people associated with the institution. This happens when the funds are substantial but not sizable enough in ratio to support the whole population of students, faculty and researchers in the institution. Thus, an ample endowment implies the presence of not only a significantly large reserve of assets but also a substantial per-student monetary resource.
The following table shows the endowment statistics for some of the top Universities of the United States, throwing light on both- the total as well the per-student endowment reserved with the universities:
Hence, the productive capabilities of endowments and the ways of utilisation are often subjected to limitations proposed by the total population associated with the university.
The relevance of university endowments in relation to economics
Economics is a diverse field of study and requires funding to sustain a plethora of aspects being dealt with under this discipline. The major areas where funds are invested into the field are as follows:
Development of Research: The majority of economic research projects often require plenty of funding to assist various aspects of research. The grant money from endowments is mostly used to facilitate technological apparatus like funding high technology computers for complex calculations required to analyse primary data, resources like physical copies of books and research papers, mobilisation, laboratory costs etc.
Fellowships and Assistantships: These are comprehensive programs that combine both work and learning experiences. Fellowships and Assistantships not only help the students gain a live professional experience but also help by providing financial aid to the students of the university. Some of the most renowned university economics fellowships include- Agricultural Economics Fellowship by the University of Kentucky, Hubert Humphrey Fellowship etc.
Scholarships: A plethora of universities believe in providing students scholarships to reduce their burden of finances. These scholarships are awarded to students with exemplary achievements in a variety of fields and facilitate them in funding their university education easily. Some of the world’s best economics scholarships are granted by The Swiss Federal Institute of Technology, Monash University, University of Otago, Lincoln University etc.
Faculty Expansion: Top universities around the globe aim to expand the avenues of learning by hiring world-famous economists in their institutions. Many such professors and faculty members belong to diverse fields of expertise and are renowned worldwide for their knowledge and experience. From Nobel laureate to high-ranking professionals, universities leave no stone unturned while appointing their faculty
Development of Laboratories: Besides research purposes, special economics laboratories are also built to support the graduation curriculum and encourage strategic decision making. Large funds from the endowments are often pooled to build such laboratories with massive amounts of extraordinary resources.
Therefore, university endowments are important for not only encouraging the development of the universities but also the sciences, technology, society and all the rest of the world around us.
Written by Rhea Mehra | Proofread by Alexey Dudarev
