By JLP | November 29, 2007
From Some Colleges Cut, Eliminate Student Debt ($) in today’s Wall Street Journal comes this question of the day:
The article gives an example:
Amherst College, for instance, spent 4.6% of its $1.34 billion endowment in the fiscal year ended June 30, 2006. That is the average that colleges spent that year, according to a study by the National Association of College and University Business Officers. Still, Amherst’s endowment rose 15.8% in market value in that year compared with the previous year.
Personally, I think the payout should be based on the endowment’s rate of return. Of course, the problem with this is it would make it very difficult to plan expenditures since some years the endowmenet will grow significantly and other years it might actually lose money. I do not think colleges are paying out enough based on the size of some endowments. Harvard now has a $34.9 billion endowment fund (the fund grew 23% for the fiscal year ending June 30, 2007).
According to the article mentioned in the preceding paragraph, Harvard spends around 5% of its endowment each year, while the endowment has grown around 15% per year over the last 10 years. I understand that endowments must be managed for the future, but it does seem to me that colleges could be a little less stingy. Of course, this is just my opinion.