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Should You Include Your University’s Endowment in Your Will?
By JLP | May 27, 2008
Marketwatch’s Chuck Jaffe wrote an interesting article last week about a financial planner who is urging her clients to think twice before leaving money to their college’s endowment. From the article:
Delessert’s [the financial planner] problem with Harvard is a simple one; the school has an endowment that has more than $35 billion in assets, brags about its great investment returns on that money, and pays no taxes.
And yet, at the same time, the school has raised tuition costs, citing rising expenses as the need to keep the fees on the upswing.
Statistics on college endowments showed that schools with large endowments (at least $500 million) reported spending an average of 4.4% of their stockpiles in 2007. Meanwhile, those same schools made an average of more than 19% on their money. It’s enough to make the average investor mighty jealous.At Harvard — where being a student now costs more than $47,000 per year — the school could cover the cost of tuition, room and board for all of its students for less than 1% of the endowment’s value. Tuition costs themselves are so insignificant, they’d practically be a rounding error in the endowment’s checkbook.
She makes a good point. At $35 billion, does Harvard really need more gifts? Long time readers of this blog already know my thoughts on this topic so there’s no need to rehash an old post.
I’m not a charitable giving expert but I would think that, depending on how much you want to leave to your college, one thing you could do is establish your own endowment with the focus on tuition. Or, you could possibly leave it to a particular school within the college (like the business school or engineering school).
Personally, I don’t see me or my wife leaving anything to our college. Although we liked our college just fine, we can think of better places to leave our money.
Topics: Miscellaneous | 10 Comments »
May 28th, 2008 at 1:32 am
I have a goal of leaving an endowment for a scholarship, not tied to a specific university. Instead, it would be for Buddhists who want to study social work at one of the schools in Hawai’i that offer social work programs.
May 28th, 2008 at 8:08 am
I thought Harvard was one of the more cutting edge schools when it came to financial aid and especially gift aid from its own pocket. A lot of students receive aid from their school in addition to government and other private aid. What’s wrong with wanting to pay some of that generosity back when you’re dead?
May 28th, 2008 at 8:14 am
The rule of thumb for taking distributions from a retirement account is 4% to 5% per year, if you want the money to last as long as you do. So what is wrong about spending an endowment at that rate?
My wife and I set up an account valued at about $50,000 in my university’s foundation. The purpose of the account is to fund a merit-based scholarship to attract highly qualified students to the department I graduated from. They draw the account down by 4.5% per year, which seems quite appropriate to us, since the fund is to last “in perpetuity.”
May 28th, 2008 at 8:19 am
From a marketing standpoint, high tuition maintains exclusivity, and allows the school the flexibility to admit a need based student who has ability while forcing those of means but lesser ability to pay full price.
In theory, Harvard could drop tuition all together, but then every kid of every stripe would apply. The applicant pool would become so deep with brilliant students that the merely bright kid with wealthy parents wouldn’t be accepted, which would tarnish the school’s reputation among those who can afford $35K per year.
The top 1% don’t mind a few charity cases in their kid’s school, but bring in too many and they will send their kids elsewhere.
Harvard has the perfect situation.
FWIW- my wife and I donate to our public university for scholarships for students who came from financially challenged households like we both came from.
May 28th, 2008 at 9:18 am
Off topic but in reply to Peter:
Isn’t it the mission of most schools (and I realize Harvard doesn’t have an official mission statement) to promote educational excellence among all students willing to learn? If the non-wealthy kids are just as bright – if not more – than the rich ones, I say it is time for the kids to step it up a bit or get the hell out of the way.
I didn’t go to college, but I wanted to. Without getting myself into loads of debt, I ended up going straight into the workplace and command a mighty fine wage for my age. The fact is, when applying for scholarships, I was beat out in every case by someone who had an alternate criteria – low GPA, minority, ethnic background, special club or interest. That is all to say I always excelled at school and would have done well anywhere.
Sorry to ramble – I just hate when anyone brings up the fact that some of the wealthy think they’re entitled to being ‘better’ than the rest. If someone can earn their way in, why would someone put up roadblocks simply for status?
May 28th, 2008 at 9:41 am
My husband and I both went to North Carolina. They are swimming in cash. The Genearal Alumni association, Medical School, Liberal Arts School are all extrememly well-off. However, we were both history majors and that department can use our support. In fact our small gifts (a few 100 bucks) are much appreciated. So that’s where we give. Why would I have my name at the absolute bottom of the list of med school donations when I could have it near the top of the history dept.? I’ll let the med school get their huge gifts from surgeons and other wealthy doctors. The “poor” doctors are going to have to donate lesser money to other departments if they want to make a difference.
May 28th, 2008 at 9:44 am
please, not many people actually pay the sticker price to private schools, especially the ivies. It is like a car dealership, they raise the price just so they can give you a bigger discount.
May 28th, 2008 at 3:12 pm
I give money each year to both of the colleges I attended, but neither is particularly wealthy (University or Utah, Casper College). I doubt I will be leaving either of them much if anything when I’m gone. I’d rather give it to my children or my church.
I do think that some of the wealthiest schools are beginning to face a backlash because of their huge endowments and skyrocketing tuition costs. More and more people are questioning whether a degree from the elite schools is worth the premium, and some are questioning the worth of a college degree at all. It will be interesting to see how this plays out.
May 29th, 2008 at 4:18 pm
Because I have no children and have decided specifically not to have children, I am splitting a portion of my estate to various charities, including my high school, undergraduate university, and graduate university. I am including my high school specifically because it was a private school and I received a partial scholarship to attend. That was the best decision my parents ever made, given the public and Catholic schools in my area. I am so grateful to that private HS education and am glad to be able to give back so that other scholarship students may attend.
For my yearly charity donations, I am also looking into Donors Choose (www.donorschoose.org), a website where individuals can fund projects at specific K-12 schools all over the USA. You can search by city, geographic location, subject, and poverty level so that you really connect with exactly the project you wish to sponsor and the students get the materials they lack and sorely need.
D.F.
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