This blog discussed Harvard and some other schools recent decision to start making full grants as assistance for students rather than loans. The reason for this new trend is that many school endowments have become enormous — grabbing the angry attention of politicians and parents wondering why tuition and costs are so high when school coffers are so full.
This recent USA Today article explains how dramatically school endowments have grown — an average of 17% last year. From the piece,
The number of colleges and universities boasting endowments of $1 billion or more climbed by 14 last year to a record 76, nearly doubling the number of such schools five years ago. And as tuition increases continue to outpace inflation, that’s prompting some critics to step up their pressure on colleges to share more of their wealth.
Harvard’s nearly $6 billion increase last year alone is larger than the endowments of all but 14 of the 785 schools that participated in the study. And the combined value of the top 10 colleges represents 35% of the $411 billion in total endowment assets reported.
Yet the percentage of the endowment those schools spend each year — for everything from hiring faculties to building maintenance to competing for research — is among the lowest. Schools with $500 million or more in assets reported spending an average 4.4%, vs. an overall average payout last year of 4.6%.
That kind of cheddar and its deployment will bring a lot of change. If more and more schools hand out more and more tuition rewards, might there be fewer entrepreneurs (less need to make $$ while in school) or more entrepreneurs (can start businesses instead of working crappy jobs to pay tuition)?
It could also mean more disposable $$ for students as the money they had been saving (and their parents) for tuition becomes available to the non-tuition marketplace. This will also put pressure on all kinds of financial products — loans, 529s, etc — to either become more competitive or find more markets (those who currently don’t plan to attend college may be induced to take loans and go to college).
This story of endowments and free tuition is worth watching as it is likely to ripple throughout higher education and change the eco-system that campus entrepreneurs will find on campus.