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In the face of the coronavirus, some courageous university leaders have stepped up to protect their students, their employees and their communities.
They have maintained essential services for low-income students, refused to lay off employees and begun careful planning to reopen safely for the fall term.
To weather this crisis and speed a national recovery, universities also need to use some of our nation’s biggest untapped rainy-day funds: their endowments.
With $600 billion in assets as of 2017, the combined value of U.S. university endowments exceeds the most recent Covid-19 relief package passed by Congress. In the wake of a global historical crisis, we cannot afford to let such a massive resource sit idle.
The most pressing questions then are twofold. First, what are the most urgent uses to which we can put endowment spending? Second, what can private citizens and policymakers do to help universities spend more of their endowments now and still have the resources they need in future years?
Low-income students are perhaps the most vulnerable group that universities should spend down their endowments to support. Public and private universities enroll over 200,000 undergrads with annual household incomes below $30,000 and over 400,000 undergrads with incomes below $50,000, according to my calculations using data from IPEDS. Because of underemployment, these students and their families are more likely to suffer from ineligibility and administrative delays for expanded unemployment benefits.
A majority of low-income students rely on a mix of debt, grants and employment to pay for their basic needs like food and rent. These students may be tempted to withdraw from college over anxieties about how they will repay their loans, especially if states or universities cut grant aid to these students. But withdrawing would deprive students of aid they need to meet basic needs. And failing to complete a college degree could make it harder for a student to get a job and repay any debt.
Universities could dip into their endowments to help students in several ways. First, they can maintain or even expand aid for low-income students to cover basic needs like rent and food. Second, schools could cancel university-issued student loans, or at least stop collections on those debts, as has occurred in the University of California system.
The other obvious way to spend endowments is to maintain university payrolls. Doing so will save lives. Most urgently, many universities operate academic medical centers that need to remain open at full capacity. Endowment funds also should be used to maintain other essential workers such as janitorial staff who will be needed more than ever to sanitize campus buildings if schools are to reopen safely in the fall.
Using endowments to avert layoffs also could help spur a faster economic recovery. Public and private universities directly employ more than three million Americans, or 2 percent of all U.S. workers. During the 2008 financial crisis, university layoffs contributed to broader public-sector job cuts that undermined federal efforts to stimulate economic recovery.
Urged on by conscientious students, the University of California, University of Virginia and University of Pennsylvania have all vowed not to lay off any workers before June 30.
But to avoid cuts after June 30, universities will need to dig deeper into their multibillion-dollar endowments. And to do this, they will need our help.
Universities commit large portions of their endowments to private-equity and hedge funds who manage these investments. Private-equity and hedge funds typically charge penalties or otherwise obstruct investors like universities when they seek to withdraw their funds early. As some of the wealthiest in our society, private-equity and hedge fund managers should remove any obstacles for universities to recall endowment funds.
Donors also routinely place restrictions on their giving to endowments. These donors should release universities to use restricted funds for emergency coronavirus relief spending. And university leaders should bend such restrictions to their limits.
Finally, lawmakers should promise to compensate universities for lost endowment revenues in future years with increased state and federal spending on higher education. Universities with smaller endowments have legitimate concerns about their budgets beyond this year. But restrictions on endowment spending in our current crisis are a reminder that endowments are no way to pay for higher education in the long run.
Universities that contribute the most to educational mobility should receive the most compensation for lost endowment revenues in the future. This would encourage universities to use their endowments to reduce growing inequities. For example, Princeton University spent an average of $96,295 per student on university operations just from its endowment in 2012 because it enrolled only 7,813 pupils — 33 percent* of them graduate students — even though its endowment had grown to over $17 billion.
To receive full compensation, Princeton could increase its undergraduate enrollment to match a competitor like the University of California at Berkeley, which has recently enrolled almost as many low-income undergraduates as the entire Ivy League combined despite its more modest $5 billion endowment.
Congress has the fiscal capacity to include compensation for endowment spend-downs in the next round of Covid-19 relief legislation. State lawmakers could also pass legislation to replace lost endowment returns not covered by new federal support. In both cases, compensation for endowment spending could be funded by a tax on those schools that decline to spend down their endowments and thereby increase equity.
But universities shouldn’t wait to deploy their endowments until more state and federal funding has been promised. Students, employees and university communities need these dollars soon if we are to prevent destructive and irreversible hardships. If not now, when?
*percentage has been corrected.
This story about U.S. higher education and the coronavirus was produced by The Hechinger Report, a nonprofit, independent news organization focused on inequality and innovation in education. Sign up for Hechinger’s newsletter.
Charlie Eaton is an assistant professor of sociology at the University of California, Merced. His research on higher-education finance has been published in The Review of Financial Studies and Socio-Economic Review.