Endowment

Endowment, funds donated permanently to a college, university, or other nonprofit institution, in which the income earned each year is used to support the institution’s programs. Other institutions and organizations supported by endowments include hospitals, museums, churches, and arts organizations. Most endowments result from gifts made to institutions by individuals, with the requirement that the principal—that is, the amount of the original gift—never be spent. The gift is invested as part of the endowment and earns interest income that is spent to support the institution year after year.

The idea of endowments started in England in the 15th and 16th centuries. Wealthy individuals, often members of the royal family, made donations to endow churches, universities, and schools. The United States also has a long tradition of philanthropic giving to support institutions. In 1995, individuals, corporations, and foundations gave $143.85 billion to nonprofit organizations in the United States, including almost $18 billion to educational institutions.

Most of the large endowments provide funds for private universities. Harvard University, in Cambridge, Massachusetts, holds the largest private endowment of any university in the United States and one of the largest in the world. Harvard, founded in 1636, is named for English clergyman John Harvard, who made the first gift to its endowment in 1638, the year he died. In 1997 Harvard’s endowment fund was valued at more than $9 billion, most of it from gifts by Harvard alumni and other individuals over the past three centuries.

A growing number of public, state-supported colleges and universities have substantially increased their efforts to obtain gifts for their endowment funds. These funds are often needed to replace income lost as a result of declining appropriations from state governments. In 1997 the University of Texas System had an endowment of more than $6 billion, making it second only to Harvard in the value of its endowment.

In some cases, donors to an endowment permit the institution to decide how the income will be spent each year. In other cases, donors restrict use of the income to specific purposes. Colleges and universities use endowment income for a wide variety of purposes, including student scholarships, research programs, and the salaries of certain faculty members. Professors supported by endowment funds are said to hold “endowed chairs.” These positions, awarded to especially distinguished scholars, are among the most prestigious in academic life.

Colleges and universities solicit contributions to their endowments, especially from alumni, by writing articles and letters and by making personal visits. Some individuals make gifts to endowments during their lifetime, but many others make a gift through a provision in their wills. Such a gift is called a bequest and belongs to the college only after the individual dies. Many institutions also promote the creation of charitable remainder trusts, which pay interest income to the donor during his or her lifetime and then pay the principal to the college or university after the person dies.

Endowments help meet the immediate costs of operating colleges and universities, while also providing a secure source of income for the future. In this way, endowments help to keep the tuition charged to students as low as possible and help ensure that these institutions survive to serve future generations.