University Endowment Growth: Assessing Policy Proposals

• Published in: Cornell Higher Education Research Institute
• Main Authors: Milton, Ross T, Ehrenberg, Ronald G
• Format: Report
• Language: English
• Published: Cornell Higher Education Research Institute 01.09.2014
• Subjects: Colleges; Educational Finance; Endowment Funds; Financial Policy; Higher Education; Program Proposals; Simulation; Taxes; Universities

The growth of college and university endowments, particularly those of elite schools, have drawn the attention of policymakers and pundits. Using a decomposition of the growth of endowments between 1991 and 2010 we simulate the effects of three prominent proposed policies had they been implemented in 1991 on endowment payouts through 2010: (1) a minimum spending rule, (2) removing full income tax deductibility of donations, and (3) taxing total endowment sizes beyond a given size. We find that a minimum spending rule increases the average size of endowment payouts for all quartiles of the endowment distribution in nearly all years of the sample period and has a modestly larger relative impact on richer schools. Removing tax deductibility decreases endowment payouts with its effect increasing over time. It has a larger relative impact on schools with smaller endowments than on richer schools.