The Coming Showdown Over University Endowments: Enlisting the Donors

Sarah E. Waldeck, Seton Hall University

Abstract

The Coming Showdown Over University Endowments: Enlisting The Donors injects academic analysis into the ongoing public debate over whether some university and college endowments have grown too large, and if so, what action Congress should take. This essay analyzes absolute endowment values, the amount of endowment per student, and expense-endowment ratios at 60 private universities. It concludes that a small number of schools have an excess endowment, and then provides a convenient proxy for determining when an endowment is so large that it should receive less-preferential tax treatment. The essay then examines the effect that large endowments have at their home institutions and throughout higher education, as well as the arguments in defense of large endowments. The Coming Showdown offers alternative explanations for why institutions accumulate mega-endowments, ones that are rooted in cognitive psychology instead of economic theory. The essay recommends that policymakers change the charitable deduction for gifts to mega-endowment universities, as part of a multi-faceted effort to encourage present spending and direct donors towards certain kinds of giving.