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Comment by NovemberWhiskey | Hacker News Reader

>the endowments are getting so big that covering tuition for all of their students

This sound bite always comes up. The simple fact of the matter is that for these institutions, the endowment is essentially composed of gifts, and returns on investment of gifts. Many/most gifts are restricted, meaning that the donors gave them to be used in specific ways - like to fund a specific professorial chair, or for a particular library or whatever - and it's just not an option to use them to fund tuition or for other purposes.

Data point: Harvard's endowment has over 14,000 individual funds and the majority of them are restricted.

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Harvard's latest financial report (https://finance.harvard.edu/files/fad/files/fy23_harvard_fin...) says that 30% of the endowment is flexible and 20% is explicitly allocated to "scholarships & student support". That's more than $25 billion, easily enough to eliminate tuition forever.

BTW Scholarships etc. are not necessarily fungible; like, if it's restricted to botany PhDs only or whatever.

If you look in that report, you'll see "education revenue" - i.e. people paying to attend in the form of tuition, boarding etc - was 22% of revenues (about $1.3bn) in fiscal 2023. The endowment distributed $2.2bn (about 37% of revenues), based on a ~5% target payout rate.

You can't look at that and say "that $2.2bn per year could easily pay for the $1.3bn in tuition etc" because they're already separate items on the revenue side of the book. If you reduced tuition revenue to $0, i.e. made attendance completely free, you'd have to find an additional $1.3bn a year to fund operations - that's a gigantic hole.

I know how to fill that hole - increase the ~5% target payout rate to ~8%.

Also, I'm not really suggesting they use any of their existing endowment to cover tuition. Just put a lot of it in the bank and interest alone fills the "hole".

>I know how to fill that hole - increase the ~5% target payout rate to ~8%

That's a fantastically glib answer; do you have any reason to believe that's a sustainable rate? The endowment is supposed to last forever, remember. The usual citation for a safe withdrawal rate in retirement is 4%, for example.

>Just put a lot of it in the bank and interest alone fills the "hole".

The Harvard endowment is actively invested and generally substantially outperforms the interest that you'd get "in the bank" - that's the only reason that withdrawal rate of 5% is feasible.

> This sound bite always comes up.

It's condescending and erroneous to dismiss what the OP wrote as a "sound bite." I imagine most people who are comfortable with arithmetic have the same thought when they learn of the size of most Ivy League endowments. Perhaps you work in circles where factoids about Ivy League endowments are passed around as "sound bites" (where?) but it's not as if the essentials of this aren't really obvious.

I'm not criticizing the OP - the fact is that this does often come up as a sound bite from people who are familiar with the facts and are simply trying to foment anger with others whom they believe are not.

It seems to be a common online misconception to read "endowment" as "slush fund."

Is there a rule against perpetuities for gifts like there is for a lot of trusts?

i.e. after N period of time, the restrictions no longer apply?

Could be a major pain in the ass to keep track of though

>Is there a rule against perpetuities for gifts like there is for a lot of trusts?

Permanently restricted funds in endowments are legal.

Haha dang, well nevermind then

I'm not exactly thrilled about the plutocrats continuing to rule us from beyond the grave.

I'm not sure that Thomas Hollis funding a chair in divinity at Harvard (for example) meets that definition in a meaningful way.

"The God that holds you over the pit of hell, much as one holds a spider or some loathsome insect over the fire, abhors you, and is dreadfully provoked. "

https://en.wikipedia.org/wiki/The_Fellowship_(Christian_orga...

https://en.wikipedia.org/wiki/Bon_Secours_Mother_and_Baby_Ho...

Are you implying that divinity is free of corruption and fuckery? Because history tells us that is not true. Rather we should look fist at those who claim any sort of divinity for all the ills of the world.

If I donate 100 million to Penn for the express purposed of building a new architecture building and Penn invests that money and earns 20% on it is that 20% under the same restrictions as the principal?

Also, it seems odd that if the funds are restricted to be used for a specific purpose that they university is allowed to gamble those funds in the market. Something about this doesn't add up.

>If I donate 100 million to Penn for the express purposed of building a new architecture building and Penn invests that money and earns 20% on it is that 20% under the same restrictions as the principal?

It would depend on the facts of the gift; but my understand is that if you give money to be used for a specific purpose, it is restricted to be used for that purpose.

There are also gifts that do not allow the principal to be spent; only returns on it. The gift is given in the expectation that it will be invested.

Your use of "gambled in the market" is quite loaded; I don't think that most people would regard the activities of these investment officers that way.

> I don't think that most people would regard the activities of these investment officers that way.

I recall my university's chief investment officer announcing that the university could tolerate riskier investments after the endowment topped $4bn. She promptly lost nearly $800m.

Does this lead to a conclusion, or a disagreement with my point, or is your goal merely to present an anecdote?

"Data point: Harvard's endowment has over 14,000 individual funds and the majority of them are restricted"

Maybe they should stop allowing donors to put restrictions on how to use the money?

If you pull on that thread, the reaction would probably be: fine, not giving you any more of my money.

I doubt that is a tenable option for the owner/curator(s) of the endowment fund.

a.k.a "we'll take your money, but only on our terms" ... that's just not even polite!

That’s how it works with most donations people give. I don’t get a say how the local animal shelter uses my donations.

Malcolm Gladwell has a podcast in Revisionist History where he likens museums to dragons (hoarding art); I think that's wonderfully apt. Whenever I see institutions, like Harvard, endlessly accumulating wealth above-and-beyond what they "need", I always think of them as "another kind of dragon". I think this interacts with Pournelle's Iron Law of Bureaucracy[1].

[1] https://www.jerrypournelle.com/reports/jerryp/iron.html

BTW Gladwell is one of the people who does know better about university endowments and still leads with the anger-inducing high school arithmetic view of the situation (in his podcast, in this case).

ref. https://philanthropydaily.com/what-malcolm-gladwell-gets-wro...

Sounds like a great reason to disincentivize University donations through policy.

There's no reason to donate thousands of dollars to a private, wealthy university that isn't to curry favor.

> Many/most gifts are restricted, meaning that the donors gave them to be used in specific ways

That's a problem for Harvard to untangle, not the Department of Revenue.

You would have to change the tax code to provide the incentive not to put constraints on the donation.

All the more reason to pass a tax

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