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Comment by kitrose | Hacker News Reader

According to Wikipedia, Penn has an endowment of over $22 billion.

Not enough in the piggy bank to cover?

The whole point of an endowment is to support whatever it was created to support in perpetuity. They do that by investing the endowment and using most of the income from those investments to support the endowment's mission, and a small part to grow the endowment over time.

Penn is spending around $1 billion/year from their endowment, which is a fairly reasonably amount for an endowment of $22 billion.

Penn's endowment distributed $1.1 billion last year. Endowments like this are managed to last a long time - indefinitely, even.

Penn itself is older than the United States - they're not going to start blowing through their endowment because of political trends over the last couple months (or next 4 years), even if they legally could.

Endowments can be very restrictive and thus it’s hard to shuffle money around.

Oh I should try that one.

What are they for then?

Chronic traumatic encephalopathy and tax deductions, as far as I can tell.

this comment is funny and sad all at once

Endowments are investment funds that ideally generate sufficient returns to cover yearly operational expenses while also growing the principal.

They don't cover yearly operational expenses, which is why they want indirect costs from granting agencies. And also why they charge tuition

At some schools the endowment returns are sufficient to cover operational expenses, which is why they can have such generous financial aid policies (effectively “not charging tuition” for those whom it would matter).

Yeah at the Ivies and equivalents the "tuition" is basically a "suggested donation" and the final bill is based on how much the parents have to give. I'm not sure about room and board.

At private schools, stated tuition is basically just a (soft) cost ceiling. The majority of students receive some level of aid, either need or merit based, or both. It's a pretty good system, if you want a mix of rich students, academically gifted students, and disadvantaged students who might succeed given the resources.

The existience of merit-based pricing is the big differentator versus public schools.

Not sure which way you’re saying the differentiator goes, but “merit-based pricing” is NOT what the top schools have. They are entirely need blind. You don’t get financial aid because you’re good at sports, you get it because you were accepted to the school and if you can’t afford to go there then they will make sure that you can attend. In fact that’s why the Ivies don’t offer scholarships - because if you can’t afford to attend, they’ll reduce your tuition until you can.

I’d call it merit-based admissions, if anything.

(Athletes can still get preference in admissions, with each team given a number of slots, but it’s totally separate from financial aid decisions. And this is actually a disadvantage compared to top, non-Ivy schools like Stanford, because a top athlete from a rich family would go to Stanford for free but would have to pay at an Ivy.)

At the very top, schools don't need to worry too much about competing to attract top students, because they're the best schools and the top students are going to be trying to get into them anyway. Private schools below that (like Stanford, USC, etc) use discounted tuition to try and convince top students to attend, leading to the merit-based tuition I described.

It is a trust fund basically. From what I uderstand, the principal is nearly impossible to use/withdraw and you can only use the interest/returns generated from investing the principle.

Even that portion is also restricted. The purpose must be strictly academic and some part must be paid to the university, some must be reinvested, and then the final pieces can be used at the professor's discretion according to the rules set when the endowment is established.

So generally, you are looking at 1-2% of the total amount that can be spent annually. Still a lot, but for research, tens of millions would still not be enough for something like Penn.

Typically, they're set up so that the income goes to a particular purpose, or so that only the income is used. For instance, a big chunk of Harvard's engineering and CS professorships are funded through a donation from a 19th century inventor of machines to make shoes. His intent was to fund professorships in "practical sciences" in perpetuity, and he had particular terms - he wanted salaries to be competitive for instance. The university can't legally spend down the principal or use the money for some other purpose.

But they can use the interest.

A $20 billion endowment at a 5% ROI is $1 billion per year

The interest is already what they are using. That is what all these scholarships and endowed chairs and so on are paid with.

As one simple example, some funds are for endowed chairs, named after donors or companies. For example, in computer science at Carnegie Mellon, we have chairs named for Richard King Mellon, Kavčić-Moura, Thomas and Lydia Moran, and more. (You can see a full list here: https://www.cs.cmu.edu/~scsfacts/endowed.html)

It costs a few million to create an endowed chair, and these funds can only be used to help offset salary costs for that professor (thus helping with the budget for the department) and for research associated with that professor. You can't just use all of the money in these endowed chairs for other things that people in this thread are suggesting, it's not fungible.

You know, folks on HN often re-post links to Chesterton's Fence (https://en.wikipedia.org/wiki/G._K._Chesterton#Chesterton's_...), about trying to understand how things are done and why, before tearing things down and potentially causing more problems. I'd highly suggest the folks in this thread that are exhibiting a lot of anger about academia keep Chesterton's Fence in mind. Yes, academia has problems (as do all human institutions and organizations), but the amount of good academia offers is quite vast in terms of advances in science, arts, education, public discourse, startups, and more.

I once encountered an endowment fund that was restricted for use in a defined scholarship. This was problematic because that scholarship could only be given to students of a specific race. Restricting applicants in this way would be illegal under Canada's charter, so for at least a decade the funds were simply not spent. As far as I know nothing has changed.

Chesterton's Fence is also just an argument for conservatism and never changing anything because there is no end to the argument that you don't really understand how things are done and why. Maybe "Academia" does need a bit of a wakeup call. You're lumping in a whole lot under academia and it's not really clear what portion of "academia" and academia dollars are linked to those outcomes you're talking about.

You're attacking a straw man, though. I see a lot of posts here that aren't even considering why something might be the way it is. We haven't gotten to the point where someone might do the "you don't really understand how things are done and why" goalpost-moving dance, and suggesting that of course that's how it's going to play out is unwarranted.

I mean, the initial post in this thread is just completely ignorant. Expecting a university to blow their endowment on a short-term[0] political issue is just ignorant. They spend maybe 5% of their endowment each year, because that is the safe amount to spend, as they want to be able to pull that 5% out, every year, essentially forever. Two minutes of "research" on university endowments would surface this kind of information.

[0] Four or even eight years is nothing to an institution that is older than the United States itself.

Sometimes donations which are specifically earmarked for something.

you only spend the return on the endowment, so that the endowment lasts "forever"

As the other poster mentioned, endowments / donations often come with conditions attached that significantly restricts how money from them can be used.

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