On Feb. 23, 2010, the U.S. Government Accountability Office (GAO) issued an
eagerly awaited report on college and university endowments,
Education – University Endowments Have Shown Long-Term Growth, While Size,
Restrictions, and Distributions Vary.
The Higher Education Opportunity Act, Pub. L. No. 110-315 (2008), mandated
that the GAO prepare a report on college and university endowments in order to
provide information to policy makers as they consider college and university
issues, including the size of endowments, distribution of endowments’ assets,
and restrictions on endowments’ use.
Due to the unavailability of industry-wide data, the GAO selected 10 colleges
and universities for case studies. These included a mix of public, private,
large, small and minority-serving institutions. The review analyzed data on
college and university endowments from the Department of Education and other
sources, as well as from interviews with officials at these universities.
- Berea College
- Harvard University
- Howard University
- Smith College
- St. Mary’s University
- Stanford University
- University of Colorado
- University of Kentucky
- University of Texas System
- University of Virginia
The GAO did not make any recommendations in the report. The study gathered
information regarding the growth of endowments held by colleges and universities
that collectively exceed $400 billion in 2008. Congress has expressed concerns
about the simultaneous growth of endowments, coupled with the growing cost of
college expense – raising questions about the use of endowment funds.
Most endowment assets in the case study institutions were restricted by
donors. Some restrictions are broad enough for the college or university to
modify any restrictions that have outlived their purposes. Other restrictions
were very specific. In the institutions studied, funds restricted to a specific
purpose ranged from 12 percent to nearly 70 percent.
Interestingly, the report found that colleges and universities with the
largest endowments may actually have smaller endowments, if measured on a per
student basis relative to other colleges and universities. For example, the
University of Texas System, with the fourth largest total endowment in the
country in 2008, was the 118th largest when measured on a per student basis. In
contrast, Berea College’s total endowment was ranked 63rd in the country by
total size, but 17th by assets per student in 2008.
Information from the case study institutions shows that the institutions have
not only preserved, but also increased, the purchasing power of their endowment
funds since 1989. This indicates that a major consideration in investment policy
is the protection of the purchasing power of endowments through investment
earnings that are greater than the endowments’ distribution rates plus
It is interesting to note that, of the case study schools, Harvard University
and three universities in the University of Texas System (University of Texas,
Texas A&M, and Lamar University) announced they are currently under audit by the
IRS. While neither the IRS nor any of these universities have publicly indicated
the specific issues under examination, it would not be unusual for the IRS to
take into consideration the GAO Study in evaluating the information that is
developed from examinations of these universities that could form the basis for
future legislation. For further general information on these audits, see "IRS Starts University Audits."
The selection of 40 colleges and universities identified for further
examination indicates that the IRS is serious about pursuing compliance issues
arising from the information it gathered in the compliance questionnaires. As
more information is released about additional examinations and issues, we will
keep you informed.
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McGuireWoods Higher Education Practice
education attorneys represent public and private colleges and universities.
This representation includes statutory and regulatory compliance and
investigation work relating to the Higher Education Act of 1965 and the federal
student aid programs, as well as issues relating to NCAA investigations, faculty
tenure, financing expansion, low-income housing, 501(c)(3) and other tax issues,
student lending compliance and investigations, intellectual property, students
and academics, housing, governance, endowment management, and construction.