Government Accountability Office Releases Study on College and University Endowments

February 26, 2010

On Feb. 23, 2010, the U.S. Government Accountability Office (GAO) issued an eagerly awaited report on college and university endowments, Postsecondary 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.

Institutions Studied

  • 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 inflation.

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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