How might the richest American colleges and universities develop in the future?
I’ve been looking at this small yet superinfluential slice of higher education for a while. For example, since 2018 I’ve been trying to forecast when the most expensive campus will crack six figures for its annual cost of attendance. (Right now it looks like 2025/2026, so coming up fast) And I follow research from other people. The New Press published two powerful books, The Merit Myth (Anthony Carnevale et al) and Poison Ivy (Evan Mandery) (also a fantastic Future Trends Forum guest in 2022).
Last week Joshua Kim offered a thoughtful addition to this topic at his Inside Higher Ed column. He examined college and university endowments, looking back in time, then projecting them forward. I’d like to draw your attention to the latter today.
(Just a quick reminder about the reality of endowments: only a tiny fraction of America’s 4,000 or so colleges and universities have endowments of meaningful size. Endowments are not savings accounts, as a good amount of the funding tends to be structured for certain purposes.)
Josh begins with data from NACUBO, an organization I greatly admire and have worked with. He sets the stage by looking at the endowments of the richest institutions back in 1990, first with that year’s amounts, then adjusted for our time to account for inflation. I’ll pick the top 21 of Kim’s list:
|School||1990 endowment (in thousands)||1990 endowment in constant (July 2023) dollars (in thousands)|
|Texas U System||$3,731,826||$8,954,361|
|U of Southern California||$495,595||$1,189,159|
In case that table waters your eyes, look at the second row. Harvard University’s endowment was $4.6 billion back in 1990, or the equivalent of just over $11 billion now. (That’s Billion with a “B”.) Harvard’s regional neighbors MIT and much hated Yale also belonged to the billion-dollar endowment club back them, as did Princeton, the University of Texas, and Stanford University. The campus I was attending in 1990, the University of Michigan, held only a measly half-billion.
What happened to this rarefied club in the decades since? Something else to know about college and university endowments is that they can seriously grow, if well tended by financial professionals. Here’s what Josh found for 2022, the year of the latest data:
|School||FY22 endowment (in thousands)|
|Texas U System||$42,668,276|
|U of Southern California||$8,100,000|
Growth indeed. Those 1990 financials expanded by factors of six, seven, eight, or more. Harvard’s $4.6 became nearly $50 billion. My Michigan’s ballooned to $17 billion. Dartmouth, where Josh works, soared from $560 million to just over $8 billion.
Now let’s turn at last to future possibilities, the subject of this blog. Just how high might these endowments reach if things keep going as they do? (This is a futures method called extrapolation.) Josh picked the year 2055, did some number crunching, and offered this fiduciary glimpse:
Potential 2055 endowment (2023 dollars—in thousands)
|Texas U System||$181,269,704|
|U of Southern California||$34,411,622|
These are first-order extrapolations, I say again. They are not rock-solid predictions. They give us a first pass at where things might be headed.
And Josh offers even more caveats. For his method, he explains:”The assumptions I used are that returns would equal 10 percent annually, and inflation would run at 3 percent.” He immediately notes that this might not be too realistic:
The reason that I was aggressive in returns and put a lower inflation number is that I did not input any additions to each endowment through capital campaigns or other giving. The calculations also leave out potential future annual drawdowns of endowments.
The assumption that there will be no giving to these universities in the next 30 years is not defensible. An aging cohort of high-net-worth baby boomer alums is set to transfer enormous sums of capital to their heirs and to charity, and universities will almost surely benefit from that eventuality.
Yet it’s a starting point. Kim goes on: “Still, not knowing what investment or inflation will do in the next 30 years—we can leave out future giving to help with some confidence that the projections below are at least in the ballpark.”
What do these projections tell us?
First, the richest institutions will likely become even more wealthy to a staggering degree. We can speak of Harvard, the University of Texas, and Stanford’s endowments in meaningful factions of trillions of dollars. Now, as inflation historically rises, the word “trillion” will lose the eye-popping power it retains today, but looking ahead gives us a sense of scale.
Second, the magnitude of those monies will make calls to use them even more urgent the next time we have a crisis on the order of the COVID-19 pandemic.
Third, *if* American culture shifts away from hyperindividualized neoliberalism towards a more public orientation, perhaps along the lines of the FDR era, we might see calls for these institutions to spend some of those hoards to enroll more students who aren’t rich.
Fourth, the majestic size of these troves might inspire more political moves against them, from tax proposals to contributions into the local community, or other policies. Recall that Thomas Piketty wondered if early 21st century endowments actually contributed to regional wealth inequality. How will these staggering sums appear over the next decades?
Thank you, Josh, for a thought provoking column.