Princeton explains why it charges tuition despite its multibillion-dollar endowment

Harvard and Princeton have each responded to a critical letter from congressional leaders questioning how they spend their endowment money, Inside Higher Ed reported
The letter — written by Senator Orrin Hatch, Congressman Thomas W. Reed II, and Congressman Kevin Brady — was sent to schools with endowments of over $1 billion, according to the Harvard Crimson.

“Despite these large and growing endowments, many colleges and universities have raised tuition far in excess of inflation,” stated the letter, which went out in February.

In their separate letters dated March 31, both Harvard and Princeton (with endowments of $37.6 and $22.7 billion, respectively) stressed they have robust financial aid programs that pay full tuition for many students who need it.

But both schools stressed the complexities of endowment spending, as each endowment involves thousands of funds that all may be charged with a different purpose.

Harvard University President Drew Gilpin Faust
Historian Drew Gilpin Faust speaks onstage at the American Experience ‘Death and the Civil War’ panel during day 1 of the PBS portion of the 2012 Summer TCA Tour held at the Beverly Hilton Hotel on July 21, 2012 in Beverly Hills, California. Frederick M. Brown/Getty Images

“Princeton’s endowment is made up of thousands of accounts, some of which date back literally hundreds of years,” Princeton President Christopher Eisgruber wrote in his letter.

“Today, Princeton’s endowment is made up of more than 4,300 separate accounts, and the purpose supported by the largest number of accounts is financial aid,” he continued. “Other accounts support faculty positions, research and teaching programs, library resources, and many other purposes.”

In an apparent explanation of why the school still charges tuition, Eisgruber added, “Each student benefits from the educational opportunities we provide, and thus we believe it is appropriate to ask them and their families to contribute to the costs of their educations to the extent they are capable of doing so.”

Meanwhile, Harvard President Drew Faust stressed in her response letter that the endowment provides substantial funding for the school’s budgetary needs.

“Harvard’s endowment is the university’s largest asset and out largest source of financial support,” Faust wrote. “The endowment is invested to generate income, which, last year, funded 35% of the university’s operation budget.”

However, she noted that 84% of the endowment consists of restricted funds which must be “carefully managed to meet the terms of the gift.”

Endowment income has come under increased scrutiny, as elite schools have funds that balloon ever up, year after year. In March, the Connecticut Legislature proposed a bill that would tax income from Yale’s $25.6 billion endowment, Bloomberg reported.

The legislation specifically targets schools in Connecticut with endowments of $10 billion or more. Yale is the only such school in the state with an endowment of more than $10 billion.

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