On Tuesday, Sweet Briar College, a women’s liberal arts college in Virginia, announced that it would be closing its doors for good after the spring 2015 semester.
It also has a $US94 million endowment.
So what exactly happens to nearly $US100 million in endowment money when a college ceases to exist?
The college might be obligated to pay much of it back to donors who intended the money to be used while the college was still functioning, according to Ronald Ehrenberg, who’s Director of the Cornell Higher Education Research Institute.
“A large fraction of the funds in an endowment are restricted for specific purposes. My guess is that in those cases they would have to go back to donors, and, if the donors are deceased, to relatives of the donors and get permission from them to use the funds to aid in the closure,” Ehrenberg, a professor of Industrial and Labour Relations and Economics at Cornell, told Business Insider on Wednesday.
People who give money to colleges presume those funds will benefit the college and campus life, according to Ehrenberg. They would likely be owed the money if the college were to close.
“They would have to refund the funds back to the donors,” he said. “I’m assuming the money would go back to the donors because the donors had donated the money to last the university in perpetuity, and there’s no longer a university there — or, in this case a college.”
As of June 30, 2013, financial statements for Sweet Briar Institute (the parent company of Sweet Briar College), showed the endowment size to be $US90 million. That consisted of $US19 million of unrestricted funds, $US18 million of temporarily restricted funds, and $US53 million of permanently restricted funds.
According to that same financial statement unrestricted assets are, “free of donor-imposed restrictions.” Temporarily restricted assets are, “limited in use by donor-imposed stipulations that either expire by the passage of time or that can be fulfilled by appropriate action of the institute.” And permanently restricted assets are, “required by donor-imposed stipulations to be held permanently by the institute.”
According to Ehrenberg, there is a strong case to be made that the $US53 million in permanently restricted assets should be paid out to donors of that money.
We reached out to Sweet Briar College for comment comment regarding their plan for the endowment and did not hear back.
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