Controversial new report claims colleges in '$500 million club' aren't spending enough on students

Wikimedia Commons

Many schools with massive endowments are not doing enough to invest in low-income students, according to a controversial new report by the Education Trust, a nonprofit organization.

The report, called "A Glimpse Inside the Coffers: Endowment Spending at Wealthy Colleges and Universities," reviewed the spending figures of schools with endowments of at least $500 million.

Dubbing those schools the "$500 million club," the report found that while these institutions represented about 3.6% of all colleges and universities nationwide, they held 75% of the endowment wealth.

Still, nearly half of institutions in the so-called $500 million club are in the bottom 5% in terms of enrollment of first-time, full-time Pell Grant recipients, according to the report.

The Education Trust also carves out the institutions that spend less than 5% annually from their endowment, choosing that benchmark because other nonprofit entities are required to spend 5% annually. College and university endowments are exempt from this requirement from the federal government.

Wikimedia CommonsHarvard University is one of the schools on the list with more than $500 million in endowment funds, but it spent less that 5% of its endowment in 2013, according to the fiscal-year data the report utilized.

Harvard's 2013 endowment was $29.7 billion, according to its IRS form 990. The fiscal year 2015 IRS form is not yet available, but recent reports from Harvard have placed its endowment at $37.6 billion, making it the largest university endowment in the world.

Endowment income has come under increased scrutiny as elite schools have funds that balloon year after year.

In January, a draft congressional bill grabbed the attention of America's massively endowed colleges and universities, as it proposed that schools with endowments of more than $1 billion use 25% of their annual endowment income on student financial aid.

The draft bill, sponsored by Rep. Tom Reed, a Republican from New York, also stipulates that schools would lose their nonprofit status if they didn't comply with the requirement for three consecutive years.

But universities have balked at such proposals, arguing that endowment spending is a much more complex issue.

The endowment is not like "one big bank account" that can be drawn from for any purpose, Robert Reischauer, an economist and former senior fellow of the Harvard Corporation, argued in The New York Times.

Still, the Education Trust believes that colleges should be doing more with their endowment funds to help low-income students.

"Leaders of wealthy institutions have real opportunity and power to use their wealth to extend the American dream of higher education to more low-income students," José Luis Santos, one of the report's authors, said in a statement.

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