The Role of Endowments in U.S. Higher Education during the 2008 Financial Crisis

Abstract

　 Endowment funds have assumed an essential role in supporting higher education ― especially with respect to the endowment funds of top private research universities in the U.S. However, this funding asset tends to fluctuate with changes in financial markets, and many universities lost considerable assets during the 2008 financial crisis. This paper explores the role of endowments in U.S. higher education during that crisis. Using the financial data of payout rates and net prices of U.S. private universities from 2007 to 2014, this paper suggests that universities made different decisions pertaining to endowment funds in response to the financial crisis. On the one hand, the universities that had accumulated huge endowments increased their payout rates and discounted the net prices, to support families that needed additional financial aid during that period. On the other hand, universities with smaller endowments tended to reduce spending to keep the level of endowments constant, thus decreasing instruction expenses. These results imply that the role of an endowment differs depending on its size. Finally, this paper discusses the implications of the U.S. experience for Japanese higher education.