College and university endowments are a hot topic in 2025. Calls for divestment from Israel’s genocide in Gaza have spread across protest movements around the country, and the Trump administration placed an endowment tax on wealthy larger schools’ endowments as part of a broader battle with higher education. Swarthmore has had to grapple with both. But in order to pass judgement on the validity of pressure on the endowment, we first need to understand what endowments are actually for. There is ample reason to question the conventional wisdom surrounding the billions of dollars held in academia’s coffers. Specifically, the actual practices of endowment managers, including those at Swarthmore, should be measured against the stated reasons for the existence of endowments.
In September, Swarthmore’s Vice President for Finance and Administration Rob Goldberg and Chief Investment Officer Frank Grunseich hosted an Endowment 101 event in conjunction with Swarthmore’s student government. They argued that Swarthmore uses its endowment for a few key purposes.
Intragenerational Equity
The endowment is used to allow students from different class backgrounds into Swarthmore to create wealth equity within each class year. The endowment provides financial aid to some students and keeps down tuition for all students. Around 60% of the annual operating budget of the college is taken from the endowment, allowing the school to require less money from tuition costs. Swarthmore’s need-blind admissions policy and relatively low student debt rates seem to indicate that the endowment is at least partially effective at creating intragenerational equity. However, it is not clear that this is a sufficient explanation for the specific way Swarthmore’s endowment is managed.
An analysis of the 2017 federal tax bill passed during Trump’s first term — which included a 1.4% tax placed on endowments — found that colleges did not absorb the effects of the tax. Instead, they passed its costs to students, who paid 88% of the tax in higher tuition. There is reason to think that Swarthmore has similarly prioritized protecting its endowment value over keeping enrollment costs low. Swarthmore has raised tuition annually in eight of the last nine years, leading to a 37.8% total increase since 2016. This outpaces costs, which according to the HEPI price index used by Swarthmore, rose less than 30% in the same time period. The same analysis found that small liberal arts colleges in particular replaced domestic low-income students with full-tuition paying international students. Notably, Swarthmore’s need-blind policy does not include international students. This points to the conclusion that the doubling of international students as a percentage of the student body since 2000 reflects an attempt to admit students that will need less financial aid. Such a practice does not reflect attempts at advancing intragenerational equity, but the exact opposite: a reduction in accessibility for low-income students.
A 2016 analysis by The Education Trust found that institutions of higher education could do far more for low-income students. If wealthy colleges and universities raised spending to a reasonable 5% of the endowment, they could enroll 67% more low-income students. Swarthmore, which restricts its spending goal to 4.25% each year, could comfortably spend more to increase aid or decrease tuition.
However, Goldberg admitted that Swarthmore’s spending was “conservative” compared to other schools. This reflects the larger trend that institutions of higher education with massive endowments are often unwilling to commit as much as they could to directly help low-income students. A 2022 NBER study concluded that doubling the endowment of a college or university does not increase the amount of students receiving financial aid and only modestly increases the amount of money that each student on aid receives. None of this is to say that the endowment does not allow Swarthmore to provide more financial aid and lower tuition costs. However, it does indicate that creating intragenerational equity does not explain Swarthmore’s endowment management practices. If anything, Swarthmore has grown its endowment at the expense of providing more opportunities for low-income students.
Intergenerational Equity
At the Endowment 101 event, Goldberg argued for a balance between spending today and saving for tomorrow. This invokes another oft-recited objective of college endowments, which is ensuring future students are capable of experiencing the same quality of education as current ones. It is not clear why Swarthmore has an obligation to students decades from being born, or why it is well-suited to balance out generational inequities. Intergenerational equity is, at best, a secondary concern to intragenerational equity or most other moral imperatives. Endowment size is therefore a weak argument for maintaining investments in unethical firms or for paying staff and faculty fair wages.
Moreover, intergenerational equity does not actually explain endowment management practices. Endowment savings are supposedly calibrated to maintain steady funding in future years. But in predicting the future size of the endowment, managers leave out future donations. Swarthmore has received $537 million dollars in gifts to the endowment, and the pace of these donations has increased since 2000. Nevertheless, Swarthmore’s spending goals do not predict any new donations when deciding how much to save for future students. Contrary to the goal of intergenerational equity, future students will benefit from an endowment that benefits both from donations and a savings strategy that ignores these donations and therefore saves more than it otherwise would.
Another problem with intergenerational equity is in the college’s reaction to shocks. One might expect that if schools were committed to intergenerational equity, they would use their endowments to protect spending even when endowment assets decrease in value or costs on campus increase. This is especially true if one includes staff and faculty in addition to students as people deserving of inter- and intra-generational equity. However, by keeping spending as a percentage of the total endowment each year, colleges and universities pass on shocks to the endowment to students, staff, and faculty.
Colleges and universities almost universally slashed spending during the Great Recession and the COVID-19 slowdown. While Swarthmore has been largely immune to the Trump Administration’s cuts to grants and endowment tax proposals, affected universities have cut research and shrunk spending instead of using their endowment to offset their losses. When the endowment tax was still on the table, Swarthmore passed an interim budget that paused many faculty and staff’s regularly scheduled raises. Inflation sits around 3%, meaning a delay in raises equates to a pay decrease in real terms. Goldberg and Grunseich agreed that if Swarthmore were to face an endowment tax in the future, it would make large cuts to spending on campus. Drawing down spending during a crisis directly contradicts the goal of providing similar resources for campus community members across time. Worse yet, colleges and universities are more likely to decrease spending during negative shocks to the endowment than to increase spending as the endowment grows. In a 2014 study, Brown et al. found that universities are likely to undershoot spending goals during times of endowment growth. As a result, universities have a consistent bias towards growing the endowment, even according to their own spending rules. The unfortunate result is that when endowments shrink, schools reduce the amount of tenured faculty, support staff, and maintenance workers they employ.
One could describe a preference for saving over spending as a bias towards helping future students. However, this is a nonsensical goal: future students eventually become current students, at which point they are once again disadvantaged. A more accurate description of this phenomenon is given by William and Mary Professor of Art History Charles Palermo, who writes for Nonsite that “The aims of inter- and intragenerational equity are made out to be justifications for protecting an endowment that is in reality treated as the purpose and end in itself.”
The True Goals of Endowment Management
If intra- and inter-generational equity cannot explain endowment management at Swarthmore or elsewhere, why are endowments managed the way that they are? There are a variety of hypotheses. A study published in 2006 reported that lower proportions of non-profit endowments are spent as endowment size grows. Instead of advancing the cause of non-profits, managers at firms with larger endowments increase pay for administrators. This is consistent with a Tellus Institute investigation that found rising gaps between pay for administrators and investment officers and campus workers. Swarthmore is no outlier, as it pays administrators hundreds of thousands of dollars annually.
Another explanation involves the goals of administrators. The previously mentioned Brown et al. analysis located most endowment underspending at colleges and universities where the endowment had not grown since the inauguration of a new president. This would suggest that presidents, implicitly or explicitly, encourage endowment growth because it is seen as a key metric of their job performance. Endowments can be measured and assessed far more easily than other metrics of college health, such as how much each student learns, and therefore may be given too much weight. In fact, Brown et al. note that endowment size is correlated with the pay of presidents, creating a financial incentive for endowment growth that may not exist for other objectives. As a Stanford Law Review article explains, “University endowments have taken on a salience that makes endowment preservation one of the core university principles to which university administrators will dedicate their careers.”
Lastly, like at most institutions, Swarthmore’s endowment is managed most directly by a small committee of trustees. These trustees are chosen in part because they are alumni, but those that oversee investment decisions are all also from finance and business backgrounds. Their expertise is undoubtedly needed to invest the endowment properly, but their background may also come with problems. In his popular book “Bankers in the Ivory Tower,” sociologist Charlie Eaton details how bankers in certain alternative investment fields have taken on a disproportionate amount of trustee jobs at elite schools. As a result, major universities have led the charge in investments in modern high-risk strategies such as private equity. Swarthmore, for one, has 32% of its endowment invested in private equity, more than double that of the next highest investment category. Aside from the well-documented harms of private equity on employees and consumers, it is a field that relies heavily on personal connections and inside knowledge. Board members from private equity backgrounds may have business relationships with firms or people that encourage investment into this field. As the Tellus Institute report explains, “Given the degree of professional commitment and loyalty to alternative asset management, it should come as little surprise that boards could find themselves ill equipped to present the full range of diverse viewpoints about the stewardship of endowment assets.” As a result, despite the high risks and shrinking rewards from private equity described by the Tellus Institute and Eaton, it continues to make up large proportions of endowment investments.
A Democratic Swarthmore
Endowment management is often passed off as a purely technocratic process, with decisions being made based on correct or incorrect financial analysis. However, how Swarthmore saves, spends, and invests are all reflective of its values in one way or another. This includes its choice to maintain investments in companies on the list named by the Boycott, Divestment, Sanctions (BDS) movement. It includes its decision to cut staff and faculty pay when faced with external endowment threats. It includes the decision to maintain an excessively difficult work-study program for those on financial aid, even as other colleges do not. It includes the decision to hire contingent faculty instead of offering more opportunities for tenure.
Even if the Board managed the endowment perfectly, there is still a principled argument for more democratic management. These decisions affect staff, students, and faculty the most, and yet they are made by a board that visits campus just twice a semester. Swarthmore’s board is full of experts in finance and business, and I would not be capable of deciding how to invest Swarthmore’s $3 billion. However, I also could not manage any part of the United States government, but I would not give up my right to have a say in choosing the politicians that run our country. The students, staff, and faculty that make Swarthmore run rely on the college for their education and their living. But if Swarthmore’s investments shrink in value, an endowment tax is implemented, or the Trump Administration finds a new way to attack the school, we will have no say in whether the school uses its endowment to protect us, or sacrifices us to protect their endowment.
