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July 01, 2009

From The Chronicle: Colleges Tap 'Underwater' Endowments

Colleges are increasingly taking advantage of newly loosened rules on tapping so-called underwater endowments, The Chronicle of Higher Education reports.

In the past three years, 37 states and the District of Columbia have passed laws easing limits on how much colleges and foundations can spend from donor-restricted endowment funds that have fallen below their original market value. Since then the proportion of schools and affiliated foundations that have frozen spending from such “underwater” funds has dropped from 38 to 27 percent, according to a survey by the Association of Governing Boards of Universities and Colleges.

Thirty-one percent of institutions are spending from underwater endowments at the same rate as from healthier funds, the survey found. The association praised the legal change for giving colleges more financial flexibility in tight times.

Wednesday July 1, 2009 | Permalink

Comments

1. This is a little scary. It seems very risky but I guess if you have enough above water and are smart with your budgets until they are back up you can balance yourself out.

   — Happy    Jul 1, 02:20 PM    #

2. I understand the pressing need for the funds being withdrawn from endowments already underwater. I am curious though what if any plan there is to replace this money down the road when the economy improves. With less money endowed, how can the endowments recoup all their market losses?

   — Lorri Greif, CFRE    Jul 1, 04:20 PM    #

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