Recently, Washington legislators, led by Sen. Charles E. Grassley, R-Iowa, have argued that private universities should be mandated by the national government to spend at least 5 percent of their endowments each year ““ an idea that would subject some schools to unnecessary federal oversight.
However, schools are much wiser in the allocation of funds and should not be held to such legislation, especially when they are private institutions.
The argument at the core is centrally about how much power donors should be given when they donate large sums of money.
For instance, Princeton University was recently sued for $550 million. A benefactor’s family felt that the funds were not going straight to an original goal, set forth in 1961, to encourage students to join the civil service.
The idea that people want to use the government to oversee endowment spending undermines the school’s autonomy.
With quirky earmarks and the idea that goals do change over time, schools need to maintain the power of allocation.
Money donated can be used for a multitude of things, all of which benefit the student population. And, though spending should be transparent, the school should be trusted with these decisions.
For instance, seniors who are donating back to UCLA are given several options to direct where their funds go. But the specifics, such as if their $5 goes to purchasing staples or into a fund to purchase computers, are left up to the school, as they should be.
Even more importantly, schools, especially those that have attracted such large endowments, are wise in money management and know better than both their donors and the federal government where money is best spent.
We understand the desire to earmark funds, but this idea of itemizing and dictating not only undermines the school, but also creates financial complications and a logistical nightmare.
In addition, the way large endowments are used by schools is such that schools do not want to spend 5 percent of it every year.
Schools like those in the Ivy League, with endowments reaching the billion-dollar mark, invest their funds and spend the interest. This is a financially sound strategy that allows for financial stability of their endowment funds.
To force schools to abandon this policy and a financial structure that has worked so well is silly, proving there is no need for the government to oversee school spending.
Smaller donations numbering in the tens of dollars are but a drop in the bucket in the funding that large schools receive.
And there is no reason why a lone donor of a few dollars should decide where the splash of the bucket goes. When we donate to schools, we are donating to the large-scale purpose of general benefits for the students.
In some cases, donors do not have the know-how to earmark their donations in a way that would be most effective in helping the students. Thus, we should trust the university with the allocation of endowments. We need to grant schools the benefit of the doubt that when we earmark funds, the funds will go toward that purpose.