UC Merced

Which operations university endowments should fund has remained a heated topic of debate over the past few decades. Scholars, policy makers, students, and their families try to understand where the best interest of higher education lies when it decides to allocate endowment income. Using a sample of institutions over time (1977-1996), my study provides insight on the different categories of use that endowment income supports through a first differences model. I will also examine how much tuition per student rises as endowment income rises. The results of this paper provide evidence to administrators and policy makers who are interested in the suitable roles of endowment spending for institutions. I find that all types of higher education institutions spend their endowment income on academic related causes, most notably faculty and research, while none is allocated toward student grant aid. In addition, I find a small but positive and significant relationship between endowment income and tuition and fees per student.