If you have ever considered attending a college, you have probably heard of the term ‘university endowment.’ However, do you know what it means? In this article, we will be discussing exactly what endowments are and the different types that you can come across. More so, we will mention how they are often used in the United States.
What Is A University Endowment?
Every year, colleges and universities receive funds from different donors. These funds can be used for various tasks – however, most of the time, the donor from which the money is from dictates how the university can spend it.
In other words, a university’s total endowment is the total donation amount. With that being said, the school can turn to this money at any time, unless the funds are not replenished or the institution from which they are donated closes down. The college can sometimes tap into the money indefinitely.
Types Of University Endowments
There are four different types of university endowments:
When an endowment is unrestricted, the university is allowed to decide what the money is spent on. In other words, they are given full authority regarding the use, distribution, and investment of the donation.
When an endowment is restricted, the donor makes the principal amount of money inaccessible. This means that the school has to invest the funds, ensuring that the donation remains perpetually intact.
These types of endowments are a mix between unrestricted and restricted. The principal amount is restricted for a certain period. However, after a while, this is lifted, and the school will receive more freedom when it comes to how they want to spend the money.
Quasi endowments also cannot be spent for a specific amount of time. However, the school has the freedom to create its own quasi endowments by using assets to meet the needs.
How Are These Endowments Used?
Universities often use endowments to achieve very high levels of academic quality. Running a successful school requires various types of labor. For this reason, universities often turn to endowments to pay the increasing costs of hiring a skilled board of staff members. These funds are used to achieve long-term goals while eliminating the fear of running out of money beforehand.
University endowments are essentially donations from external companies or organizations. This money is often spent to achieve long-term goals and a very high academic quality level.