Harvard Is Paying Out More of Its Endowment Next Year. Here’s Why Other Schools Aren’t Likely to Follow.

High returns, lines of credit, and federal aid have kept universities — and their endowments — afloat during the pandemic.

Adam Glanzman/Bloomberg

Adam Glanzman/Bloomberg

Harvard University’s endowment plans to distribute more money in fiscal year 2022 after recording strong annual returns, the school’s chief financial officer recently revealed.

“The stock market has been doing well, and hopefully it will stay that way,” Thomas Hollister said in an interview with the university-operated Harvard Gazette in late April. “A good stock market helps endowment results.”

He added that the Harvard Corporation, the school’s governing board, had planned to increase its distribution by 1 percent, but instead chose to bump it to a 2.5 percent increase in dollar value. (Harvard declined to comment for this story.)

According to industry experts, though, Harvard is likely an anomaly in its decision to boost payouts following the pandemic.

“Staying the Course”

MJ Bobyock, managing director of nonprofit advisory firm SEI, said that 69 percent of 102 surveyed participants (27 of which were university endowments) reported that the pandemic had no effect on their spending rates. Meanwhile, 12 percent of respondents said they had experienced liquidity crunches.

“It was a smaller number than we thought it was going to be,” she said by phone Thursday. Bobyock — and her industry peers — were concerned early in the Covid-19 pandemic that universities would face a budget crisis.

But according to NEPC partner Sam Pollack, “a lot of schools’ revenues were down relatively slightly compared to what people had anticipated.” And with returns staying strong, most endowments haven’t felt pressure to change how they spend.

“Revenues aren’t down nearly as much as people would have anticipated and that’s great,” Pollack said. “As for the endowment spend, most are staying the course.”

Federal Aid Helped — When Schools Could Accept It

Bobyock noted that federal aid programs like the Paycheck Protection Program provided a stopgap for money lost on students staying off-campus and other lost revenue sources.

One-third of private non-profit schools received loans or were approved for the program, according to a National Association of College and University Business Officers survey of universities.

Some universities also benefitted from the Cares Act, which allocated $14 billion in grants to higher education institutions. At the time, certain universities, including Harvard, faced backlash when they considered taking the money, an NPR article from April 2020 shows.

Harvard, for instance, first said on Twitter it would accept the Cares Act money and use it for “direct assistance to students facing urgent financial needs.” One day later, the school reversed course, tweeting again that it had decided to not accept the funding.

The debacle reignited long-running tensions between university students, who often argue that endowments are hoarding capital rather than using it for students, and endowment managers, who say their hands are tied thanks to earmarked donations.

“The narrative is often about how much money certain schools are stockpiling,” Pollack said. “If you look broadly across the higher-ed landscape, these schools are working hard to make sure that these financial resources are working hard for their students.”

Endowments Are “Not Meant To Be Liquidity Band-Aids”

But it wasn’t just federal aid that kept universities afloat. Some tapped other sources of liquidity like loans to cover short-term costs.

According to Bobyock, many schools already had lines of credit or established them during the pandemic. And if they couldn’t do that, some repurposed existing loans for short periods of time.

“Endowments are meant to last in perpetuity, not meant to be liquidity Band-Aids,” Bobyock said. “There are other avenues that universities have to access liquidity.”

She added that school enrollment didn’t drop as much as expected — of the universities SEI surveyed, most said that the enrollment impact of the pandemic was a less than 5 percent decrease.

Not to mention, 2020 was a banner year for portfolio performance.

“Investment returns were pretty robust in the past year and a half or so,” Pollack said. “As a result, universities that have spending policies that tie to a percentage of assets over time, which is a common approach, also have more money to spend.”