Is this Legal? Ethical? Right?

I love my alma mater. During my time there, the faculty and programs helped me grow intellectually, emotionally, and spiritually. It was the right experience for me at the right time.

My alma mater is far from perfect, and there are many things about the private institution that make me uncomfortable. For example, it has had a terrible track record with handling campus assaults, including sexual assaults. Recent student activism has exposed this to the world, and the institution’s administration appears to be taking honest steps to address this. Students have also called out the institution for culturally insensitive (some say racist) practices that are deeply embedded in the culture. The institution’s administration appears to be addressing this, too. But administrative efforts on these difficult topics seem forced and reluctant. These efforts don’t align with their priorities of fundraising and painting a picture of my alma mater as a perfect college experience for its target market.

Recently, I learned that these administrative priorities are at odds with the student experience in more disturbing ways. The current president has been focused on building the endowment, and it on course to have it reach $500 million. This should be celebrated internally and externally if it weren’t for a two techniques the president uses. These techniques benefit the endowment at the expense of the educational experience the college is supposed to provide.

According to the National Association of College and University Business Officers’s CommonFund Study of Endowments 1, it is standard practice for a private University to use a small percentage of the endowment to cover some operating expenses. We’re talking 4.4% or slightly more. My alma mater only uses 3%. This means that another University with a $500 million endowment would use $5 million more each year to cover operating expenses than my alma mater is allowing itself to do. Looked at another way, the president is restricting the use of the endowment for operating expenses so the endowment can appear to grow faster. Retriting the use of endowment funds for operating expenses is the prerogative of the president, and it’s certainly been approved by the school’s Board of Governors. But it does feel odd, especially at a time when it’s reported that the University is trying to reduce the academic budget by about $2 million through cuts to programs.

The second technique the president is using is more troubling. It involves taking funds from the school budget and putting them directly into the endowment. Specifically, it’s reported that any funds in the academic programs that are left over at the end of the fiscal year are taken back by the finance folks and transferred into the endowment. This is highly unusual. It’s more typical of Universities that funds left over at the end of the academic year are rolled over into next year’s academic budget. Sometimes only a percentage is rolled over with the remainer redistributed to meet other budget needs. It’s unheard of that a school will sweep funds and transfer them to the endowment. This means that a portion of every student’s tuition is directly used to build the school’s endowment.

If this is true, then my alma mater’s president is putting a presidential goal of hitting an endowment target far above the school’s commitment to provide a high quality living and learning environment for its students. As an alum, this is deeply troubling. Is it legal? Is it ethical? It’s certainly not right.