The endowment as explained by a broke student

Notre Dame has a $13.8 billion endowment, and I have 14 billion questions. That figure for the endowment comes from October of 2019, and was published at the close of the University’s fiscal year. Notre Dame is a non-profit university, as are the vast majority of American colleges and universities. Therefore, Fr. Jenkins and the Board of Trustees cannot pocket the profits leftover when the University calculates its operating profit. This restriction seems straightforward enough. But why can’t we take the rest of the endowment and make tuition free? Many students have wondered about this at some point during their time on campus, myself included. I have decided to try and answer my own questions and explore other aspects of Notre Dame’s finances along the way.

I saw the massive donations come in for the Duncan Student Center or new dorms and questioned why I needed to take out loans to pay for my education if the University was being given so much money. Then I learned about how earmarking works. Certain donations, when given to the University, are donated with the stipulation that they be used for a specific purpose. So, when Mrs. Jane Billionaire gives Notre Dame millions and, five years later, we have the Billionaire Family Basketball Facility, this is not often a gesture of goodwill from Notre Dame. The basketball building may very well have been what Mrs. Billionaire requested the University construct using her donation. Some donations are generalized while some are given with a certain purpose in mind. Of course, one must have sufficient leverage to convince Notre Dame to earmark their donation for a specific building or upgrade, and that leverage comes in the form of a larger donation. 

Okay, so some donations have to be put toward certain projects. I can’t sit around hoping for a new billionaire to need a tax cut with the expectation that a donation will lead to a free education. But what about the endowment? After all, the Smith Center was a $15 million gift. That is approximately 0.12% of the most recently reported figure for the endowment. The University publishes an investment review annually on its website. Unfortunately, the most recent review is for the fiscal year ending in 2018, but its data still helps me answer some questions.

During the 2017-2018 fiscal year, spending from the endowment pool was $393 million, which represents 3% of the then-$13.11 billion in the endowment. This spending supports endowed faculty positions, the library, athletics and, yes, student aid. Notre Dame’s operating budget for the 2017-2018 fiscal year was $1.6 billion. Scott Malpass, chief investment officer for Notre Dame, said in 2019 a draw of over $400 million from the endowment represented nearly 30% of the University’s operating budget. Other sources of income, including tuition and football revenue, make up the remaining 70% of the operating budget. But what if draw from the endowment made up 100% of the operating budget and tuition was free?

Assuming the budget is nearly the same as it was in 2018, which is backed up by the comments from Malpass, Notre Dame would need to pull about $1.6 billion from the endowment to operate. That would leave the remainder of the endowment at $12.2 billion. My first takeaway is that Notre Dame could afford to take in $0 in income for 8 years and survive by eating the endowment. Obviously, however, this would be unsustainable. Luckily for my free-tuition dream, Notre Dame invests a portion of its endowment each year, allowing it to accrue further under the watchful eye of the Investment Office. Malpass reported a growth rate for the invested portions of the endowment of 12.2% in fiscal year 2017-2018. This is an extraordinary growth rate, and one that is likely unsustainable. To be fair to Malpass and avoid setting the bar too high, let’s assume 5% growth each fiscal year for the invested portions of the endowment. If the entire remainder of the endowment, after covering the entire budget, was invested at a yield of 5%, the investment would grow from $12.2 billion to approximately $12.8 billion.

Clearly that would still be an unsustainable approach. The return is far smaller than the cost of covering the entire budget. However, in defense of my “$0 tuition” proposal, Malpass does not seem to indicate that the entire remainder of the budget outside spending from the endowment pool comes from undergraduate tuition. “[Spending from the endowment pool] was 5% of the budget 30 years ago, so back then 70% of the budget was undergraduate tuition,” said Malpass. Since Notre Dame is non-profit, it receives money from the government, as well as making money from licensing deals, apparel sales and a variety of other sources. An additional point in favor of my plan is endowment pool spending already includes spending on financial aid, and only 69% of the undergraduate student body requires financial aid of some sort. So the changes in endowment spending required to make tuition free would not be as drastic as covering 100% of the University’s operating budget.

There are 8,617 undergraduates enrolled at the University of Notre Dame. They each pay $55,553 in tuition. That totals out to $478,700,201 in tuition received by the University. As the school considers its annual tuition increase, typically announced in February, I encourage those in power to think about the numbers I laid out here. This column was even heavier than usual on math and figures to make my points, but I would like to leave off with one more piece of data. Notre Dame is one of just 30 colleges required to pay a new tax on its endowment because it has in excess of $500,000 in endowment funds per student. And I don’t know about you, but I could buy a lot of Quarter Dogs with my portion of $500,000.

Ben Testani is a senior studying international economics, Arabic and Spanish. He comes to Notre Dame via Central New York and while currently residing off-campus, will always be a proud Alumni Dawg. He welcomes feedback at btestani@nd.edu or @BenTestani on Twitter.