Tuesday, January 31, 2012

Endowments of Top 25 Liberal Arts Colleges

The release of the latest endowment data piqued my curiosity.  One can look at them a million ways, but I'm particularly interested in liberal arts colleges and decided to compare the endowment figures to US News & World Report rankings.

As you can see in the table below, the higher-ranked schools generally have both larger endowments and more endowment money per student (correlation of -.53 between endowment and USNWR rank and -.58 between endowment/student and UWNWR rank), which is, of course, not a surprise (both because they money allows schools to afford items that increase prestige and because the endowment itself is used by UWNWR as one component of their rankings).

Before I get into the discussion, let me display the data.  In the six columns are the USWNR ranking, the school name, the endowment size (in thousands), the school's enrollment (as reported by USNWR), the endowment per student, a ratio of 5% of the endowment per student (which is roughly how much a school has to spend per student solely from tapping into the endowment), and the rank (within this sample) of the endowment per student.

9Claremont McKenna$543,2361,278$425,067$21,25310
12Washington & Lee$1,218,1322,173$560,576$28,0297
18Harvey Mudd$243,125773$314,521$15,72619
25Bryn Mawr$671,1031,755$382,395$19,12011

I should first note that I dropped the US Naval and Military Academies (which tied for 14th) from the sample -- no endowment data was available, and I'm not convinced they belong in this group anyway.

In no particular order, here are the things that stand out to me:

1.) As I said above, the wealthiest tend to be ranked the highest.  No surprise.  Five institutions in particular far out-distance the rest in terms of resources per student, four of which are ranked 1-4.

2.) Given that all of these schools are in the same general arena in terms of prestige, there's quite a bit of variability in terms of financial resources -- two schools have less than $10K per student to spend while five have over $40K.

3.) Notable underachievers (high resources, low ranking) include Grinnell, Smith, Washington & Lee, and (arguably) Wellesley.  Two of these are single-sex institutions, which may limit applications (raising acceptance rate) and/or increase alumni giving relative to other factors.  Washington & Lee is one of only two schools located in the South and has a reputation as being more conservative than the other schools.  I'm not sure how to explain Grinnell other than possibly the Iowa location.  As I mentioned above, exactly five schools have more than $40K to spend per student (the same five that have endowments exceeding $1.5 billion), and four of those rank 1-4.  Grinnell ranks 19th.

4.) Notable overachievers include Carleton, Davidson, Wesleyan, and Bates.  I'm not sure I have a great explanation for these other than the possibility that their reputation is larger than their endowment (an argument I don't find super compelling).  More on this below.

5.) An interesting factoid: Macalester's endowment is exactly $1 million more than Carleton's.  Macalester is 45 miles north of Carleton, enrolls 13 more students, and is 19 spots behind in the rankings.

Were I to do more than muse about summary statistics, I'd wonder why some schools earn much higher ratings relative to their financial resources than others.  To the extent that a given school's goal is to enroll the best students and earn the highest ranking, some are drastically more successful/efficient than others.

Of course, I'd expect that a large part of the explanation is that some of these schools place far more emphasis on the factors USNWR measures and/or the USNWR rankings themselves.  I'd also imagine that, among other things, allocation of these resources, admissions practices, location, reputation, campus offerings, and -- in various ways -- performance of campus leaders, faculty, and staff influence the success/efficiency of a school (as measured by USWNR relative to endowment resources).

Lastly, I'd wonder if the endowment, say, 20 years ago might be more strongly correlated with the ranking than the current endowment.  Or at least if some the low endowment/high rank schools had higher endowments relative to their peers 20 years ago and some of the high endowment/low rank schools had lower endowments relative to their peers 20 years ago.  This certainly would've influenced the faculty they hired 20 years ago, the perception of the college by students' parents, and probably the perception of the school by people in academia, at foundations, working as college counselors, etc.  In other words, schools that have dramatically expanded recently may be thought of as more resource-rich than they currently are and schools that have seen recent dramatic growth in endowment may be thought of as more resource-poor than they current are.

I'm no expert on higher ed or philanthropy, so I can really only guess about these numbers.  All I know is that I find them interesting and that there are probably some good explanations for the patterns we see.  If anybody knows more about these topics than I, I'd love to hear your explanations.

Update: I neglected to note that along with allocation of resources, I'm sure the allocation of the endowment matters as well -- if  large chunk of the endowment is restricted to, say, maintaining the hockey rink or seminary that it will affect the school differently than if a large chunk is restricted to, say, financial aid or even unrestricted uses.

I also neglected to mention that not only do some schools emphasize the ratings and try to game the system, but some might even just flat out lie.


Anonymous said...

W&L underachiever? You must be kidding. BTW you have included the graduate school in your enrollment figures. Figure about 1600 undergrad.

Anonymous said...

I count only 24 schools....

Anonymous said...

I count only 24 schools.

Corey Bunje Bower said...

Anonymous #1: I used the enrollment figure provided by UWNWR for all schools. Yes, some of these schools have graduate programs, but their endowments cover those programs as well.

Anonymous #2/3: As I mentioned in the post, I didn't include the service academies (West Point and Annapolis are tied with Vassar at #14 on the USNWR list).

Anonymous said...

Those schools on the higher part of the list probably got more students because of their aggressive college counseling campaigns. That probably contributed to the higher endowment.

Anonymous said...

Grinnell is supported by alumni, Warren Buffet;)

Corey Bunje Bower said...

Warren Buffett was a trustee of Grinnell for many decades and helped them build up their endowment, but he's not an alum

Anonymous said...

Interesting post, I'm not sure I see the same patterns you seem to. The correlation just doesn't look that strong, with several lower ranked schools with endowments effectively in the same category as the 3-5 spots for all practical purposes. Also of note, only 5 short years ago W&L's endowment was comparable to Davidson's at just over $500MM. Final comment, a factoid is not a factual tidbit (as CNN led us to believe) but is rather something that resembles a fact but is, in fact, not.

Anonymous said...

Davidson College is entitled to 5% of the income of the Duke Endowment - my understanding is that over 30% of the income from the Duke Endowment goes to Duke University; 5% to Davidson; 5% to Furman University in Greenville, SC and 4% to Johnson C. Smith. My question is whether the endowment number for Davidson includes some adjustment for the Duke Endowment income? If not, then the "actual" financial picture for Davidson might be stronger than the number given.

Anonymous said...

My wife and I attended Carleton 1951-55, a time when the college had LOTS of endowment per student. But the women graduates became wives and mothers, and the males went to graduate school and became professors and physicians and lawyers. We did OK financially, but none of us made really big bucks, so for many decades the endowment per student shrunk, while the academic reputation grew, thanks to more selective admissions. Meanwhile,midwest competitors Grinnell and Macalester got large sums from Buffett and the Wallaces (Reader's Digest), but there is a limit to what money can do for your reputation.

Anonymous said...

The endowments of Macalester and Carleton are roughly the same. No $1 million difference.

Anonymous said...

How could you forget BEREA College?

Corey Bunje Bower said...

I didn't forget Berea; it's not rated among the top 25 Liberal Arts Colleges by US News and World Report.

The last time I checked, though, it did have the 15th highest endowment per pupil in the nation: http://www.edpolicythoughts.com/2012/01/top-50-endowments-per-pupil.html

KISSWeb said...

Is there a legitimate reason -- related to affecting the quality of the education, that is -- for a college to have a $1 million per pupil endowment? Or a $200,000 per pupil endowment for that matter? Is there a reason why the level of endowment should have the slightest impact on the ranking the college receives?

Or is this nothing more than a bragging rights arms race?

Anonymous said...

It seems Univ of Richmond's identity falls between a liberal arts college and a national university depending on who's doing the categorizing. Often, it's just ignored, but its endowment is almost $2 billion. Comments?

Corey Bunje Bower said...

KISS, there are good two reasons a school would want a $1 million/student endowment:

1.) It gives them roughly $50K/student to spend on providing the best education they possibly can.
2.) It offers a whole lot of stability -- no matter what happens with the economy, enrollment, fundraising, etc. they can be sure that they'll still have enough money to continue providing the type of education they want to provide next year (and probably the next 100).