When talking about colleges, it is important to know that An endowment refers to money or any financial asset that are donated to an institution.
The Rising Cost of College
In this day and age, a single year at a private non-profit college can cost you more than the 4-year total of what your parents paid for their whole undergraduate career!
According to data from the College Board, the Annual Survey of Colleges, and the NCES, in 1978, the cost of a private non-profit college was $4,610.
In 2019, a single year at a private non-profit college can cost families up to $48,510!
The Rise of Institutional Aid
While this might sound terrifying, there is a bright side!
Over the years, the increased competition between colleges has played a significant role in the rise of institutional aid provided by private nonprofit four-year institutions.
According to Moody’s Investors Service, in 2020 public and private universities are expected to see a median net tuition revenue growth of 1 percent and 2.3 percent, respectively.
It is also worth mentioning that in 2018, private institutions provided record-breaking tuition discounts to the majority of their students!
A study by the National Association of College and University Business Officers (NACUBO), revealed that 405 private nonprofit institutions reported an estimated 52.2 percent institutional tuition discount rate for first-time, full-time students.
What does this mean?
Well, this data shows that for every dollar in gross tuition and fee revenue collected from students, colleges and universities used nearly half for institutional aid!
This aid is available to students in the form of merit or need-based institutional grants, scholarships, and fellowships!
Funds Restricted to Financial Aid
College and universities also use money from their endowments to provide institutional aid.
"An endowment is just a fancy word for money or other financial assets that are donated to the school."
Every college’s endowment is different, some endowments are in the millions of dollars while others can be in the billions.
As we have mentioned in the course, colleges with larger endowments can often give students bigger financial award packages.
A lot of colleges go into their endowments to hire professors, upgrade facilities, build new dorms, and fund scholarships.
So, why does all of this matter?
Well, because a lot of people do not know they could qualify for this type of financial aid!
Where Does Institutional Aid come from?
Colleges provide institutional aid using two types of sources–restricted and unrestricted funds.
"Institutions provide institutional aid using two types of sources–restricted and unrestricted funds."
Funds become restricted to financial aid when the money has to be used SPECIFICALLY for financial aid.
For example, if a large endowment donation from an alumnus states that a percentage must go towards financial aid, then that percentage becomes restricted to institutional aid – the remaining amount, however, is an unrestricted fund.
The majority of operating funds from colleges are not restricted to financial aid.
These funds can be used to encourage students to enroll.
For example, in 2014-2015, private nonprofit colleges provided 84% of grant aid to their students.
By offering more money, these colleges became more appealing to students! (College Board)
What is the Easiest Way to Qualify for Institutional Aid?
The first step to qualify for institutional aid will be to complete the FAFSA and the CSS Profile forms.
A lot of people think the FAFSA will only give them access to federal need-based aid.
However, as you now know, colleges and universities give out millions of dollars in merit-based grants and scholarships!
Parents and college-bound students must keep an eye out for college and universities that offer institutional aid from both their institution’s operating funds and endowment income/assets!
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