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Congressional ____
aResearch Service
College and University Endowments: Payout
Rates and Spending on Student Financial Aid
March 22, 2023
Starting in 2018, certain private colleges and universities with endowments valued at $500,000 or more
became subject to a 1.4% excise tax on total net investment income (Internal Revenue Code [IRC]
Section 4968). For the purposes of this tax, net investment income is capital gains as well as other sources
of investment income (e.g., interest and dividends), less expenses associated with earning that income.
For calendar year 2021, the Internal Revenue Service (IRS) reports that 33 institutions paid $68.1 million
in tax under this provision. One question policymakers have considered is whether the excise tax should
be modified or reduced for institutions that devote a certain amount of their endowment to financial aid or
to other forms of support for low- and moderate-income students. This Insight uses data from the National
Association of College and University Business Officers (NACUBO) and TIAA Study on Endowments
(NACUBO-TIAA study) to look at information related to (1) endowment spending or payout rates; and
(2) endowment spending on financial aid. The NACUBO-TIAA study is based on survey responses of
institutions of higher education. In 2022, the study is based on the responses of 678 institutions, including
both public and private colleges and universities.
Payout Rates of College and University Endowments
Spending from an endowment includes expenditures on student financial aid, faculty research,
maintenance of facilities, and other campus operations. The spending rate, or payout rate, is this spending
divided by the market value of the endowment at the beginning of the year (net of administrative
expenses). Most institutions have a spending policy that ties the payout rate to a moving average of
endowment value. The NACUBO-TIAA study groups institutions using seven endowment size
categories, ranging from under $25 million to over $1 billion, when presenting endowment data.
Oftentimes, payout rates are similar across endowments in different size classes.
Since 2017, the average spending (or payout) rate across all institutions has fluctuated, with a period high
of 4.8% in 2021, and a period low of 4.2% in 2022. Across endowment size classes, average payout rates
have generally fluctuated between 4% and 5% (with some exceptions). The average payout rate across
institutions with the smallest endowments (under $25 million) has tended to be closer to 4%. The average
payout rate for institutions with large endowments (over $1 billion) has generally been above 4.5%,
although the average payout rate for this size category fell to 3.9% in 2022. While spending rates fell in
Congressional Research Service
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CRS INSIGHT
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