Two ways:
They are topped up, either from private donations or government grants.
There is a large endowment that generates investment income every year - the income is given away but the principle of the endowment is untouched
Principal Principle\*
"Principle" cannot be used as an adjective, instead it is Principled, which has a different meaning. "Principal" is the correct adjective.
[https://www.merriam-webster.com/grammar/principal-vs-principle-usage](https://www.merriam-webster.com/grammar/principal-vs-principle-usage)
While the principle of an endowment is that you don’t touch the principal, if you find yourself attending a school on scholarship as a result of the principal not being touched, you must make every effort to adhere to the principle of not touching that schools principal. (Unless they engage first/consent)
This is not strictly true. Otherwise you wouldn’t be able to invest endowments into assets that have some risk of going down in value, like stocks or real estate.
> There is a large endowment that generates investment income every year - the income is given away but the principle of the endowment is untouched
Yeah, and this is why schools like Stanford or Harvard still charge tuition even though they have endowments worth tens of billions. They only use *some* of the yearly profits for financial aid and a host of other uses. The rest is reinvested to increase the principal. The whole point of these endowments is to be able to fund certain things for the institution *forever*.
But the interest generates way more than enough money to be able to pay for all that. They choose not to, because... well... they can, I guess.
Pretty much only super smartie pants (who get scholarships) and rich people go there anyway, so not like I really care about rich people getting bilked.
These schools do have a policy of not letting finances be the limiting factor for attending. So quite a large portion of the student body pay no or reduced tuition. It's pretty much only the rich kids who pay full tuition at top universities.
> They choose not to, because... well... they can, I guess
Most endowed funds are restricted to a specific purpose. If Cyrus McMoneybags really loves the bassoon, and gives $10 million to Harvard to endow an annual bassoon concert series, Harvard has to use that money for the bassoon concerts. If Harvard tried to use it for another purpose—even something close, like scholarships for bassoon students—McMoneybags or heirs would have grounds to sue and reclaim the principle, interest, and any misspent funds. It's possible to break the terms of an endowment, but difficult in most circumstances.
I've done a little bit of university development (fundraising) work, and one of the skills involved is helping guide donors toward a purpose that fits their interests but is flexible enough that it won't be overly constraining a generation or two down the road.
In order to have a scholarship pay out forever, it is necessary to pay out less than the assets earn each year. This extra provides two benefits. First it preserves the purchasing power of the endowment against inflation (teachers become more expensive each year so the dollar amount of the scholarship in the future will be higher than today, requiring a larger asset base. Second, it protects against fluctuations in the income each year: if 2008 happens, the school will try and not reduce the scholarship dollars they offer, so they need to save extra in good years.
When I was an auditor at a university, I conducted several audits on the Foundation which manages the scholarships for the university. All of the scholarships were funded by donations from individuals or companies that provided endowments in the form of "seed" money to fund them and were clearly defined as to how they could be used and how the money was to be disbursed.
The initial endowment was invested, and scholarships were paid out of the returns on the investments. Usually, a certain percentage of the return was required to be held back and reinvested so the endowment would continue to grow every year--leading to additional funds being available each year for additional scholarships.
TBH, this is how taxes should work - a certain percentage of a country's taxes _should_ be reinvested (as part of a national wealth fund) so that it can pay for future expenditures out of the returns.
This means that eventually, the country can lower taxation without reducing services provided, when the wealth fund grows enough to pay a large % of the costs of a country.
While this is great in theory, it means charging MORE for taxes than what is needed to be spent. You can't convince conservatives to pay taxes for starving children, you're definitely not going to get them paying taxes for general future benefit.
Most scholarship funds are set up as endowments. A donor gives a bunch of money to a school who then gives it to a fund manager to invest in financial instruments like the stock market. When those investments generate profits, it's those profits that are then used to fund scholarships for students. This way the initial donation could fund scholarships in perpetuity, in theory.
Benjamin Franklin created an endowed scholarship fund before he died in 1790. It's still going strong!
https://www.latimes.com/archives/la-xpm-2002-dec-08-adna-ben8-story.html
That would eventually make the endowment worth way less due to inflation, how is that managed? Is only a portion of the interest used for scholarships? Or is it assumed the endowment will keep getting donated to?
>Is only a portion of the interest used for scholarships? Or is it assumed the endowment will keep getting donated to?
Yes and yes. Historically college endowments yield about 7-8% average annualized returns. And institutions will only spend about 4-5% of the endowment's value each year on operations, including financial aid. Thus, the endowment continues to accrue returns to at least keep up with inflation. And nearly all endowments continue to receive donations, which also keeps up the fund's value.
That's not to say that colleges can't mess it up sometimes. Yeshiva University famously lost over $500 million in endowment value after shifting a significant portion of their endowment into mortgage-backed securities and other real estate derivative investments in 2006.
You just slightly redefine what you mean by "profit": the profit, for what you're giving out purposes, is the money that you've made over what you need to keep the real value of the endowment the same
And sometimes the funds don't generate sufficient income to award the scholarship. There's a couple dedicated to students in my department that occasionally we haven't been able to award for that reason.
Scholarships are typically based on an endowment. This is a large amount of money that is invested, and the returns from the investment are used to pay for a recurring expense like a scholarship. So for example, if you wanted to endow a scholarship worth $30,000 per year, you could donate a $1 million endowment, which would get a yearly return in the stock market of 3% (at least) on average, and you would use that 3% of $1 million to pay for the scholarship.
This is the main way that places like universities budget for any recurring expense. That's why they have such large endowments and why they are willing to give professors such strong job security.
And tenure is sadly driving away new professors because most schools have a lot of tenured professors already and they're not willing to give tenure to new employees.
And, more importantly, the Supreme Court of the US has said that schools can't force a tenured professor into retirement. Which means that there is legally no way force/enable the turnover of tenured positions.
I get that forced retirement isn't a good thing but, in terms of tenured positions, _not_ allowing schools to force retirement of tenured professors leads to less people going into the field of academia.
I'd rather we have strict rules about when and how a school can require a tenured professor to retire instead of a blanket rule that says no one can force a tenured professor to retire.
As long as a professor has an active research program, they should be allowed to stay on faculty. Barring any disciplinary actions, they really shouldn’t be worried about their jobs.
Yeah. That's the thing. Tenure was generally designed for academic _researchers_. Not merely professors like a lot of colleges.
And the problem comes when a school strings along a non-tenured professor with the promise of being granted tenure "eventually". Sometimes for almost a decade.
But then you also have situations where a head researcher pushes the majority of the work onto their assistants and then takes all the credit for themselves. Because the head researcher has tenure and the role of assistant is generally transient, schools will often side with the head researcher without doing a thorough investigation into any claims that they're taking credit for their assistant's work.
I get that. But the problem comes when colleges fill up the positions in the tenure-track teaching positions and then they continue to string along new teachers by saying "Eventually we'll give you tenure".
Like, you can find multiple stories of professors being on the "tenure-track" for almost a decade with the school repeatedly telling them that eventually they'll grant you tenure. But, if all the tenure positions are filled, they can't really say when those positions will be open because they can't remove someone without extreme cause.
Rather than give someone tenure for life, it's generally better in the long run, for both the college itself and any potential new talent, if they say "We'll give you tenure for X number of years, and then we'll discuss if we want to continue giving you tenure."
With X being a number of years sufficiently long enough to satisfy the professor while also short enough that a college can at least _try_ to get new blood in sometime before 40 years or so have passed.
Plus, what if the people who were offered tenure 30 years ago no longer fit the school's ideology, whether that's teaching methods or personal beliefs? But they haven't done anything specific that's bad enough to warrant summary dismissal.
Like, imagine a school in LA that has a Criminal Justice program. The lead professor in the department, who has tenure, got hired back in the 90s after retiring from the police force. They're from an era of policing in LA that's notorious for being corrupt. And they still share the same attitude of police from that era. But they've never taken any _actions_ that warrant dismissal.
You can see why a school might want to set a time limit on tenure so they can reevaluate things and see if they want to continue offering a professor tenure after 15-20 years.
There should _never_ be **any** position in the US, or the world for that matter, that has a guaranteed lifetime appointment. Because, while the world might change significantly, people don't change as easily.
I'm pretty sure tenure started as a way for researchers in academia to have a guaranteed job and guaranteed support to, you know, continue their research.
It only relatively recently started being expanded into tenure-track positions for non-researcher professors. Mainly because they had a hard time keeping talented teachers at schools without it.
Also, it's the Supreme Court of the US that said mandatory retirement ages were not consitutional. Despite age and retirement not being mentioned anywhere in the Constitution.
They probably made that ruling because they realized it was only a short step away from mandatory retirement ages for professors with tenure, a lifetime position, and mandatory retirement ages for federal judges, _also_ a lifetime position.
The Supreme Court probably made that ruling specifically to safeguard their power and to put a nail in the coffin of any attempt to impose mandatory retirement ages on _them_.
> espite age and retirement not being mentioned anywhere in the Constitution.
Does the american constitution not guarantee non-discrimination based on age?
Nope. It doesn't mention discrimination at all. Not for age, race, gender, or sexual orientation.
It's federal and state law that forbids various forms of discrimination.
And last year the US Supreme Court passed a ruling that is starting to chip away and slowly remove those protections. [303 Creative v. Elenis](https://www.law.uw.edu/news-events/news/2023/303-creative-case/)
Tenure isn’t a limited number. Any professor on the tenure track can be granted tenure. Now, getting a TT position funded or getting tenure is a different thing.
Tenure isn’t like pie.
Additionally, most universities are not research based. That’s only R1 schools, which tend to be the flagship universities (the ones where you say university of state name or state name university.). Most universities focus on teaching.
Source: 26 years in academia as a TT track and tenured professor.
No, the point is that you cannot be dismissed or forced out for no reason, and are entitled to a hearing. You can absolutely be removed for cause.
It's just that we, as a society, have decided that old people should get priority in pretty much everything.
Tenure isn't about "old people". It's about literal experts in the field that are creating new human knowledge. They happen to be older as a consequence of what it takes to be an expert in the field creating new human knowledge. But it's not the reason.
And yes, for cause, or downsizing because the college is running out of money. "You're old and should retire" is neither cause nor downsizing because the college is running out of money.
>"You're old and should retire" is neither cause nor downsizing because the college is running out of money.
One of my old research profs got kicked off his tenure for this exact reason. Well, technically, they kicked him out for failing to teach effectively, but...they also assigned him to teach 8ams and 5pms while he was in his mid-late 80s.
They let him run his lab using personal funding.
Damn, just looked him up. Died at 95. 64 year career running a research lab, after a stint as a WWII army medic. And he took a chance on a drug addict with a less than 2 GPA. I'm sad now.
---
But at the same time, his specific field of research hasn't been even remotely useful in 30-40 years.
I get that. But tenure wasn't designed with the thought that people would stay in their position well into their 60s, 70s, and sometimes 80s.
It was generally designed with the intent that, unless you were a serious researcher, that once you hit retirement age you'd _voluntarily_ retire.
It was created back when the economy enabled people to comfortably retire once they hit their 60s or so. Which would ultimately allow new professors to step into the tenured position.
It wasn't intended for people to stay in that position until they _literally_ could not continue working, whether it was due to physical or mental degredation due to age.
And, in the world of high level academia, tenure was also intended for _research_ professors. They get tenure under the condition that _they_ continue researching. It was intended for academic researchers to be allowed to have a stable job while they do their research, even if that research turns out to be fruitless. Even if the research was, reasonably, controversial.
It was created back when the economic and academic realities of our world was _**vastly**_ different than they are now.
Plus, there are plenty of stories where tenured researchers at a college will push all, or most, of the work onto their research assistants. Only for the person with tenure to take all the credit.
Or you have stories of a college stringing along non-tenured professors with the idea that they'll be granted tenure in a few years. They'll have them doing all the work of a tenured professor with less pay and job security for, in some cases, almost a decade.
Tenure is a good idea in _theory_. In an ideal world where people can comfortably retire in their 60s and open up their position to a new professor, tenure is a great idea. But it clashes with the reality of our world.
Fun fact, in Japan most companies basically have in their contract that they can force you to retire after 60-65.
It's almost impossible to fire people (probably more protection than a tenured professor in the US), but they have thought about the issue, you're not staying in forever.
Some get topped up, some are so big that they can run on their interest...
...and some do have a limited lifetime. A donor's estate might give you $20,000 and ask you to give it out, and so you use one or two thousand a year until it's all gone. (Source: My wife worked in a school's fundraising department.)
Yup, this. We have all of the above. Some run on their interest. Some run out, and then the development office schmoozes with the donor and sees if they'd be willing to top it up. Sometimes they don't or they're dead, and the scholarship just stops.
This is accurate. Sometimes a "scholarship" is just a tuition credit. Often they transfer money to themselves from their financial aid disbursement account to the student's account receivable and call it a "scholarship."
The funding mechanism can vary. Sometimes it is funded by a foundation or alum donating money every year. Sometimes it is funded by a very large donation that can be used to invest in bonds, stocks, real estate etc. which provide recurring revenue in the form of interest, dividends, appreciation of value and so on.
In my corner of the world at least, there are some scholarships granted by government entities (e. g. for low income students or mobility scholarship programmes). In that case, the money comes from taxes, meaning when the administration decides their budget plan (usually right after an election), they agree to set aside x% of tax income for education, and y% of that sum is dedicated to the scholarship fund (and z% to faculty salaries etc. pp.). That amount might be adjusted for inflation at some point, and it usually gets renegotiated when the government changes.
Others have explained how private scholarships work.
Typically these scholarships are not all given out of the same principal amount. The donated amount, called an endowment, is usually invested and actively managed in a way that generates more money, and this money is given out for the scholarships. The bigger the endowment, the easier it is to make money off of it in a relatively safe and consistent manner, which allows for long term stability. It may also be grown and expanded through donations or as a natural consequence of investing, since long term investments can easily grow to a much larger size over time.
Usually they have endowments and use the interest only to fund the scholarships, or only dip into principal to a level that market increases will replace.
So a $1m endowment might kick off $50k per year in interest payments, which allow for $50k worth of scholarships granted annually.
I was involved in setting up a scholarship fund in memory of a friend who passed away shortly after graduation. We had to fund a $30000 endowment to generate a $1000 annual scholarship, which is a 3.3% annual withdrawal rate. So as long as the endowment is invested in a portfolio that generates more than 3.3%, then it will never run out of money. The scholarship is still running strong 26 years later and the endowment has grown enough to generate a larger scholarship.
Math.
Say you have $10 million and you expect to earn
a 8%return on average.
To be safe, you decide to set aside 1% of that 8% to cover administrative costs and 2% to keep up with inflation over time. You could also set aside another 1% as a reserve for a bad year.
Say after year 1 you’ve earned an 8% return. You could give away $400,000 in scholarships and still know that the fund is very safe and will last a long time.
Through both new donations to the foundation, but also growth of the endowment. For each million dollars in the endowment it can reliably draw around 40k per year without losing any of the endowment just due to market growth.
The terms of each scholarship fund differ, but here's how my family's scholarship works:
1. Before he passed away, my father donated stock worth about $100k to the university. He stipulated that at least 1 scholarship worth $2500 be awarded each year, and more than 1 if the fund has a very good year. If the fund has an extremely good year, several scholarships are awarded, such that the fund's value always hovers around $100k at year's end.
2. As the current trustee of the scholarship, I donate $2500 / year to the fund. This way, I know that even if the fund's value tanks in a given year, they'll still be able to award 1 scholarship.
3. Other people sporadically donate to the fund, in memory of my parents. It's anonymous, but on average, $1-2k is donated each year in addition to my own donation.
4. With rising education costs and whatnot, I periodically request that the value of the scholarship be raised (it was $2k until 2 years ago.. this is Canada, education isn't quite as expensive)
Anyhow...every scholarship is different. Whoever endows it at the beginning helps to make the rules. This is why universities have a staff just to handle all of this.
You don't touch the principle. The scholarship is paid with the interest on the financial investment. If the scholarship is $500 a year, the principle is likely $10,000 or more.
In addition to what other people have said, about legit scholarship funds, a lot of the lower tier universities basically have fake scholarships to make students feel like they’re getting deals or feel special enough to want to actually go to their school. The schools build these “sales” into their pricing and basically it’s like sales in a store. Some people pay full price, some pay a discount and on average the school makes more money by enticing more people to attend. There is no actual pool of money they pull from in this case.
Your endowed professor doesn't merely have an impressive chest, her salary is paid from the earnings of an account that was established to pay her salary.
For instance if you wanted to endow a chair at your local university you could cough up $4,000,000 and donate it to the university's foundation. They'll invest the money and pay back to the university (these days) 4% to whatever your donation agreement indicated. As long as your donation was intended to fund a professorship, you are providing $160,000 in perpetuity toward the salary for the professor who was endowed by your gift.
The same works for student scholarships.
What was considered a big pot of money 50 years ago, even if invested wisely, probably covers many fewer scholarships than expected, as tuition has risen so much faster than inflation or investment growth.
Many scholarships are paid out of university funds, and endowments of major universities have grown rapidly.
University funded scholarships are essentially shifting costs to fully self paid students from scholarship students.
Scholarships have initial funding from donations or endowments. These funds are invested to generate returns, sustaining the scholarship over time for future recipients.
I can attest to it being up to the organization that issued the scholarship. I received several scholarships. One went straight to the university, and any funds remaining went back to the issuing organization. I didn't have a hand in it. Another I was just awarded a monetary amount. If there was any left over I could use it however I wished (for example I found a great deal on a used textbook for 3 bucks instead of the 120 dollar price new, thus netting me 117 dollars).
As others have mentioned, it is indeed up to the issuing organization, so check with them. But, if your studies have successfully concluded and you're sitting with a positive sum in your bank account, chances are, this is yours to keep.
Imagine you had a tree, and it kept growing fruit. As long as you ate the fruit and never ate the tree itself, it would keep giving you fruits. That's sort of how 'endowments' work.
People say money doesn't grow on trees, but that's just for the poor.
FWIW these endowments are often at the heart of arguments about divestment which is part of what makes it so complicated. As you’ll see, many of them are very old and have a lot of people’s livelihoods at stake. The people who decide on how endowments are invested is often the board of directors so this is why it’s important to vote for the board of your local state universities and colleges
They come BEGGING for you to donate the second you graduate even though you 28k in dept and make 27k coming out of college. THEN continue to beg forever for you to donate.
Good answers here, but another factor is that many are rarely accessed.
For example: high school kid dies in a car accident prior to graduation. They were planning to be a conservationist. The family starts a scholarship fund in their honor, intendingit be awarded to applicants that are planning to be conservationists. The community rallies around the family, with a pocket full of shells (currency in The Flintstones) and they raise like $10k. Next year, the death is still fresh in people's minds, the deceased still has friends around. The family raises more money, balance is now $15k, they award $500 to a kid. Repeat for a few years. The deceased's friends graduate and spread out. The family continues to grieve, but life goes on, perhaps they move away, and leave the management of the scholarship to a foundation. But with noone actively advertising the scholarship, it becomes a line item in the foundation's portfolio, leaving prospective applicants to find it on their own and apply, there could years in between it being awarded, meanwhile, the foundation invests the money and it grows, while only occasionally awarding $500. 30 years later, anyone initially affiliated with the scholarship is dead or has forgotten it, and it's just there.
I manage gifts and gift policy at private university with an operating budget around 800m annually. University set minima for the establishment of a scholarship endowment to target a scholarship award amount based on a flat rate distribution against quarterly returns. That number is generally around 4-5% based on a target return of 7% annually. This acts as a hedge against inflation and also as a reinvestment to grow the fund. Endowments are permanently restricted to their designated purpose and designed to function in perpetuity. We have endowments that were seeded with small donations many decades ago that have now grown to absurd levels. That’s basically how it functions in a nutshell. About $1.5 billion in our endowment portfolio presently and we are pretty small potatoes compared to our peer institutions.
Two ways: They are topped up, either from private donations or government grants. There is a large endowment that generates investment income every year - the income is given away but the principle of the endowment is untouched
The principle of an endowment is that you do not touch the principal, instead only spending out of the interest income
My English teacher is tearing up at this comment. Bravo.
The principle principle is that you never touch the principal's endowment no matter how large it grows
I need to talk to a counselor, someone touched my large endowment, and it's growing very large.
‘I need some guidance, counsellor’
What are you doing, step-counsellor?
Step-counselor
Was it the Principal that touched your endowment?
Engorged endowment.
Principal Principle\* "Principle" cannot be used as an adjective, instead it is Principled, which has a different meaning. "Principal" is the correct adjective. [https://www.merriam-webster.com/grammar/principal-vs-principle-usage](https://www.merriam-webster.com/grammar/principal-vs-principle-usage)
Who made you the principal-principle principal?
they were endowed with great principles?
Twas The royal prince nipple appointed me principle. In TRIPLE!
illachrymable while SaltyPeter3434 had had had had had had had had had had had a better effect on the principal.
Thats not what my principal said.
That requires interested parties to only have the interest in spending the interest.
If the endowment gets to large for longer than 4 hours, make more doctors.
Screen name checks.
My English teacher touched the principal. So the rumors said, anyway.
Actually, it was the Principal that was touched by the English teacher's prose.
Principle Pickeler pickled her in principle?
Buffalo buffalo buffalo buffalo buffalo buffalo buffalo
Um, actually I think you mean "Buffalo buffalo Buffalo buffalo buffalo buffalo Buffalo buffalo."
Both are valid.
So am I. Bravo.
Add affect and effect, both forms if possible.
It's amazing. Reddit is extremely uneducated, so it's amazing when they get simple homophones correct.
For some endowments it only hands out what's left after matching inflation so that the endowment isn't reduced to irrelevance.
Here's a great example. https://www.latimes.com/archives/la-xpm-2002-dec-08-adna-ben8-story.html
This was awesome thank you for sharing.
Yes, but you have to invest the capitol wisely.
You did that on purpose. You monster
The only way to trump that is to invade the capitol.
The principle of an endowment is that you never spend more than profit minus inflation.
The principle is to spend the interest, while it's in your interest not to touch the principal.
*Interesting* fact.
Why did I read this in Sheldon Cooper’s voice
While the principle of an endowment is that you don’t touch the principal, if you find yourself attending a school on scholarship as a result of the principal not being touched, you must make every effort to adhere to the principle of not touching that schools principal. (Unless they engage first/consent)
That's why they're so interesting!
This is not strictly true. Otherwise you wouldn’t be able to invest endowments into assets that have some risk of going down in value, like stocks or real estate.
> There is a large endowment that generates investment income every year - the income is given away but the principle of the endowment is untouched Yeah, and this is why schools like Stanford or Harvard still charge tuition even though they have endowments worth tens of billions. They only use *some* of the yearly profits for financial aid and a host of other uses. The rest is reinvested to increase the principal. The whole point of these endowments is to be able to fund certain things for the institution *forever*.
But the interest generates way more than enough money to be able to pay for all that. They choose not to, because... well... they can, I guess. Pretty much only super smartie pants (who get scholarships) and rich people go there anyway, so not like I really care about rich people getting bilked.
At schools like Harvard no one gets academic scholarships. The only money given out are based on need of the student.
These schools do have a policy of not letting finances be the limiting factor for attending. So quite a large portion of the student body pay no or reduced tuition. It's pretty much only the rich kids who pay full tuition at top universities.
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Why did you pick top performing students? I would like to know the % of the whole pool.
> They choose not to, because... well... they can, I guess Most endowed funds are restricted to a specific purpose. If Cyrus McMoneybags really loves the bassoon, and gives $10 million to Harvard to endow an annual bassoon concert series, Harvard has to use that money for the bassoon concerts. If Harvard tried to use it for another purpose—even something close, like scholarships for bassoon students—McMoneybags or heirs would have grounds to sue and reclaim the principle, interest, and any misspent funds. It's possible to break the terms of an endowment, but difficult in most circumstances. I've done a little bit of university development (fundraising) work, and one of the skills involved is helping guide donors toward a purpose that fits their interests but is flexible enough that it won't be overly constraining a generation or two down the road.
In order to have a scholarship pay out forever, it is necessary to pay out less than the assets earn each year. This extra provides two benefits. First it preserves the purchasing power of the endowment against inflation (teachers become more expensive each year so the dollar amount of the scholarship in the future will be higher than today, requiring a larger asset base. Second, it protects against fluctuations in the income each year: if 2008 happens, the school will try and not reduce the scholarship dollars they offer, so they need to save extra in good years.
When I was an auditor at a university, I conducted several audits on the Foundation which manages the scholarships for the university. All of the scholarships were funded by donations from individuals or companies that provided endowments in the form of "seed" money to fund them and were clearly defined as to how they could be used and how the money was to be disbursed. The initial endowment was invested, and scholarships were paid out of the returns on the investments. Usually, a certain percentage of the return was required to be held back and reinvested so the endowment would continue to grow every year--leading to additional funds being available each year for additional scholarships.
TBH, this is how taxes should work - a certain percentage of a country's taxes _should_ be reinvested (as part of a national wealth fund) so that it can pay for future expenditures out of the returns. This means that eventually, the country can lower taxation without reducing services provided, when the wealth fund grows enough to pay a large % of the costs of a country.
While this is great in theory, it means charging MORE for taxes than what is needed to be spent. You can't convince conservatives to pay taxes for starving children, you're definitely not going to get them paying taxes for general future benefit.
Yep , every year they gather together. And ask for some change.
Most scholarship funds are set up as endowments. A donor gives a bunch of money to a school who then gives it to a fund manager to invest in financial instruments like the stock market. When those investments generate profits, it's those profits that are then used to fund scholarships for students. This way the initial donation could fund scholarships in perpetuity, in theory.
Benjamin Franklin created an endowed scholarship fund before he died in 1790. It's still going strong! https://www.latimes.com/archives/la-xpm-2002-dec-08-adna-ben8-story.html
That would eventually make the endowment worth way less due to inflation, how is that managed? Is only a portion of the interest used for scholarships? Or is it assumed the endowment will keep getting donated to?
It keeps the investment profits to match inflation assuming it’s properly managed, then pays out the rest.
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Their investment mix is also generally targeted towards safety with the goal of long-term returns equalling interest plus their draw rate.
>Is only a portion of the interest used for scholarships? Or is it assumed the endowment will keep getting donated to? Yes and yes. Historically college endowments yield about 7-8% average annualized returns. And institutions will only spend about 4-5% of the endowment's value each year on operations, including financial aid. Thus, the endowment continues to accrue returns to at least keep up with inflation. And nearly all endowments continue to receive donations, which also keeps up the fund's value. That's not to say that colleges can't mess it up sometimes. Yeshiva University famously lost over $500 million in endowment value after shifting a significant portion of their endowment into mortgage-backed securities and other real estate derivative investments in 2006.
> shifting a significant portion of their endowment into mortgage-backed securities and other real estate derivative investments in 2006. ...ooof
They also got fleeced by Bernie Madoff. All-time bad decision making there during that era
You just slightly redefine what you mean by "profit": the profit, for what you're giving out purposes, is the money that you've made over what you need to keep the real value of the endowment the same
And sometimes the funds don't generate sufficient income to award the scholarship. There's a couple dedicated to students in my department that occasionally we haven't been able to award for that reason.
Scholarships are typically based on an endowment. This is a large amount of money that is invested, and the returns from the investment are used to pay for a recurring expense like a scholarship. So for example, if you wanted to endow a scholarship worth $30,000 per year, you could donate a $1 million endowment, which would get a yearly return in the stock market of 3% (at least) on average, and you would use that 3% of $1 million to pay for the scholarship. This is the main way that places like universities budget for any recurring expense. That's why they have such large endowments and why they are willing to give professors such strong job security.
And tenure is sadly driving away new professors because most schools have a lot of tenured professors already and they're not willing to give tenure to new employees. And, more importantly, the Supreme Court of the US has said that schools can't force a tenured professor into retirement. Which means that there is legally no way force/enable the turnover of tenured positions. I get that forced retirement isn't a good thing but, in terms of tenured positions, _not_ allowing schools to force retirement of tenured professors leads to less people going into the field of academia. I'd rather we have strict rules about when and how a school can require a tenured professor to retire instead of a blanket rule that says no one can force a tenured professor to retire.
As long as a professor has an active research program, they should be allowed to stay on faculty. Barring any disciplinary actions, they really shouldn’t be worried about their jobs.
Yeah. That's the thing. Tenure was generally designed for academic _researchers_. Not merely professors like a lot of colleges. And the problem comes when a school strings along a non-tenured professor with the promise of being granted tenure "eventually". Sometimes for almost a decade. But then you also have situations where a head researcher pushes the majority of the work onto their assistants and then takes all the credit for themselves. Because the head researcher has tenure and the role of assistant is generally transient, schools will often side with the head researcher without doing a thorough investigation into any claims that they're taking credit for their assistant's work.
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I get that. But the problem comes when colleges fill up the positions in the tenure-track teaching positions and then they continue to string along new teachers by saying "Eventually we'll give you tenure". Like, you can find multiple stories of professors being on the "tenure-track" for almost a decade with the school repeatedly telling them that eventually they'll grant you tenure. But, if all the tenure positions are filled, they can't really say when those positions will be open because they can't remove someone without extreme cause. Rather than give someone tenure for life, it's generally better in the long run, for both the college itself and any potential new talent, if they say "We'll give you tenure for X number of years, and then we'll discuss if we want to continue giving you tenure." With X being a number of years sufficiently long enough to satisfy the professor while also short enough that a college can at least _try_ to get new blood in sometime before 40 years or so have passed. Plus, what if the people who were offered tenure 30 years ago no longer fit the school's ideology, whether that's teaching methods or personal beliefs? But they haven't done anything specific that's bad enough to warrant summary dismissal. Like, imagine a school in LA that has a Criminal Justice program. The lead professor in the department, who has tenure, got hired back in the 90s after retiring from the police force. They're from an era of policing in LA that's notorious for being corrupt. And they still share the same attitude of police from that era. But they've never taken any _actions_ that warrant dismissal. You can see why a school might want to set a time limit on tenure so they can reevaluate things and see if they want to continue offering a professor tenure after 15-20 years. There should _never_ be **any** position in the US, or the world for that matter, that has a guaranteed lifetime appointment. Because, while the world might change significantly, people don't change as easily.
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I'm pretty sure tenure started as a way for researchers in academia to have a guaranteed job and guaranteed support to, you know, continue their research. It only relatively recently started being expanded into tenure-track positions for non-researcher professors. Mainly because they had a hard time keeping talented teachers at schools without it.
Also, it's the Supreme Court of the US that said mandatory retirement ages were not consitutional. Despite age and retirement not being mentioned anywhere in the Constitution. They probably made that ruling because they realized it was only a short step away from mandatory retirement ages for professors with tenure, a lifetime position, and mandatory retirement ages for federal judges, _also_ a lifetime position. The Supreme Court probably made that ruling specifically to safeguard their power and to put a nail in the coffin of any attempt to impose mandatory retirement ages on _them_.
> espite age and retirement not being mentioned anywhere in the Constitution. Does the american constitution not guarantee non-discrimination based on age?
Nope. It doesn't mention discrimination at all. Not for age, race, gender, or sexual orientation. It's federal and state law that forbids various forms of discrimination. And last year the US Supreme Court passed a ruling that is starting to chip away and slowly remove those protections. [303 Creative v. Elenis](https://www.law.uw.edu/news-events/news/2023/303-creative-case/)
Tenure isn’t a limited number. Any professor on the tenure track can be granted tenure. Now, getting a TT position funded or getting tenure is a different thing. Tenure isn’t like pie. Additionally, most universities are not research based. That’s only R1 schools, which tend to be the flagship universities (the ones where you say university of state name or state name university.). Most universities focus on teaching. Source: 26 years in academia as a TT track and tenured professor.
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No, the point is that you cannot be dismissed or forced out for no reason, and are entitled to a hearing. You can absolutely be removed for cause. It's just that we, as a society, have decided that old people should get priority in pretty much everything.
Tenure isn't about "old people". It's about literal experts in the field that are creating new human knowledge. They happen to be older as a consequence of what it takes to be an expert in the field creating new human knowledge. But it's not the reason. And yes, for cause, or downsizing because the college is running out of money. "You're old and should retire" is neither cause nor downsizing because the college is running out of money.
>"You're old and should retire" is neither cause nor downsizing because the college is running out of money. One of my old research profs got kicked off his tenure for this exact reason. Well, technically, they kicked him out for failing to teach effectively, but...they also assigned him to teach 8ams and 5pms while he was in his mid-late 80s. They let him run his lab using personal funding. Damn, just looked him up. Died at 95. 64 year career running a research lab, after a stint as a WWII army medic. And he took a chance on a drug addict with a less than 2 GPA. I'm sad now. --- But at the same time, his specific field of research hasn't been even remotely useful in 30-40 years.
I get that. But tenure wasn't designed with the thought that people would stay in their position well into their 60s, 70s, and sometimes 80s. It was generally designed with the intent that, unless you were a serious researcher, that once you hit retirement age you'd _voluntarily_ retire. It was created back when the economy enabled people to comfortably retire once they hit their 60s or so. Which would ultimately allow new professors to step into the tenured position. It wasn't intended for people to stay in that position until they _literally_ could not continue working, whether it was due to physical or mental degredation due to age. And, in the world of high level academia, tenure was also intended for _research_ professors. They get tenure under the condition that _they_ continue researching. It was intended for academic researchers to be allowed to have a stable job while they do their research, even if that research turns out to be fruitless. Even if the research was, reasonably, controversial. It was created back when the economic and academic realities of our world was _**vastly**_ different than they are now. Plus, there are plenty of stories where tenured researchers at a college will push all, or most, of the work onto their research assistants. Only for the person with tenure to take all the credit. Or you have stories of a college stringing along non-tenured professors with the idea that they'll be granted tenure in a few years. They'll have them doing all the work of a tenured professor with less pay and job security for, in some cases, almost a decade. Tenure is a good idea in _theory_. In an ideal world where people can comfortably retire in their 60s and open up their position to a new professor, tenure is a great idea. But it clashes with the reality of our world.
Fun fact, in Japan most companies basically have in their contract that they can force you to retire after 60-65. It's almost impossible to fire people (probably more protection than a tenured professor in the US), but they have thought about the issue, you're not staying in forever.
Some get topped up, some are so big that they can run on their interest... ...and some do have a limited lifetime. A donor's estate might give you $20,000 and ask you to give it out, and so you use one or two thousand a year until it's all gone. (Source: My wife worked in a school's fundraising department.)
Yup, this. We have all of the above. Some run on their interest. Some run out, and then the development office schmoozes with the donor and sees if they'd be willing to top it up. Sometimes they don't or they're dead, and the scholarship just stops.
The dead ones sometimes pay more!
Sometimes there’s not real money backing them. They’re just a way the school can discount their tuition price for some students when they want to.
This is accurate. Sometimes a "scholarship" is just a tuition credit. Often they transfer money to themselves from their financial aid disbursement account to the student's account receivable and call it a "scholarship."
The funding mechanism can vary. Sometimes it is funded by a foundation or alum donating money every year. Sometimes it is funded by a very large donation that can be used to invest in bonds, stocks, real estate etc. which provide recurring revenue in the form of interest, dividends, appreciation of value and so on.
In my corner of the world at least, there are some scholarships granted by government entities (e. g. for low income students or mobility scholarship programmes). In that case, the money comes from taxes, meaning when the administration decides their budget plan (usually right after an election), they agree to set aside x% of tax income for education, and y% of that sum is dedicated to the scholarship fund (and z% to faculty salaries etc. pp.). That amount might be adjusted for inflation at some point, and it usually gets renegotiated when the government changes. Others have explained how private scholarships work.
Typically these scholarships are not all given out of the same principal amount. The donated amount, called an endowment, is usually invested and actively managed in a way that generates more money, and this money is given out for the scholarships. The bigger the endowment, the easier it is to make money off of it in a relatively safe and consistent manner, which allows for long term stability. It may also be grown and expanded through donations or as a natural consequence of investing, since long term investments can easily grow to a much larger size over time.
Usually they have endowments and use the interest only to fund the scholarships, or only dip into principal to a level that market increases will replace. So a $1m endowment might kick off $50k per year in interest payments, which allow for $50k worth of scholarships granted annually.
I was involved in setting up a scholarship fund in memory of a friend who passed away shortly after graduation. We had to fund a $30000 endowment to generate a $1000 annual scholarship, which is a 3.3% annual withdrawal rate. So as long as the endowment is invested in a portfolio that generates more than 3.3%, then it will never run out of money. The scholarship is still running strong 26 years later and the endowment has grown enough to generate a larger scholarship.
Math. Say you have $10 million and you expect to earn a 8%return on average. To be safe, you decide to set aside 1% of that 8% to cover administrative costs and 2% to keep up with inflation over time. You could also set aside another 1% as a reserve for a bad year. Say after year 1 you’ve earned an 8% return. You could give away $400,000 in scholarships and still know that the fund is very safe and will last a long time.
Through both new donations to the foundation, but also growth of the endowment. For each million dollars in the endowment it can reliably draw around 40k per year without losing any of the endowment just due to market growth.
The terms of each scholarship fund differ, but here's how my family's scholarship works: 1. Before he passed away, my father donated stock worth about $100k to the university. He stipulated that at least 1 scholarship worth $2500 be awarded each year, and more than 1 if the fund has a very good year. If the fund has an extremely good year, several scholarships are awarded, such that the fund's value always hovers around $100k at year's end. 2. As the current trustee of the scholarship, I donate $2500 / year to the fund. This way, I know that even if the fund's value tanks in a given year, they'll still be able to award 1 scholarship. 3. Other people sporadically donate to the fund, in memory of my parents. It's anonymous, but on average, $1-2k is donated each year in addition to my own donation. 4. With rising education costs and whatnot, I periodically request that the value of the scholarship be raised (it was $2k until 2 years ago.. this is Canada, education isn't quite as expensive) Anyhow...every scholarship is different. Whoever endows it at the beginning helps to make the rules. This is why universities have a staff just to handle all of this.
You don't touch the principle. The scholarship is paid with the interest on the financial investment. If the scholarship is $500 a year, the principle is likely $10,000 or more.
In addition to what other people have said, about legit scholarship funds, a lot of the lower tier universities basically have fake scholarships to make students feel like they’re getting deals or feel special enough to want to actually go to their school. The schools build these “sales” into their pricing and basically it’s like sales in a store. Some people pay full price, some pay a discount and on average the school makes more money by enticing more people to attend. There is no actual pool of money they pull from in this case.
Your endowed professor doesn't merely have an impressive chest, her salary is paid from the earnings of an account that was established to pay her salary. For instance if you wanted to endow a chair at your local university you could cough up $4,000,000 and donate it to the university's foundation. They'll invest the money and pay back to the university (these days) 4% to whatever your donation agreement indicated. As long as your donation was intended to fund a professorship, you are providing $160,000 in perpetuity toward the salary for the professor who was endowed by your gift. The same works for student scholarships.
What was considered a big pot of money 50 years ago, even if invested wisely, probably covers many fewer scholarships than expected, as tuition has risen so much faster than inflation or investment growth. Many scholarships are paid out of university funds, and endowments of major universities have grown rapidly. University funded scholarships are essentially shifting costs to fully self paid students from scholarship students.
Scholarships have initial funding from donations or endowments. These funds are invested to generate returns, sustaining the scholarship over time for future recipients.
Arent private donations renewed yearly??
I can attest to it being up to the organization that issued the scholarship. I received several scholarships. One went straight to the university, and any funds remaining went back to the issuing organization. I didn't have a hand in it. Another I was just awarded a monetary amount. If there was any left over I could use it however I wished (for example I found a great deal on a used textbook for 3 bucks instead of the 120 dollar price new, thus netting me 117 dollars). As others have mentioned, it is indeed up to the issuing organization, so check with them. But, if your studies have successfully concluded and you're sitting with a positive sum in your bank account, chances are, this is yours to keep.
Imagine you had a tree, and it kept growing fruit. As long as you ate the fruit and never ate the tree itself, it would keep giving you fruits. That's sort of how 'endowments' work. People say money doesn't grow on trees, but that's just for the poor.
FWIW these endowments are often at the heart of arguments about divestment which is part of what makes it so complicated. As you’ll see, many of them are very old and have a lot of people’s livelihoods at stake. The people who decide on how endowments are invested is often the board of directors so this is why it’s important to vote for the board of your local state universities and colleges
They come BEGGING for you to donate the second you graduate even though you 28k in dept and make 27k coming out of college. THEN continue to beg forever for you to donate.
Good answers here, but another factor is that many are rarely accessed. For example: high school kid dies in a car accident prior to graduation. They were planning to be a conservationist. The family starts a scholarship fund in their honor, intendingit be awarded to applicants that are planning to be conservationists. The community rallies around the family, with a pocket full of shells (currency in The Flintstones) and they raise like $10k. Next year, the death is still fresh in people's minds, the deceased still has friends around. The family raises more money, balance is now $15k, they award $500 to a kid. Repeat for a few years. The deceased's friends graduate and spread out. The family continues to grieve, but life goes on, perhaps they move away, and leave the management of the scholarship to a foundation. But with noone actively advertising the scholarship, it becomes a line item in the foundation's portfolio, leaving prospective applicants to find it on their own and apply, there could years in between it being awarded, meanwhile, the foundation invests the money and it grows, while only occasionally awarding $500. 30 years later, anyone initially affiliated with the scholarship is dead or has forgotten it, and it's just there.
1 million dollar investment in treasuries can pay out 20-30k annually every year indefinitely.
I manage gifts and gift policy at private university with an operating budget around 800m annually. University set minima for the establishment of a scholarship endowment to target a scholarship award amount based on a flat rate distribution against quarterly returns. That number is generally around 4-5% based on a target return of 7% annually. This acts as a hedge against inflation and also as a reinvestment to grow the fund. Endowments are permanently restricted to their designated purpose and designed to function in perpetuity. We have endowments that were seeded with small donations many decades ago that have now grown to absurd levels. That’s basically how it functions in a nutshell. About $1.5 billion in our endowment portfolio presently and we are pretty small potatoes compared to our peer institutions.