University Endowments Post 10.9% Return But New Gifts Plummet 9.2% Amid Increased Spending

For students facing rising tuition and alumni asked for annual donations, the financial engine of higher education is often a black box. In fiscal year 2025, U.S. colleges and universities pulled a record $33.4 billion from their endowments to keep their campuses running. That figure represents an 11 percent jump from the prior year, underscoring a quiet but profound shift in how higher education funds itself. The data arrives via the 2025 NACUBO-Commonfund Study of Endowments, the industry's definitive financial scorecard tracking 657 institutions. The headline number is robust: endowments posted an average net return of 10.9 percent, pushing total managed assets to $944.3 billion.[1][3]

Yet beneath the double-digit gains lies a more complex financial reality. While investment returns remain strong, the pipeline of fresh capital is narrowing. New gifts to endowments plummeted 9.2 percent year-over-year, dropping to $14.0 billion. For smaller institutions—those managing under $50 million—the decline in philanthropy was especially steep, plunging 26.5 percent. This divergence highlights a growing gap between elite universities with massive capital reserves and smaller colleges that rely heavily on annual giving to survive. The drop in donations forces administrators to reconsider their long-term growth projections and lean more heavily on investment performance.[1][4][5]

To understand the stakes, it is necessary to look at how an endowment actually functions. It is not a checking account or a rainy-day fund that administrators can tap at will. Instead, it is a perpetual investment pool composed of thousands of individual, legally restricted funds. When a donor gives money to an endowment, the principal is typically locked away and invested. Only a portion of the investment earnings—usually around 4.5 to 5 percent annually—is paid out to fund specific university operations. This structure is designed to preserve the purchasing power of the gift forever, ensuring that a scholarship funded today will still exist a century from now.[4]

However, rising operating costs, inflation, and declining tuition revenues are forcing universities to lean harder on these payouts. In fiscal year 2025, endowment income funded an average of 15.2 percent of university operating budgets. That is a historic high, up from 14.0 percent in 2024 and just 10.9 percent in 2023. So where exactly is that $33.4 billion going? The largest share by far—47.4 percent—went directly to student financial aid. This distribution makes college accessible for thousands of students who would otherwise be priced out by rising tuition costs, proving that endowment spending directly benefits the student body.[1][2][3][5]

The remainder of the spending was distributed across academic programs and research, which accounted for 17.7 percent of the total. Endowed faculty positions received 10.8 percent, and the operation and maintenance of campus facilities took 7.6 percent. The ability to increase this spending was entirely dependent on the 10.9 percent investment return. That performance was driven heavily by public equities, with actively and passively managed global equities delivering returns of roughly 17 percent. The broader market provided a strong tailwind, as the S&P 500 index surged 15.2 percent during the fiscal year.[1][2][3][4]

Notably, no single asset class posted a negative return in 2025, a rare outcome that benefited institutions of all sizes. Larger endowments, which typically allocate heavily to alternative investments like private equity and venture capital, still maintained an edge over longer time horizons. Institutions with over $5 billion in assets reported the highest annual return at 11.8 percent. However, the heavy reliance on public equities means that endowments are exposed to future market volatility. If the stock market experiences a prolonged downturn, the 10.9 percent returns will vanish, but the 15.2 percent budget reliance will remain.[1][4][5]

Compounding the challenge is higher education's unique inflation rate. The Higher Education Price Index (HEPI), which tracks the specific costs faced by colleges, rose 3.6 percent in 2025 and has consistently outpaced the broader Consumer Price Index. To maintain their purchasing power, endowments must generate returns that exceed both their spending rate and the HEPI inflation rate. That requires a baseline return of nearly 9 percent just to break even in real terms. When inflation runs hot, the pressure on investment committees to chase higher yields intensifies, often pushing them toward riskier asset classes.[5]

The 10-year average annual return for all participating institutions currently sits at 7.7 percent. While that is a marked improvement from the 6.8 percent reported last year, it still falls slightly short of the long-term target needed for perpetual growth. Ultimately, the 2025 data paints a picture of an essential financial tool doing exactly what it was designed to do: stabilizing institutions during turbulent times. The challenge for university boards will be managing the tension between spending to meet today's urgent needs and saving to protect tomorrow's students.[1][2][3]