FLINT – Days after University administrators hailed a $1.4 billion endowment increase, the University Board of Regents approved the University’s financial report for the 2007 fiscal year yesterday at its monthly meeting.
But that doesn’t mean tuition will go down immediately. The University can only spend 5.3 percent of its endowment each year.
Instead, officials say the University will use part of the funds to increase financial aid.
About one-third of endowment funds used by the University go to support financial aid for undergraduates in the form of scholarships and fellowships, according to a statement released yesterday by University spokeswoman Kelly Cunningham.
James Duderstadt, who served as University president from 1988 to 1996, said increases in the University’s endowment will allow for more endowment scholarships.
He added that increasing the amount of financial aid available in the form of endowed scholarships and fellowships helps students attend the University who otherwise couldn’t afford it.
“(Endowment funds) allow the University to really focus those resources where the need is the highest,” Duderstadt said.
And with state funding levels increasingly uncertain, the endowment provides a safeguard against sudden drops in funding.
The state withheld its scheduled $29.6 million payment to the University for August because of cash shortages. It got that payment only after legislators passed a last-minute budget extension early on the morning of Oct. 1.
Regents praised the endowment’s rise from $5.7 billion to $7.1 billion in the 2007 fiscal year, which ended on June 30.
Regent Rebecca McGowan (D-Ann Arbor) pointed to a chart tracking the endowment over the last 15 years and praised Chief Investment Officer Erik Lundberg and his office for their investment skills.
“It’s unbelievable what this team has done,” McGowan said.
University President Mary Sue Coleman said the gains brought in by Lundberg and his colleagues are critical to the success and stability of the University.
“A strong return on today’s investments guarantees a strong university for the future,” Coleman said.
The 25.5 percent growth of the University’s endowment ranks closely with Ivy League schools like Yale, which announced a 28 percent increase, and Harvard, which announced a 23 percent increase, last year.
Lundberg said the rapid growth in endowments indicates a strong economy – not a greater focus on investments by colleges.
He said the success of university investments can be attributed to low inflation, low interest rates and high economic growth.
“Companies are having record profits,” Lundberg said. “It’s a good time to invest.”
Lundberg said the University spends only a small amount of its endowment each year to guard against the unpredictable nature of the economy.
University policy forbids officials from spending more than 5.3 percent of the endowment in any given year, a percentage that is calculated by averaging the endowment’s value over the previous seven years.
The University plans to spend about $300 million of the endowment this year – about 5 percent of its total value.
Duderstadt cited the state’s struggling economy while explaining the importance of the University’s endowment increase.
“If we did not have that endowment, we would be in very difficult shape right now because of the hit we’ve taken from the loss of state support,” Duderstadt said.