In a 21-page letter sent Wednesday to U.S. Sens. Max Baucus (D-Mont.) and Charles Grassley (R-Iowa), the University defended the use of its $7.1 billion endowment.
The University’s letter responds to eleven questions sent by Baucus and Grassley, the chair and ranking member of the Senate Finance Committee, about the University’s endowment and financial aid policies.
That letter, sent Jan. 25, asked how much the University’s endowment has grown in the past 10 years, how much of the endowment is earmarked for undergraduate financial aid, who decides University tuition increases, how the endowment is managed and whether University President Mary Sue Coleman or any investment officials receive endowment-related bonuses.
Baucus and Grassley’s inquiry into the details of the University’s endowment was one of 136 inquiries they sent in January to the nation’s wealthiest colleges and universities as measured by the market value of their endowment.
With 76 colleges and universities recording endowments of $1 billion or more, the funds are coming under greater scrutiny from the Senate Finance Committee, which wants universities to spend more of their endowments on student financial aid and reduce the share of the burden being place on the government.
“Tuition has gone up, college presidents’ salaries have gone up, and endowments continue to go up and up,” Grassley told The New York Times in January. “We need to start seeing tuition relief for families go up just as fast.”
The University’s letter said $1.4 billion, or about 20 percent of the endowment, is currently marked for student aid, with half of that restricted for undergraduate financial aid and half for graduate financial aid.
The data provided by the University aimed to emphasize the accessibility of financial aid for students, stating that about 71 percent of undergraduate students received some form of financial aid in 2006-2007.
The letter also said 80 percent of in-state undergraduate students receive financial aid, whether in the form of grants, work-study or loans.
In the previous academic year, the University provided approximately $94 million of undergraduate aid in the form of grants and scholarships, the letter said. Another $45 million in grants that year came from state and federal sources.
“These data highlight the University of Michigan’s deep commitment to maximizing both the quality and accessibility of a University of Michigan education through a combination of aggressive fundraising, prudent investment policy, careful stewardship of endowment funds, and on-going operation cost cutting measures,” the letter said.
The past 10 years have seen the University’s endowment increase nearly $5.2 billion – more than 200 percent – from $1.9 billion at the start of 1998 to about $7.1 billion today.
According to an annual endowment study by the National Association of College and University Business Officers, the University’s endowment ranking has steadily risen among other colleges and universities over the past four years, climbing three spots from eleventh after the 2004 fiscal year to eighth after the 2007 fiscal year.
The University’s 25.4 percent endowment growth in the 2007 fiscal year was well above that of the 17.2 national average, and outpaced the growth of perennial endowment heavyweights Harvard and Yale, which ranked first and second, respectively, in the latest NACUBO rankings.
Of the 10 schools with the largest endowments, the University’s 25.4 percent growth rate was the biggest increase.
The importance of a growing endowment was emphasized in the letter in the context of the state of Michigan’s struggling economy, which has resulted in an 11 percent decline – about $40 million without taking inflation into account – in state appropriations over the past six years.
Over that span, University tuition and fees costs for in-state students have increased by $3,316, or 40 percent. For out-of-state students, tuition and fees costs have increased by $8,344, or 34 percent.
“The University of Michigan has a responsibility to diversify and strengthen its financial base through its endowment in order to maintain its quality and accessibility in the face of inflation, inevitable fluctuations in the financial markets, and tightening state and federal budgets,” the letter said.
Although President Coleman’s pay is not based on the size or growth of the endowment, Chief Investment Officer Erik Lundberg’s salary is tied to the performance of the endowment in relation to the state of financial markets, the letter said.
In the 2007 calendar year, Lundberg received $466,778 in incentive payments for his role in increasing the market value of the endowment.