The Endowment Conundrum: When Colleges Borrow from Their Future

The idea of a college endowment is often romanticized as a never-ending source of financial support. However, behind closed doors, many cash-strapped schools are turning to their endowments as a last resort, draining the funds that were meant to last forever.

Hiram College in Ohio borrowed over $47 million from its $56 million endowment, including money set aside for specific purposes by donors. This move has raised eyebrows, with some questioning whether it’s a short-sighted solution to the financial woes plaguing smaller colleges.

The decline in US student enrollment, coupled with the dwindling pool of potential students due to low birth rates, has left smaller institutions struggling to stay afloat. While larger universities continue to attract more applicants than they can admit, their finances remain relatively healthy. However, for those at the lower rungs of the academic hierarchy, the pressure is mounting.

In recent years, schools have increasingly turned to their endowments as a means to stay solvent. Data from Perspective Data Science suggests that nearly 200 private colleges borrowed from restricted endowment funds in 2025, up from about 130 in 2021. This trend is concerning, given the long-term risks associated with depleting these funds.

David Haney, Hiram’s president from 2020 to 2023, expressed concerns about this approach: “What a lot of these small colleges do is they think that things are going to turn around. If we just invest in new athletic facilities, everything will be fine.” However, Haney notes that this gamble often doesn’t pay off, and borrowing from the endowment can have severe consequences.

For institutions like Avila University in Kansas City, which received court approval to loosen restrictions on its 97 endowment funds totaling $6.4 million, dipping into the endowment might provide short-term relief. However, as Andy Jett, the university’s chief operating officer, cautions, “This wasn’t our first choice. This was pretty far down the list of things that we tried.”

Colleges with relatively small endowments have increased their spending rate by over a third since 2016, according to data from the National Association of College and University Business Officers. Manhattan University’s decision to draw about 7% of its endowment in fiscal 2024 led S&P Global Ratings to downgrade the school to one level above junk.

This trend raises important questions about the sustainability of these financial strategies. As Emily Wadhwani, a higher education analyst for Fitch Ratings, points out, “When schools take this action, it’s meaningful – it can be a real red flag for those of us on the outside looking in.”

Ultimately, this issue speaks to the broader challenges facing small colleges and universities. With US birth rates at historic lows and student enrollment declining, these institutions are struggling to adapt. While borrowing from endowments might provide temporary relief, it’s essential to acknowledge that this approach is not a long-term solution.

The financial pressures on smaller colleges will only continue to mount unless policymakers and educators come together to find innovative solutions that prioritize both financial sustainability and educational excellence. By acknowledging the complexities of these institutions’ financial struggles and considering their place within the larger landscape of higher education in America, we can work towards creating a more equitable system that supports all colleges and universities – big and small alike – in their pursuit of academic excellence and innovation.