No, University Endowments Can’t Replace Federal Science Funding

How Endowments Actually Work

Over the last few weeks, the Trump administration has declared war on science. Universities are bracing for the impact. Like many researchers, I’ve tried to explain how disastrous proposed funding cuts would be for everything from cancer research to climate science. Here is a predictable response, “Well, universities should just spend their huge endowments.” Indeed, when NIH announced it would be dramatically reducing its support for the overhead costs of research, Elon Musk tweeted, “Can you believe that universities with tens of billions in endowments were siphoning off 60% of research award money for ‘overhead’?”

It’s true that endowments are contributing to increased inequity across higher education, a point I’ll come back to. There is room for debate over how much government should pay for the indirect costs of research. But let’s set those questions aside. The idea that endowments can serve as a backstop for large cuts in federal science funding is flat out wrong, and based on some common misconceptions about how endowments work, who has them, and just what a “billion-dollar endowment” means in practice.

What’s a university endowment and how does it work?

Despite the common terminology, there is not “an endowment” at universities large or small. The endowment is not a single pool of money, waiting to be used for whatever purpose the university deems fit, such as financial emergencies. In reality, the endowment is a collection of thousands of funds representing gifts from particular donors with a legal agreement attached. These gifts are generally for something specific: scholarships, support for a named department or center, or research on a particular disease. Moreover, the principal of the endowment can’t legally be spent down. A condition of the gift is that it is held to generate future income.

Let’s take the University of Michigan, where I work, as an example. It has one of the largest public university endowments, at $19.2 billion. Roughly three-quarters is legally restricted for specific purposes established by donors. Distributions from the endowment are spent in a variety of areas, with 28% going to student financial aid—sometimes quite generally, sometimes for very specific awards—25% to patient care at the hospital, and 15% to research. So while the unrestricted portion of the endowment does allow some room for maneuvering, most of “the endowment” cannot just be redirected to compensate for a reduction in NIH support for overhead costs or other federal cuts. Michigan estimates that the proposed change in NIH funding would create a $181 million annual hole in its budget. The endowment might help cover some of those costs in the short run, but it cannot fill the hole.

Here is what endowment distributions are spent on at the University of Michigan.

Who has endowments?

Musk’s tweet refers to “universities with tens of billions in endowments.” If we take this literally, as referring to universities with $20-plus billion in endowment funds, this is an extremely small group. Just seven institutions enjoy such endowments.

More generally, endowment resources are highly concentrated in a very limited set of institutions. While there are about 2600 four-year colleges in the United States, half of all endowment dollars are held by 20 institutions, and one of those is the University of California, whose endowment covers ten research universities.

Data from 2024 National Association of College and University Business Officers (NACUBO)-Commonfund Study of Endowments for participating U.S. and Canadian institutions

Right now, the funding cut universities are most worried about is the aforementioned NIH reduction in support for indirect costs. NIH is by far the largest federal funder of university research, providing more than half of the total. A cut of at least $5 billion, as New York Times’ Upshot estimated, would mean losing over $100 million at the most-impacted institutions—not just this year, but every year that similar research is conducted.

Source: “How Trump’s Medical Research Cuts Would Hit Colleges and Hospitals in Every State,” New York Times, Feb. 13, 2025

As you can see, there is substantial overlap between the institutions that will be hit hardest by cuts in indirect costs and the universities with the largest endowments, but they are not identical. University of California, San Francisco, whose research has produced breakthroughs in multiple sclerosis treatment and gave us the first genome editing inside a human body, has an endowment of just over $3 billion. It faces a $121 million loss per year. Pitt, whose endowment is $5.8 billion, putting it at #29, is looking at a potential $115 million annual loss. To give a sense of the scale of the cuts to come, the university just announced a pause on all doctoral admissions as it tries to recalibrate. Pitt is the canary in the coal mine. Lots of other universities are poised to go down the path of austerity despite the existence of endowments.

The many universities that conduct a moderate amount of NIH research and would see cuts smaller in scale, but that have less financial cushion to absorb the blow, would be hit even harder. Universities with endowments of under a billion dollars that would see a substantial funding cut include UC Irvine (a $41m loss), UC Davis ($49m), and the University of Illinois at Chicago ($35m).

How much is a billion dollars, anyway?

Which brings me to my final point. The phrase “billion-dollar endowments” gets thrown around a lot. And it is true that there are now close to 150 universities with endowments of a billion dollars or more. But it’s important to put those numbers into context.

One way to do that is to think about what it takes to build a nest egg one can retire on. A financial advisor might recommend that the family earning $100,000 a year save $1.5 million so they can take out $60,000 a year in retirement. Setting aside the question of how many people can actually do this, that means that to have enough money to last 30 years, a family needs something like 15 times its annual income.

These billion-dollar endowments are held by institutions with multi-billion dollar budgets. Michigan, again, has the ninth-largest endowment in the U.S., at around $19 billion. But the institution is huge: it enrolls 53,000 students and has a $14 billion annual budget. (Its size, incidentally, means that on a per-student basis its endowment only ranks about 85^th; of the top 50 schools in terms of per-student endowment, two-thirds are small liberal arts colleges or specialist institutions like theological seminaries.)

So to put Michigan’s $19 billion endowment into context, we might think of it as the equivalent of the family with a $100,000 income (the $14 billion budget) managing to accumulate a $135,000 nest egg (the $19 billion endowment). Does the interest on that generate meaningful additional income? Absolutely. Could one spouse quit their job and live off it? Not in a million years. And again, that is one of the biggest endowments in the country; many research universities have much smaller nest eggs.

Taxing college endowments to fund tax cuts for the rich won’t reduce inequality

Elon’s tweet suggesting that big endowments should be used to pay for the overhead costs of research is only the first thrust in what will be a broader attack on university endowments. In the coming weeks, the conversation is likely to shift from using endowments to plug holes in federal science funding to taxing the largest ones out of existence.

There is no question that the rise of large endowments is worsening the growing gap between a smallish set of wealthy institutions and a much larger set of financially strapped ones. Barrett Taylor and Brendan Cantwell have done excellent work showing the role of endowment revenues in elites’ pulling away from the larger pack. And Charlie Eaton has a compelling, data-driven critique of what the financialization of higher education has meant for inequality in the sector as a whole.

Personally, I would be happy to see a modest endowment tax that would very gradually reduce the largest endowments and reinvest those funds in broad-access, high-mobility institutions like Cal State (whose wealthiest campus has an endowment of $250m) or CUNY (with an endowment of $400m for 17 four-year campuses).

But let’s be clear that that’s not what anyone’s putting forward. Instead, what’s on the table is decimating reductions in science funding, potentially paired with a tax of up to 35% (as J.D. Vance proposed) on the largest university endowments, in order to finance the extension of tax cuts that go primarily to those earning more than $400,000 a year. On the one hand, endowments are meant to cover government cuts to research funding, and on the other, much more of the endowments must be paid back to the government. Seen through this lens, both Elon’s suggestion that endowments can make up for dramatic cuts in federal science funding and “inequality-reducing” proposals for a large endowment tax can be understood as exactly what they are: part of a larger attack on universities as sites of education, knowledge production, and independent thought.

This is a guest post from Elizabeth Popp Berman, the Richard H. Price Professor of Organizational Studies at the University of Michigan; among her books is Creating the Market University: How Academic Science Became an Economic Engine.