What Constitutes Prudent Spending from Private College Endowments?

   
   This study examines how private colleges and universities choose to 
   spend versus reinvest resources in endowment funds that have suffered 
   investment losses. The analysis takes advantage of a market downturn 
   and public policy shift, which together revealed how colleges define 
   prudent spending. Investment losses during the financial crisis of 
   2008 left many endowment gift funds below their original donated 
   values, or “underwater.” 

   Colleges in some states were legally required 
   to cut spending from underwater funds. Other states had recently 
   enacted the Uniform Prudent Management of Institutional Funds Act, 
   which allows prudent spending from underwater funds. The act loosened 
   financial constraints, and affected colleges responded by spending 22 
   percent more from their endowments in the fiscal year after the 
   financial crisis. Constrained colleges did not increase spending from 
   unrestricted parts of their endowments to offset reduced spending from 
   underwater funds.