After a few volatile years following the financial crisis that ended in 2009, economic experts say the state of the U.S. economy is looking up. Financial markets have again reached record highs, and economic indicators are trending positive, but the average American family is less optimistic about its financial future amid concerns over college affordability. In a combustible election year full of populist rhetoric, candidates for both federal and state offices are decrying higher education's price tag and mounting student loan debt. Headlines about college and university endowments earning double-digit returns in 2013 and 2014 helped bring the funds under lawmakers' scrutiny, leading some to view them as a way to keep tuition prices in check and increase student financial support. Here are a few recent examples.

• Early in 2016, the U.S. Senate Committee on Finance and the U.S. House Committee on Ways and Means sent an inquiry letter to 56 private colleges and universities seeking information about each's endowment. The institutions that received the letter all have endowments exceeding $1 billion. Among the questions asked were how investments further the university's educational purpose, how much the institution spends annually to manage the endowment, and what percentage of the endowment is devoted to financial aid.
• New York Rep. Tom Reed, a member of the House Ways and Means Committee whose district includes Cornell University and Ithaca College, has proposed requiring institutions with endowments of more than $1 billion to spend 25 percent of their endowment income on student financial aid or risk losing their tax-exempt status.
• Connecticut legislators introduced a bill to tax institutions with endowments equaling $10 billion or more, effectively singling out Yale University's $25 billion–plus fund. The effort stalled in April 2016.

Why all the focus on endowments? The funds are misunderstood—and higher education bears partial responsibility for that problem, says Brian Flahaven, CASE's senior director for advocacy.

"Institutions typically refer to their endowments in the singular—as a bottom-line number," he says. "That gives people the idea that it's just one big pot of money rather than a collection of hundreds or even thousands of different funds, most of which are restricted and governed by both donor intent and state regulations."

Endowments are intended to provide stable, long-term funding to an institution while balancing the present and future needs of the university and its students, a concept known as intergenerational equity. And it's essential, Flahaven says, that communications and development professionals understand how their institution's endowment works—including how these funds help keep tuition prices down. Communicators and fundraisers should also know the endowment's total value, spending rate, return on investment year to year, and average 10-year return.

The lack of understanding about endowments extends to the analogies people use to make endowments a more accessible concept. For instance, endowments are not like a piggy bank, savings account, or "rainy day" reserve fund, Flahaven says, listing common examples of cringe-worthy comparisons.

Another popular analogy—describing endowments as an institution's version of a retirement fund—doesn't work either. "Usually a person is retired for 30 years," says Kenneth E. Redd, director of research and policy analysis at the National Association of College and University Business Officers. "But an endowment lasts forever."

"People hear about large endowments," Flahaven says, "and tend to view institutions as ‘hoarding money,' which feeds skepticism and plays into the populist perspective that makes university endowments an easy target." But the institutions with the headline-grabbing endowment totals are outliers. Among the more than 800 U.S. institutions that participated in the 2015 NACUBO-Commonfund Study of Endowments, the average endowment was approximately $650 million, while the median was about $115 million. The most-discussed institutions with the highest endowment valuations are not where most students are educated—more than 70 percent of U.S. students attend public two- or four-year institutions.

The mission is the message

At Stanford University, senior staff members put a lot of effort into educating the public and elected officials about endowments, says Lisa Lapin, associate vice president of university communications. John L. Hennessy, who stepped down as president of the California institution in August 2016, spent considerable time during his nearly 16-year tenure talking to members of Congress and their staffs about how Stanford's endowment funds the university's operations, according to Lapin.

Her elevator speech about endowments centers on how they are a "guarantee for the financial future of the university." They are also, she adds, "core support for our mission of educating students, providing access for the best students, and supporting faculty members."

NACUBO's Redd agrees that endowments are inextricably tied to mission. "Endowments are usually created and designed to help schools meet certain aspects of their missions," he says, "and those missions are supported by restricted gifts that are given to schools."

At public institutions such as the University of Michigan, endowments have become an important funding source as federal and state support for U.S. higher education has fallen. In the 1960s, state appropriations accounted for 80 percent of U-M's general fund budget—today, it amounts to about 16 percent.

"The private support people give to institutions and the endowment is often referred to as the ‘margin of excellence,'" Flahaven says. "These funds enable colleges and universities to do extra things, but they were never meant to supplant state funding to public institutions."

The endowment is a key communications issue for Michigan, whose funds were valued at $10 billion in 2015. "We often describe our endowment as 9,000 individual endowments for individual purposes, pooled together for investment purposes," says Rick Fitzgerald, Michigan's director of public affairs and internal communications.

He advises institutions to post online updated endowment facts, fund profiles, and annual reports on investments. U-M's website features a Q&A aimed at both educating audiences and countering misperceptions about its endowment funds, their value, how they're spent, and how they can be used. Investment management staff also meet with journalists from the campus' student newspaper to explain the nuances of the endowment.

"Quite often when you have a significant endowment, the impression on campus is that you should have enough money to do anything," says Lyle D. Roelofs, president of Berea College in Kentucky. "We find ourselves regularly explaining, internally as well, that we can't treat the endowment as something to be spent on anything that attracts our attention."

If a donor has given funds for a specific purpose, Roelofs says, you can't just use that money to reduce tuition. "You have to use that money to fund that particular purpose," he says.

While Berea College was one of the 56 institutions with a $1 billion–plus endowment to receive the congressional inquiry letter, it holds a distinctive position in U.S. higher education. A selective liberal arts college, Berea is also known as one of the country's seven work colleges: All of its nearly 1,600 students work at the institution 10 to 15 hours per week and none pays tuition. The institution's endowment income covers 70 percent to 75 percent, depending on the year, of each student's bill, while Pell Grants and other state and federal aid provide approximately 15 percent of funding. The final portion, approximately $4 million, comes from annual fundraising.

"An endowment is mysterious to folks both on campus and the public at large," Roelofs says. "I think that ignorance even extends into our government. "[Berea], of course, has no difficulty making the case that the purpose of our endowment is to reduce the cost of attending college."

Berea's messaging reflects its no-tuition promise and the role the endowment plays in making that possible. An online infographic illustrates how Berea's endowment makes full-tuition scholarships possible.

A distraction from bigger issues

Efforts to mandate higher spending rates from endowments might help legislators appear as if they are trying to increase financial aid, but if enacted, the long-term result would be a decrease in the value of the funds.

"If you do the math [on congressional proposals that target endowments], the effect on the university is not good," says Stephen Joel Trachtenberg, president emeritus and professor of public service at The George Washington University. "And the result on behalf of students, the reported beneficiaries, is not all that beneficial. It's more show business than it is reality."

"A focus on endowments distracts from state and federal disinvestment in higher ed, which has contributed significantly to rising tuition prices," Flahaven says.

NACUBO's Redd is sympathetic to lawmakers' situation. "The problem is," he says, "at the same time that Congress is hearing from universities, it's also hearing from parents and students," who say they don't receive enough financial aid.

The push to make institutions spend more from their endowments, however, puts universities in a different sort of bind. "What does a school do? Violate donor agreements or violate a law passed by Congress?" Redd asks. Neither is an option.

Most endowment gifts are restricted to a specific purpose. Donors often give to particular causes or needs, and universities are legally required to respect the terms of those agreements. That means endowments are not the undifferentiated pools of dollars they are widely held to be, Trachtenberg says.

"If someone said, ‘Well, you have to give more money to support financial aid from your endowment,' that would mean that universities would have to sell both liquid assets and nonliquid assets," Redd says. "If they did that, in many cases they'd be selling investments at a loss." Those losses, in turn, would make less money available for future financial aid.

Universities can ill afford to lose more of their endowments. The latest NACUBO-Commonfund Study of Endowments found that these funds returned, on average, less than 2.5 percent in fiscal year 2015, and the 10-year average annual return fell from 7.1 percent in 2014 to 6.3 percent in 2015. That figure is well below the 7.5 percent mark institutions need to earn to cover their current spending needs, expenses and fees, and reinvest to keep pace with inflation, which suggests that most endowments have lost value over time. Meanwhile, institutions have upped their endowment spending. According to 2015 NCSE data, more than 75 percent of institutions spent more money from their endowments.

"They're spending more money from their endowment but getting a lower return," Redd says, thus making it harder for universities to appropriately support financial aid, research, and other priorities that are important to the institutional mission and that depend on the income these funds produce. "You could do that for one or two years. [But if such spending] continued for a number of years, it would certainly threaten the long-term viability of endowments."

Growing the future

Like many institutions, Coastal Carolina University in South Carolina is working to educate supporters about the importance of the endowment. The "I'm In!" campaign aims to increase CCU's $32.7 million endowment by adding another $20 million by 2020 to support student scholarships and academic excellence. But getting people to grasp the importance of raising money for the endowment is no easy job.

"It's a reflection of the times," says Mark Roach, vice president for philanthropy at CCU. "There aren't a lot of people that have a lot of savings now. They think, ‘You want me to help you with your savings, but I'm still struggling with mine.'"

Roach recalled a lunch with a donor who asked him why she ought to give. He told her to think about an athletic program that sets its sights on signing a particular quarterback. With her gift, CCU could do the same in pursuing a top science student.

"We want to be intentional about going after the best [students] in our area," he told her.

Universities must help people understand the value of endowments as they communicate the need for philanthropy, says Stanford's Lapin.

"If you're building a culture of philanthropy at your institution, that culture should include making a case for the value of the work of the institution," she says, "and that the endowment is there to support any philanthropic investment and ensure it's used in perpetuity."