Ignoring higher education’s unwritten rules of financial management, New York University has transformed itself into a world-class university by spending most of the money it has raised in the past two decades, the Los Angeles Times reports.
The school has raised $2 billion in private donations since the late 1970s.
But unlike competitors that sock away money in endowments and live off the interest, NYU has spent 85 percent of what it raised, the Times says.
The school put into its endowment, which totals roughly $1 billion, only 15 percent of the dollars it raised.
The University of Southern California, a comparable institution, has saved about half of the $1.5 billion it has raised in its current fundraising campaign.
USC’s endowment is nearly double that of NYU.
Instead, NYU has recruited top-notch professors from Ivy League schools and other top institutions with lucrative offers, including subsidized apartments in expensive Manhattan neighborhoods, the Times says.
“We’ve simply done in 20 years what it took other universities a hundred and fifty years to do,” L. Jay Oliva, NYU’s president, told the Times. “There’s no way to get excellence, other than buying your way into it.
Universities typically aim to spend only a fixed percentage of their endowments – usually 3.5 percent to 5.5 percent – baswed on the endowment’s earnings, the Times says.
So even in boom times, the largest endowments provide less than 10 percent and typically less than 5 percent of the $1 billion or more a year need to run a major university.
Harvard Hansmann, a law professor at Yale who has studied college endowments, told the Times that hoarding diverts schools from using their core mission of educating students and making breakthroughs in science and other fields.