What is an endowment?

Most schools have two pots of money: a general operating account, which is like a checking account, and an endowment, which is like a savings account. The endowment is made up of principal, the original amount invested. Then the endowment earns returns, or money made from interest on the principal. The principal is built up over time using contributions from alumni, foundations, corporations, governments and philanthropists. Because the principal is almost never spent, older schools tend to have larger endowments, as they have had more time to collect money. However, the most important factor in endowment size is prestige. The largest endowments belong to Ivy League schools, with some large public schools next in line.

A basic overview of a school’s finances

Excerpt from the Student Handbook produced by the Responsible Endowments Coalition