Cash flow challenges and opportunities for colleges and universities.
Cash flow challenges and opportunities for colleges and universities.
While a strong spending policy supports a long-term financial plan that provides stable support over many years, recent challenges facing colleges and universities may necessitate endowments and foundations to review their spending plans in the near term and—consequently—what that means for their long-term financial viability.
Current challenges for college and university operating cash flows
Typically, colleges and universities have well-diversified revenue streams they can tap—tuition, state and federal funding, etc. However, broad trends in higher education have simultaneously stressed those revenue streams and increased operating costs. Factors include:
- Declining enrollment
- Growing demand for tuition discount rates and financial aid
- Shrinking state and/or federal funding
- Rising costs for replacing and maintaining critical infrastructure
- High inflationary pressure
- Changes to NIL (name, image, likeness) and spending related to athletics
In order to fill operating budget gaps, schools are, out of necessity, considering all options to raise additional revenue, including looking to their endowment resources.
Hypothetical client
For illustrative purposes, we modeled a $200M endowment. For each scenario, we stress test projected outcomes based on changing factors. For our base case, as illustrated below, we assumed that current spend is net 4% —costs and spending minus contributions—of the 3 year average balance with no additional anticipated inflows or outflows. The target asset allocation is a well-diversified, growth-oriented portfolio.1
Data Source: SEI CMAs. For illustrative purposes only.
Special draws
Special appropriations from endowments can provide colleges and universities with important support when operating pressures exceed what the normal spending policy is designed to support. These one-time or temporary draws may help address urgent needs, such as student financial aid, deferred maintenance, program support, inflationary cost increases, or other strategic priorities; however, they should be evaluated carefully within the broader context of long-term endowment sustainability.
Because endowments are intended to provide durable, intergenerational support, institutions should consider whether special appropriations are truly nonrecurring, whether they can be offset by fundraising or other revenue sources. They should also consider how the additional spending may affect future distributions, purchasing power, and donor expectations.
In the most recent NACUBO survey,2 19.5% of total institutions reported making a special appropriation from their endowment. Of that increased spending, the majority reported using the funds to support operating budgets. The impact of pulling additional resources today can have significant long-term consequences.
Data source: SEI CMAs. For illustrative purposes only.
As compared to the base case scenario, spending more funds today has a negative long-term effect on the projected balances for the portfolios. While assets in nominal terms were projected to increase in the median scenario, when balances were adjusted for inflation, asset growth was stagnate.
Higher inflationary environment
A higher inflationary environment can place meaningful pressure on both college and university operating budgets and the long-term purchasing power of endowment assets. As wages, benefits, utilities, technology, financial aid, and facilities costs rise, institutions may require greater annual support from their endowments simply to maintain current programs and services.
At the same time, higher inflation increases the return hurdle needed to preserve the real value of the endowment after spending, fees, and administrative costs. If spending levels are increased without corresponding investment returns or new gifts, the endowment may experience erosion in inflation-adjusted value over time, reducing the future support available to students, academic programs, and institutional priorities.
Data source: SEI CMAs. For illustrative purposes only.
The portfolio’s purchasing power is directly impacted by inflation. Even with controlled and consistent spending, 1% higher levels of inflation may be all it takes to erode the real value of your assets.
Fundraising opportunities
The reality is that many institutions have the ability to offset spending with new donor gifts, fundraising, or other contributions. The impact of positive contributions can be substantial toward the long-term sustainability of endowed funds because higher spending is more sustainable when offset by strong inflows. The ability to raise new funds varies considerably between institutions.
That said, over the next several years the United States will experience one of the largest generational wealth transfers in history. According to the Federal Reserve3, Americans who are 62 years and older currently control $110.29 trillion or 63% of all wealth. The corresponding estate planning could significantly benefit foundations.
Data source: SEI CMAs. For illustrative purposes only.
Conversely to pervious scenarios, strong fundraising can have significant upside benefits for endowments. In good markets, the compounding impact of additional dollars can help improve long-term asset values.
Conclusion
For some colleges and universities, endowment funds may be a resource to support financials when operating cash flows are stressed. However, it is important to keep in mind that special draws and higher inflation can erode long-term expected values for endowments. While institutions may require additional financial support today, those decisions need to consider many factors, including existing spending policy, investment objectives, donor intent and restrictions, and future purchasing power.
Institutions that pair thoughtful spending decisions with targeted fundraising and strong governance may be better positioned to meet current obligations while preserving the endowment’s ability to support students, programs, and strategic priorities for generations to come.
Spending policy decisions can impact institutional outcomes for generations. Is your endowment built for today’s pressures?
Request our complimentary whitepaper for additional insights on balancing spending needs, operational demands, liquidity, and long-term portfolio stability.
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1Asset allocation is a diversified mix of securities with the follow broad asset allocation targets: 78% return enhancing assets, 13% risk reducing assets, 9% inflation hedging assets.
2 Source: 2025 NACUBO-Commonfund Study of Endowments
3 Source: Federal Reserve - “Distribution of Household Wealth in the U.S. since 1989”, June 2026
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