Universities hold some of the largest pools of money in private hands. It is often said that these endowments send money back to their donors, untaxed.
That claim is common; the nearest sourced version here is an anonymous 2012 letter about Dartmouth, told below as an allegation. This story follows the money to test it: what a gift is in law, what the funds pay for, who manages them, and where the record shows donors, trustees and managers touching them.
It rests on statutes, court opinions, the schools’ own reports, congressional papers and the press. Where figures come from a school, the story says so. The defenders’ case and the critics’ case each get their say, and where the sources are silent, the story says that too.
30 Jun 2026
The pile
On 30 June 2026 Harvard’s endowment stood at $68.0 billion, by its own investment company’s report; Yale reported $54.5 billion. A survey of 657 colleges, universities and school foundations, by the business officers’ group NACUBO and Commonfund, counted $944.3 billion across all of them a year earlier. Their median endowment was $253.6 million, so the biggest funds are far from typical.
$68.0 billionHarvard’s endowment on 30 June 2026, from Harvard Management Company’s annual report
Harvard’s endowment generated a 27.1% return in fiscal year 2026 (FY26), bringing its value to $68.0 billion.
Harvard Management Company annual report, fiscal year 2026, Harvard University, Oct 2026. Primary record. Open the source
30 Jun 2026
Thousands of gifts
An endowment is not one account. Yale says about 75 percent of its endowment funds are restricted to a specific purpose, such as scholarships or research. Harvard Magazine reported that Harvard’s is roughly 15,000 funds, 80 percent restricted and under 5 percent fully unrestricted. MIT says state law makes it keep each gift as a permanent fund.
The use of the endowment is governed by a state law that requires MIT to maintain each endowed gift as a permanent fund, preserve its purchasing power, and spend it as directed by its original donor.
Across 657 surveyed schools the largest share of endowment spending in fiscal 2025, 47.4 percent, went to student financial aid, and the average school spent 4.9 percent of its fund. The biggest funds differ: Harvard told Congress in 2016 that about a quarter of its annual payout went to tuition aid, and that among its restricted funds professorships and faculty pay led (32 percent) ahead of aid (21 percent). For fiscal 2026 Harvard says its endowment paid $2.6 billion, nearly 40 percent of its operating revenue, and that it gave students more than $775 million in aid; Yale says its endowment supplies 62 percent of Yale College’s budget.
47.4%Share of endowment spending that went to student financial aid in fiscal 2025, in a survey of 657 schools
By purpose, the largest share of spending in FY25, 47.4 percent, went to student financial aid, a level that was nearly three times more than the 17.7 percent spent on academic programs and research.
Summary observations from the 2025 NACUBO-Commonfund Study of Endowments, NACUBO and Commonfund, 2026. Scholarship & press. Open the source
2026
What the law says
A school is tax-exempt under section 501(c)(3) only if no part of its net earnings may “inure to the benefit of any private shareholder or individual.” The IRS adds that an “excess benefit transaction” with someone of substantial influence can bring an excise tax on that person and on the managers who agreed to it. Harvard’s 2016 reply to Congress says it is exempt under that section. The next scenes set the record against this rule.
no part of a section 501(c)(3) organization's net earnings may inure to the benefit of any private shareholder or individual
IRS, exemption requirements for 501(c)(3) organizations. Primary record. Open the source
2025
What a donor gets
The IRS says a donor who gives property to a qualified organization can generally deduct its fair market value, but if the donor receives a benefit, only the amount above the benefit is deductible. A gift made in exchange for the right to buy college athletic tickets gets no deduction. Harvard adds that a gift of appreciated assets can save capital gains tax. The senators who questioned colleges in 2008 put the double exemption this way: “Donations to universities are tax-exempt, and endowment funds are tax-exempt.” Whether an admissions boost counts as a benefit is a question no source here answers.
If you receive a benefit as a result of making a contribution to a qualified organization, you can deduct only the amount of your contribution that is more than the value of the benefit you receive.
Some gifts do pay the donor, by contract. Harvard offers charitable gift annuities, from $25,000, and trusts that pay the donor or another person income for life or a set term; at the end, the remaining principal goes to Harvard. Harvard says the donor gets an immediate income tax deduction and capital gains savings on appreciated assets. Its 2016 reply to Congress says Harvard Management Company also manages “split interest” trusts outside the endowment; the memo gives one total, $7.8 billion, for these together with working capital and pensions.
At the death of the last income beneficiary or the end of the term, the remaining principal is transferred to Harvard.
Harvard Alumni, “Gifts That Pay You Income”. Primary record. Open the source
24 Jan 2008
136 letters
On 24 January 2008 Senators Max Baucus and Chuck Grassley wrote to every college with an endowment of $500 million or more. They asked how much was permanently restricted by donors, what the endowment cost to manage, how investment advisers were paid, and why any payout under 5 percent met students’ needs. Harvard, Yale and Dartmouth had already announced more student aid. A 5 percent payout rule, like the one for private foundations, was floated but never passed; Harvard Magazine noted that the other ideas in the air, an IRS spending test and state or federal taxes on endowments, did not “appear likely to advance soon.”
Federal law requires most private foundations to pay out 5 percent of their assets each year toward their charitable purpose. No such requirement exists for university endowments.
Senate Finance Committee, 24 January 2008. Primary record. Open the source
11 Mar 2008
Bound by contract
Stanford’s president, John Hennessy, told the Stanford Daily in 2008 that Congress should not tell colleges how to spend their gifts. Senator Grassley answered that “endowments have a lot of flexibility, even though there is a lot of designated giving”; Stanford’s finance chief agreed the school kept some flexibility with the roughly 30 percent not restricted. Harvard told Congress in 2016 that 84 percent of its $37.6 billion was restricted by the terms of the original gifts, and that endowment funds are generally not transferable between schools.
We have legally binding agreements with donors as to how we spend the money
John Hennessy, then Stanford’s president, to the Stanford Daily, 2008. Scholarship & press. Open the source
22 Dec 2017
A tax
The Tax Cuts and Jobs Act became law on 22 December 2017. Its section 13701 put a flat 1.4 percent tax on the net investment income of private colleges with at least 500 students, more than half of them in the U.S., and assets of at least $500,000 per student, not counting those used directly for its educational purpose. State colleges and universities were left out.
There is hereby imposed on each applicable educational institution for the taxable year a tax equal to 1.4 percent of the net investment income of such institution for the taxable year.
Public Law 115-97, section 13701. Primary record. Open the source
30 Jun 2026
Where the money sits
By Harvard’s own report, on 30 June 2026 its endowment was 46 percent private equity, 29 percent hedge funds and 14 percent public stocks; a year earlier private equity was 41 percent, and Harvard Management Company says it “deliberately grew private equity.” Yale says its chief investment officer David Swensen, from 1985, moved its fund from the usual 60 percent stocks and 40 percent bonds toward hedge funds, real estate, timber and private equity, and that over his 36 years it beat the average endowment by 3.4 points a year. Yale credits that return with raising its endowment spending from $45 million, about a tenth of its budget, to $1.6 billion, about a third.
46%Share of Harvard’s endowment in private equity on 30 June 2026: 31% venture and growth venture, 15% buyouts
Private equity 46% Venture capital and growth venture 31% Buyout and growth buyout 15%
Harvard Management Company annual report, fiscal year 2026, Harvard University, Oct 2026. Primary record. Open the source
27 Apr 2016
Who manages it
In 2016 Congress asked what each outside manager was paid, and to whom. Harvard answered with its structure and averages, not names or sums: outside managers get a management fee and a performance fee, outside funds generally cost 1 to 2 percent of assets, and its in-house funds below 0.75 percent. At least 30 universities, all eight Ivy League schools among them, did not disclose their performance fees, citing confidentiality agreements, the difficulty of the sums, and competition; Yale’s report said its managers earn “large performance-based fees,” and that “the important metric is net returns, not gross fees.” What is public is top in-house pay, such as $6,065,114 for Harvard Management Company’s chief executive in calendar 2023; who the outside managers are, and what each is paid, mostly is not.
At least 30 universities, including the eight Ivy League schools, didn’t disclose how much they paid in performance fees to external managers like hedge funds in response to questions from lawmakers about how they manage and spend their endowments.
Bloomberg News, April 2016. Scholarship & press. Open the source
29 May 2012
The letter
In 2012 an anonymous group calling itself “The Friends of Eleazar Wheelock” wrote that Dartmouth trustees who run investment firms were paid “sky-high fees” and “recycled some portion of the fees” to the college as donations, and that one trustee’s firm managed over $130 million of the endowment and had been paid an estimated $24 million. These are allegations from anonymous writers, and the fee figure is their estimate. Dartmouth called the letter inaccurate and said it began investing with those firms before the people joined the board, that such deals need a two-thirds vote without the trustee involved, with notice to the attorney general and in a newspaper, that the fees are “typical,” and that its returns were top-quartile.
For years Dartmouth has been run by and has paid sky-high fees to a group of investment manager trustees, all Dartmouth graduates, who have then recycled some portion of the fees (for which they were taxed at a favorable 15 percent) back to the College as generous donations
The anonymous letter, as quoted by The Dartmouth, 29 May 2012. Scholarship & press. Open the source
12 Oct 2012
The attorney general
On 12 October 2012 the director of the state’s Charitable Trusts Unit wrote that, given “the unsupported nature of the allegations,” the college’s replies and its latest financial statement, the office found “no basis to conclude” the trustees had violated state law, and it went no further; the text is as Dartmouth reports it. In January 2013 the Chronicle of Philanthropy reported that about 13.5 percent of the $3.5 billion endowment was in six funds tied to current or recent trustees, some of whom had made major gifts, a practice “not unusual at major colleges.” A Commonfund Institute official said it was “probably better” for universities to avoid such deals, to avoid “the perception of conflict of interest and self dealing.” A 2010 Chronicle of Higher Education study found financial ties to trustee-affiliated firms at 25 percent of 618 private colleges.
we find no basis to conclude Dartmouth’s Trustees have violated state law by engaging in related party transactions involving the investment of a portion of Dartmouth’s endowment
Attorney General’s Charitable Trusts Unit, 12 October 2012, as quoted by Dartmouth. Primary record. Open the source
30 Sep 2019
The tip
In the 2019 trial of Students for Fair Admissions against Harvard, the court found that legacies were admitted at 35.2 percent and applicants on the dean’s or director’s interest lists at 43 to 48 percent, against 5.5 percent for applicants outside the four tipped groups; recruited athletes, one of the four, were admitted at about 88 percent. The opinion never uses the word “donor,” but the Crimson reported trial evidence that did: emails showing the Dean’s Interest List tied to top donors, the dean answering “It could be” when asked if it includes donors’ children, and defending such treatment as “important for the long-term strength of the institution.” Harvard said listed applicants go through the same process as everyone else. The district court ruled for Harvard on race in 2019; the Supreme Court reversed that judgment in 2023, in a ruling on the use of race.
would adversely affect Harvard’s ability to attract top quality faculty and staff and to achieve desired benefits from relationships with its alumni and other individuals who have made significant contributions to Harvard.
The court on ending the tips for legacies, interest lists and faculty children, 30 September 2019. Primary record. Open the source
Aug 2025
The study
Raj Chetty and two co-authors linked admissions data from several Ivy-Plus colleges to tax records. Children from the top 1 percent were more than twice as likely to attend as middle-class children with the same test scores, and the authors say three factors drive the advantage: preferences for alumni children, weight on non-academic credentials, and athletic recruiting. The same paper finds that attending an Ivy-Plus college instead of the average flagship public college raises a student’s chance of reaching the top 1 percent of earners by 50 percent. The paper does not mention donors.
Children from families in the top 1% are more than twice as likely to attend an Ivy-Plus college as those from middle-class families with comparable SAT/ACT scores.
Chetty, Deming and Friedman, August 2025 version. Scholarship & press. Open the source
12 Mar 2019
The crime
No source here ties this case to an endowment. It is a federal case unsealed on 12 March 2019 over cheating on entrance exams and passing students off as athletic recruits, and the U.S. Attorney’s office for the District of Massachusetts says coaches from Yale, Stanford, USC, Wake Forest and Georgetown, among others, were implicated, along with parents and exam administrators. William Rick Singer pleaded guilty that day and was sentenced on 4 January 2023 to 42 months in prison. The page lists restitution of $10,668,841 to the IRS but does not say for what, and its list of defendants is of people, not schools.
Athletic coaches from Yale, Stanford, USC, Wake Forest and Georgetown, among others, are implicated, as well as parents and exam administrators.
U.S. Attorney’s Office, District of Massachusetts. Primary record. Open the source
31 Aug 2005
The Google shares
When Larry Page brought a new search method to Stanford’s licensing office, the university licensed it and received equity in Google. Its 2004–05 report gives $336 million both for the sale of that equity and as the year’s total from seven companies, and calls it “by far the most lucrative invention” it has licensed. For conflict-of-interest and insider-trading reasons, it says, the Stanford Management Company, the school’s internal investment management company, sells such shares as soon as it is allowed instead of holding them for gains. The report accounts for only $111,000 of the $336 million, to a graduate fellowship fund; it does not say where the rest went.
$336 millionStanford’s licensing office on the sale of the equity it received under its Google license, 2004-05
received from our license agreement with Google. At $336 million, this is by far the most lucrative invention we have ever licensed.
Stanford Office of Technology Licensing Annual Report 2004-2005, Stanford University, 2005. Primary record. Open the source
27 Oct 2020
The Engine
This scene is here because it is the nearest documented case of a university investing in companies that grow out of its own labs. In 2016 MIT founded a venture firm, The Engine, to back “tough tech” start-ups, with $25 million, which MIT’s treasurer said would come directly from the school and not from its endowment; the source of the $35 million it put into the second fund in 2020 is not stated. One company The Engine backs, Quaise, was “born from research at the MIT Plasma Science and Fusion Center.” MIT calls these investments part of a portfolio meant to return money to its operating budget, and Harvard joined as a limited partner in the second fund.
But the $25 million in the new Engine investment fund will come directly from the school, not its endowment, Ruiz said.
The Boston Globe, 26 October 2016, on MIT treasurer Israel Ruiz. Scholarship & press. Open the source
27 Oct 2026
The 2025 law
The 2017 tax reached only private colleges above a size line; before it, in the senators’ 2008 words, “endowment funds are tax-exempt.” The law signed on 4 July 2025 replaced the flat 1.4 percent with 1.4, 4 and 8 percent rates by endowment per student, for tax years beginning after 31 December 2025, and raised the size floor from 500 to 3,000 tuition-paying students. These are the schools’ own figures and they count different things. Yale says it is now subject to the 8 percent tax and that the liability on this year’s $11.3 billion gain is roughly $900 million; Harvard says the higher tax will cost approximately $300 million a year, with a $1.9 billion liability, mostly deferred, already on its balance sheet. Yale’s release gives no yearly figure.
about $900 millionYale’s own figure for the tax liability on its $11.3 billion fiscal 2026 gain, at the new 8 percent rate
The university is also newly subject to an 8% federal endowment tax, and the tax liability associated with this year’s gain is roughly $900 million.
Yale reports investment return for fiscal 2026, Yale University, 27 Oct 2026. Primary record. Open the source
Nov 2026
What the record shows
Yes, some gifts pay donors, by contract: Harvard offers annuities and trusts that pay a donor income for life, with a deduction and capital gains savings, and they sit outside the endowment. Beyond that the sources show deductible gifts, court and press evidence that applicants tied to donors are admitted at higher rates, and one college where trustee-linked funds held 13.5 percent of the endowment, an anonymous letter alleged fees came back as gifts, the college denied it and the state declined to pursue it. What no source here shows is an endowment paying a donor in return for a gift, outside such contracts. Who manages the money, and for what pay, is mostly not public, and that is part of the record.
Schools said confidentiality agreements with managers, difficulty in calculating performance fees accurately and competitive considerations prevented them from providing details about the charges.
Bloomberg News, April 2016. Scholarship & press. Open the source