College endowment crests $1 billion

By Jack Weitzner

The college’s endowment reached a major milestone this year when its value surpassed one billion dollars, placing it in an elite circle of other private institutions valued in the dectuple digits. The school broke into the billion-dollar range in February after recovering from market drops brought on by the pandemic.

The endowment is funded largely by donations to the college, and a small percentage of it is used each year to fund campus operations. In recent years, the endowment has been used in large part to supplement tuition and fund financial aid, as well as ongoing real estate projects and other campus expenses.

Vice President of Finance and Administration and Treasurer Roger Demareski attributed some of the increase in the endowment to market performance.

“Right now…markets are doing very very well and so our endowment is doing extremely well,” Demareski said.

“About this time last year, we dipped down to just about 750 million. And as of last month, we were just about a billion, so you can see the swing so we took a significant drop and rebounded,” Demareski said. “We started the pandemic at about 860 million, dropped to 760, then rebounded to just about a billion.”

Investment Director Mervin Burton, who spoke on behalf of the college’s Investment Office, attributed the achievement to solid investment performance as well as support from Lafayette’s larger community. 

“I’m thrilled to see our endowment cross the billion-dollar threshold,” he said. “We got there not only because of investments but also because of the generous donations of so many alumni and an even broader community of staff, faculty, students and supporters who help make Lafayette such a great school.” 

The milestone was reached in part because of the endowments’ exceptional performance this year, posting significantly higher returns than in the previous year. According to Burton, the endowment returned 22.6% for one year, 8.9% annualized for 3 years, and 10.2% annualized for 5 years.

The College’s budget has been squeezed this year due to a halt on tuition increases, a 10% tuition decrease last semester to compensate for remote learning as well as a lack of room and board revenue from the fall 2020 semester. While the rapidly growing endowment will help to alleviate these pressures, the relief will not be immediate. 

“It’s a delayed effect. The reason it’s delayed is because the draw–or the amount withdrawnis a percentage of the roughly three-year rolling average of the endowment value,” Burton explained. “So, in any one year, you still have to look back at the prior two years and sort of average that out. If we continue to grow the endowment, the amount that we are able to contribute will grow as well.”

Swelling endowments have stirred controversy in recent years, with some students and lawmakers questioning their benefits. Some lawmakers have proposed instituting mandatory endowment spending on tuition relief, especially as many colleges, including Lafayette, continue to have tuition increases in excess of inflation.

Senior Electrical Computer Engineering student Nathan Beal ’21 said he finds it difficult to understand why he needed to go to great lengths to afford his education when the endowment is so high.

“It just seems crazy that I’m going to be paying off student loans for the next 5-10 years when the college is sitting on $1 billion,” Beal said.  

Though a fraction of the endowment used each year is earmarked for financial aid, many of the funds in the endowment are gifts that are specified for a particular objective by the donor. As a result, the college is limited in its ability to access these funds for alternative purposes. 

“The endowment is meant to support the college in perpetuity,” Burton said. “We plan to help current students, as well as students that will be here in four years, 20 years, 50 years, 100 years. One billion dollars really is symbolic and shows that as a community we’re moving toward building a strong endowment which will endure for many, many years that will help students – both current and future – be able to afford the college.”

Demareski noted that the college expects to see the markets begin to decline as part of a market correction in the coming months, and that this may be reflected in Lafayette’s endowment.

“It’s a good moment right now, but we have to plan for markets that are doing well and then have a correction,” Demareski said. “So we’re pleased with it, but we’re also fairly balanced that markets will level out at some point if not have a correction down the road.”

News Editor Lucie Lagodich ’22 contributed reporting.