Eli5: When someone mentions that a certain college has a 5 billion dollar endowment, what does that mean?

Question

Can that money be used for anything?

In: 1

Answer 1

It depends on how the endowment is structured but *generally* university endowments are set up so that the principle of the investment cannot be touched, and the university only spends the interest income from the investment.

So, a $1,000,000 endowment might throw off $50,000 a year from an investment that generates 5% of interest every year. That money comes year after year, and that’s why universities love endowments.

Endowments are sometimes dedicated to a specific purpose – the money might be earmarked for a specific department or a specific faculty position.