Princeton University Submits Response to Congress Regarding School Endowment

Princeton University President Christopher Eisgruber submitted a response today to a letter sent by two congressional committees on Feb. 8 seeking information about how the school uses its endowment to fulfill its charitable and educational purposes.

The letter was sent by the Republican leadership of the Senate Finance Committee and the House Ways and Means Committee to 56 private schools with assets of more than $1 billion. Some legislators say the schools receive too many tax preferences under the Internal Revenue Code, and their endowments should be taxed.

Princeton’s endowment was $22.7 billion at the end of the 2015 fiscal year, up 12.7 percent from the previous fiscal year.

Eisgruber, in his response, said wrote that the endowment enables the Ivy League school to pursue its teaching and research missions at a high level of quality while allowing the school to ensure that Princeton remains affordable for students from all socioeconomic backgrounds.

“Endowments are frequently mischaracterized as rainy day funds or nest eggs, as if they are accumulations of resources to be used at some point in the future. To the contrary, we depend on our endowment year by year to cover half the cost of our operating budget and to meet high priority capital needs,” Eisgruber wrote.

“Because of our endowment, we are able to offer world-class programs of scholarship and research in well-established as well as emerging fields, despite declining levels of federal support for these purposes, and we are able to provide exceptional educational opportunities at both the undergraduate and graduate levels while charging only a fraction of the cost even to those students who pay full tuition,” he wrote.

Princeton’s endowment is made up of more than 4,300 accounts, and some of the accounts date back hundreds of years, he wrote.

“Many of the funds came to the University as gifts, some with restrictions on how the earnings on the funds can be used, but all with the understanding that they would be used to support the University’s educational mission,” Eisgruber wrote.

At the graduate level, the school guarantees funding for all regularly enrolled degree-seeking doctoral candidates for tuition and stipends.  At the undergraduate level,  about 60 percent of the students receive loan-free financial aid, and about 83 percent of students graduate debt free. The average student debt is $6,000.

The school spent $871 million from the endowment in the 2015 fiscal year, or 4.2 percent of the endowment.

Princeton holds investments that are not included in the endowment, includes working capital that provides liquidity for educational purposes and expenditures. According to Eisgruber’s response to the congressional committees, the investments that are not part of the endowment totaled $557 million (fair market value) for the 2015 fiscal year.

Excluding external managers’ performance-based compensation, the school spent $299 million to manage the endowment in fiscal year 2015, with $42.4 million paid to its investment arm (Princo) and other departments, $160 million to external management firms, and $21 million for internal costs at Princo and other departments.

About 7.9 percent of the school’s endowment was invested in U.S. property in fiscal year 2015, or about $1.77 billion. Another $492 million was invested in international property, or about 2.2 percent of the endowment, according to the letter.

“In addition, the University holds some strategic landholdings
as part of its overall endowment, but not in the primary pool,” wrote Eisgruber. “Princeton Forrestal Center is a mixed-use development that was initially conceived in the 1970s as a means to attract
research enterprises to the Princeton area and shape the growth of communities adjacent to the University. The University owns less than half of the total PFC land and pays property taxes on all of its commercial real estate.”

The fair market value of real estate holdings that are outside of the primary invested pool is $47 million, Eisgruber wrote.

“Princeton contributes in many ways to the overall economic well-being of New Jersey and to the quality of life in its surrounding communities.” he wrote. “It is the largest private employer in the region, and it offers educational, cultural, and athletic programming that includes a community course auditing program, an exceptional art museum that is free and open to the public, public lectures and artistic performances of many kinds, and high quality varsity sports teams.”

He cited the multi-year payment in lieu of taxes agreement with the municipality of Princeton, which was $2.86 million in 2015, and one-time contributions totaling $2.59 million to several  municipal projects, including new space for the first aid and rescue squad and fire department. He also cited $56,000 a year that is paid to West Windsor Township.

In fiscal year 2015, the school also paid property taxes totaling $10.2 million total to local municipalities.

“For many years, the University has elected to leave all non
-dormitory student housing on the tax rolls. This is a voluntary action, as state law exempts colleges and universities from paying taxes on buildings related to their educational missions,” he wrote.

The 13-page letter has been posted online.

Endowment wealth, which is heavily concentrated at the richest institutions like Princeton, has been receiving more scrutiny recently at the gap between the richest and poorest schools widens. Nearly 11 percent of colleges hold almost three-quarters of all endowment wealth among the 832 institutions that participate in the annual endowment study by the National Association of College and University Business Officers. The 40 richest universities in the country have seen increases in their endowments that are more than double those at universities with fewer resources.

The wealthiest colleges receive billions of dollars in tax benefits. The Congressional Research Service, which provides policy and legal analysis to committees and members of both the House and Senate, has suggested that the federal government could tax endowments or endowment earnings, or curb the tax benefits associated with making donations to wealthy endowments.

Because many wealthy institutions like Princeton have already reduced the net price for low- and middle-income families, some experts say required more spending on financial aid may benefit wealthy families the most.

The scrutiny from the federal government regarding endowments and tax policies comes at a time when some people are also questioning policies regarding wealthy institutions and property taxes.

A New Jersey judge recently ruled that a hospital in Morristown functioned like a hybrid for-profit and non-profit, and therefore must pay taxes on a portion of its property. Princeton University is currently the defendant in a lawsuit filed by a handful of residents challenging the school’s tax-exempt status for numerous properties. The case is expected to be heard by the judge in the fall.


  1. If I understand this correctly, more than one third of the expenditures were to manage the endowment ($299 million of $871 million). One percent of what the university paid to manage the endowment was paid as PILOT.

    The responsibility of managing a fund greater than GDP of many countries must be awesome, certainly worth one hundred times what the university contributes to the community.

      1. It is, but the one percent I mentioned was one percent of the management fees, not of the endowment.

        It would be unreasonable to expect a PILOT which was a fair taxation of the endowment, but a fair taxation of expenditures would be well within reason.

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