Educational Endowments and the Financial Crisis: Social Costs and Systemic Risks in the Shadow Banking System

Joshua Humphreys

The high-risk, high-return “Endowment Model of Investing” adopted by many universities generated impressive financial returns in the boom years, but the financial crisis destroyed tens of billions in endowed wealth at colleges and universities within one year. Mounting endowment losses have been used by college administrations to justify some of the severest austerity measures in a quarter-century. This report looks at what happens—and who suffers—when universities embrace high-risk investing. It examines six privately endowed New England colleges and universities—Boston College, Boston University, Brandeis University, Dartmouth College, Harvard University and the Massachusetts Institute of Technology—as case studies for exploring deeper connections between educational endowments and their impact on our institutions, our communities, and our economy.