Understanding Princeton’s endowment: A history of impact
Flash back to the 1970s. Princeton University was in the red and running budget deficits. Building repairs lagged; financial aid resources fell short of student need; salaries failed to keep up with inflation; and new construction projects were on indefinite hold. This was the reality for Princeton then.
Half a century ago, the acute financial crisis facing Princeton and other universities was front page news in The New York Times. Higher education leaders worried about the solvency and growth of their institutions, and warned entire departments and schools could be cut while the construction of facilities and the introductions of innovations would be curtailed.
“We’re worried," Princeton President Robert F. Goheen told the Times on July 13, 1970.
The article cited economic recession, inflation, declining investments, reduced government funding and stagnant alumni donations as the combination of reasons for the crisis. Princeton was a tuition-reliant university at the time, and its financial model was no longer sustainable.
All of that changed over the next 50 years, with the stewardship and growth of the endowment playing a key role in growing and transforming Princeton.
Today, the endowment is vital to the cutting-edge discoveries and life-changing opportunities that have impact well beyond campus.
The endowment helps support almost every aspect of the University, from Nobel Prize-winning research to a groundbreaking financial aid program benefiting generations of students, to the transformation of one of the world’s foremost research libraries, and to service programs that support faculty and students doing on-the-ground work in communities close to home and around the world.
In this second story on the endowment, we look at how Princeton went from red ink to big dreams and the role the endowment has played in that transformation. In our first story, we explained how the endowment works and how the University must balance the funding priorities of today while maintaining a financial foundation for future generations.
‘An active endowment’ with audacious bets on ideas and people
The endowment, valued at $26.6 billion as of June 30, 2020, is now central to the University’s teaching, research and service missions. (The endowment value for fiscal year 2021 will be announced later this fall.)
As investment returns have grown over many decades, Princeton has dedicated more of its endowment to support almost all aspects of education and operations.
“Everything gets supported by the endowment at some level. It flows through every aspect of what the University does,” President Christopher L. Eisgruber said. “It is not just that the endowment has increased over time, it’s that Princeton has actively used more of its endowment to strengthen the University and transform teaching and research in exciting ways.”
Provost Deborah Prentice said the endowment’s impact can be seen in Princeton’s leadership in new fields and frontiers. Without the super-charged boost the endowment provides, Princeton would not be able to continue to push the envelope in research, lead in teaching and foster talent at all levels.
“The strength of our endowment allows us to try new things, to experiment and to take risks,” Prentice said. “We have the financial backstop to take big bets on people and ideas that may lead to amazing discoveries that impact the world.”
In one of these audacious bets, the University co-invested with donors to kick-start the Princeton Catalysis Initiative, in which scientists, engineers and scholars collaborate to accelerate the discovery of research areas with worldwide impact. The initiative is led by David MacMillan, the James S. McDonnell Distinguished University Professor of Chemistry, who won the Nobel Prize in chemistry earlier this month. His work in organocatalysts has had tremendous impact on pharmaceutical research and also has made chemistry greener.
“I’m blown away by how much this University cares about excellence and about doing good for society. They really do walk that walk, which has always been impressive to me,” MacMillan said during his Nobel Prize press conference on Oct. 6.
From financial crisis to dreaming big: How the University has been able to rely on its endowment increasingly to do more
Following the financial crises of the late 1960s and early 1970s, the Board of Trustees began to set a course to pull the University off the financial cliff and ensure a future where Princeton could dream big and grow into the world-class teaching and research university it is today.
Through strong budget discipline and smart investments, Princeton leaders turned around the deficit, and endowment performance began a decades-long growth trend starting in the early 1980s, triggering transformations whose impact we will see continue for decades to come.
President Emeritus Harold Shapiro, who led the University from 1988 to 2001, said the endowment’s growth helped transform Princeton to what it is today: “We had endowment returns that presented us with new opportunities. We wanted to use those funds to grow the University — to expand into new fields and make Princeton more accessible to more students — while also preserving our obligations to future generations.”
Eisgruber added: “Over the last 50 years the endowment has enabled Princeton to seize opportunities and to dream big.”
One dream made real: Making Princeton more affordable and accessible to more students
“The endowment enables our ability to make Princeton affordable and accessible to more talented students from different socioeconomic backgrounds,” President Christopher L. Eisgruber.
The Board of Trustees’ 2001 decision to remove loans from financial aid packages was made possible by long-term growth of the endowment. Since then, more than 10,000 undergraduates have benefited from Princeton’s aid program, which meets students’ full financial need with grants that do not need to be repaid.
Princeton’s 2001 decision also impacted generations of students across the country as other colleges and universities followed suit by removing loans from their financial aid packages.
The University’s transformative financial aid program has enabled Princeton to increase the socioeconomic diversity of the student body. In the Class of 2025, 62% qualify for financial aid, 22% are lower-income students eligible for federal Pell grants and 18% are first-generation college students.
The actual cost of educating each student is more than tuition, room and board, so endowment funding also benefits undergraduates who do not receive financial aid.
The University’s general education expenses (the cost of educating all undergraduates and graduate students) mostly come from endowment earnings with a very small portion coming from tuition and fees.
In the Graduate School, the endowment, along with other funding sources, supports Ph.D. students during their program’s length, helping graduate students focus on their scholarship and research.
Seed money for curiosity-driven exploration with the potential to change the world
“Endowed funds enable researchers to try early-stage ideas that are not yet ready for submission to federal funding agencies. In so doing, they play an essential role in the research enterprise, by providing intellectual space for curiosity-driven exploration and the surprising discoveries that often follow,” Dean for Research Pablo Debenedetti.
Endowed funds support research across academic fields, and enable the scholarship, teaching and research of Princeton’s outstanding faculty. The endowment allows the University to fund risk-taking research projects and to make big bets on big ideas over time. Many of those investments are in ideas and research whose results may not be known for years to come.
Dean for Research Innovation Funds, for instance, provide seed funding to faculty in natural sciences, engineering, the humanities and social sciences to explore entirely new ideas and technologies that enable innovative scholarship. One team from chemical and biological engineering used these funds to develop a novel approach to the encapsulation of peptides and proteins, resulting in new technology that could offer a more effective and robust delivery mechanism for some key vaccinations, from malaria to COVID-19.
The endowment also allows the University to expand into new fields of study and research, such as recent and ongoing growth in neuroscience, bioengineering, computer science and environmental studies. As student interest in computer science grew exponentially during the last decades, the University moved to expand the department’s faculty by more than 30%. Today it is the largest undergraduate concentration.
Growth in new fields is often supported in tandem with generous alumni donations, such as the establishment of the High Meadows Environmental Institute and Andlinger Center for Energy and the Environment, two centers integral to Princeton’s research to solve humanity’s toughest environmental and climate challenges.
And at the same time, the University has the resources to continue to support the range of academic departments and interdisciplinary centers integral to a liberal arts education.
While federal and industrial grants are essential to funding research, the University has had to cover a growing share of the indirect costs, including the laboratories and instruments that researchers use. As research expenses have increased in a 21st century world, University funding has increased to continue Princeton’s leadership in cutting-edge research that has the ability to transform the world.
The University also has more than 200 endowed professorships honoring the most distinguished professors. Many endowed professorships were given by alumni to further the intellectual pursuits of faculty and to broaden University research into new areas of discovery that benefit society at large, such as the recent gift for a new professorship in Indigenous studies to build on Princeton’s interdisciplinary strengths and expand its faculty expertise in Indigenous scholarship.
‘Tremendous transformation’ over the decades and into the future
“When I was a graduate student here, I walked around this beautiful campus and had all these benefits that someone I never knew provided to me. Someone in a previous generation provided resources to Princeton to support the next generation of students,” President Emeritus Harold Shapiro.
The endowment supports classrooms, laboratories, libraries and academic programs, as well as campus-life priorities, including athletics and religious life.
Endowment earnings also help the University meet high-priority capital needs, such as construction and building renovations. Princeton has zero deferred maintenance on buildings, in contrast to the 1970s, when financial challenges forced the University to defer upkeep of some of its dormitories and buildings. Back then, Princeton’s budget lines for major maintenance were not sufficient to cover the rising cost of building repairs.
Moving forward to the present, endowed funds have allowed the University to recently complete a more than quarter-billion-dollar, 10-year renovation of Firestone Library. The World War II-era building (spanning 430,000 square feet) was transformed into an innovative 21st century library for students and faculty as well as scholars who come from across the world to study collections such as the Toni Morrison Papers and T.S. Eliot letters, to name just a few.
The University is able to build new facilities central to teaching, research and life on campus through the combined support of alumni donations and endowment funding. This co-investment in campus has allowed the University to expand its capacity, providing more talented students from different backgrounds the chance to attend Princeton. The undergraduate class size increased in 2007 with the opening of Whitman College, and plans to increase the class size again by 10% are underway, enabled by the opening of new residential colleges in fall 2022.
“Over the last 50 years, the stewardship of the endowment and its growth over time has enabled tremendous transformation, and we must continue to steward our resources to ensure those impactful transformations continue for generations to come,” Eisgruber said.