Harvard's endowment is worth $40 billion—here's how it's spent

Harvard Business School graduation. Massachusetts ranks No. 1 in the U.S. for Education.
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Harvard has the largest college endowment in the country.

Harvard Magazine and The Harvard Crimson report that the fund's total value during the 2019 fiscal year is $40.9 billion — a $1.7 billion increase from the previous year.

Harvard's endowment is made up of more than 13,000 individual funds invested as a single entity and is overseen by the Harvard Management Company.

With such a large endowment at the school's fingertips, some have suggested that the school should use more of the fund to entirely eliminate tuition at the prestigious Ivy League school — while others argue that Harvard's funds could be better used by recruiting and educating more low-income students, rather than giving free education to their already relatively well-off student body.

But in the school's 2018-2019 financial report, Harvard stressed that the endowment does not give the school full financial freedom.

"There is a common misconception that endowments, including Harvard's, can be accessed like bank accounts, used for anything at any time as long as funds are available," reads the report. "In reality, Harvard's flexibility in spending from the endowment is limited by the fact that it is designed to last forever, which is crucial for an institution intended to serve generations of students and pursue research on big questions—questions that cannot be answered in one lifetime."

Here's how Harvard's endowment is currently spent:

Last year, the school used $1.9 billion from the endowment, in what is known as the endowment distribution, to cover some of the school's operating costs. About 35% of the school's annual operating budget is covered this way. The remaining costs are covered by a combination of sources including student income (tuition paid by students) and donations made directly to the school, as opposed to those made towards the school's endowment.

The school's latest financial report states that 30% of endowment spending is flexible, while the remaining 70% is allocated to various costs. Twenty-four percent of endowment spending is used for professorships, 19% is used on scholarships and student support, 7% is used on research costs, 4% goes toward the school's libraries and museums, 2% goes toward faculty and teaching, 1% is used for construction and 9% is used for "other" costs.

According to Harvard, "the two largest categories of funds support faculty and students, including professorships and financial aid for undergraduates, graduate fellowships, and student life and activities."

During the 2016-2017 school year, Harvard committed $414 million toward financial aid, including roughly $175 million in need-based aid for undergraduates.

Reportedly, some 70% of Harvard students receive some form of financial aid, and 55% of Harvard students receive need-based scholarship aid with average grant totals around $53,000.

While Harvard College enrolls 6,699 undergraduate students, the school also enrolls some 13,120 graduate and professional students. With such a large number of graduate students, it is unsurprising that the school uses some of the funds from its endowment toward this student population.

Fellowship amounts and totals vary by department and program, but students can search and apply for Harvard's graduate fellowships using the school's CARAT database.

Additionally, many schools — including Harvard — see their endowments as a way to assure that they will remain in operation for years to come.

in 2018, Harvard's endowment was worth $39.2 billion, and the school used $1.8 billion from the fund to cover the University's costs. According to The Washington Post, "At that spending rate, and assuming inflation of 2%, the endowment will have to generate a return of 7% a year just to maintain its value in today's dollars, or 2.5 percentage points a year more than it generated over the last decade."

Harvard's endowment provided a 10% return in 2018 — but just 6.5% this year.

Representatives for the Harvard Management Company confirmed to CNBC Make It that these figures are accurate but declined to comment further.

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