Independent Schools Increasingly Depend on Endowments for Operations

Amidst concerns about student enrollment, fundraising, inflation, market volatility, and more, independent schools are relying more on their endowments to cover any gaps. Data from the 2024 Commonfund Benchmarks Study of Independent Schools (CSIS) show that, in FY2024, endowments covered an increasing share of total operating expenses. And in what may be a related finding, more school leaders reported that their endowment’s core purpose is to support the operations of their institution, compared with prior Studies. 

Below we share analysis on 1) the top reported concerns for participating independent schools 2) how the endowment is supporting operating expenses and 3) a shift in how independent schools reported using their endowments in FY2024.

1. Top reported concerns

Fundraising was the most reported concern for the largest and mid-sized schools in this year’s Study, alongside inflation. For smaller schools, fundraising was the second most-cited concern. According to the last two years of data, fundraising is of increasing concern—in the FY2023 Study it was ranked third among the top concerns for the largest two size cohorts. 

New gifts may be related to increased concern: FY2024 Study data show that average gifts for all respondents fell for the second year in a row, from a historical high of $2.4 million in average new gifts to independent school endowments in FY2022 to an average of $1.7 million in FY2023, and $1.6 million in FY2024. When looking at these data by school size, the largest schools reported average gifts increased in FY2024 while the other two cohorts reported a decline in gifts. Across size cohorts, average gifts were below FY2022 levels, which may contribute to the concern that the fundraising environment has become more tenuous in the past two years.

Inflation, or the increase in operating expenses for institutions year over year, has put more pressure on fundraising efforts and endowments to contribute more to cover costs. According to NBOA data, median net tuition and fees per student increased 3.9 percent between FY2023 and FY2024, but median total operating expenses per student increased 5.4 percent over the same time period. The median gap between net tuition and fees per student and total operating expenses per student continues to grow and increased 13.9 percent between FY2023 and FY2024. This is the gap that the endowment income needs to fill.

With that context, it is of little surprise that among the largest and mid-sized cohorts, fundraising and inflation were the top two concerns. The largest schools’ third most-cited concern was not meeting target returns, which is also related to inflation: 38 percent of the largest schools use inflation to define their return objectives—which, in general, means that higher inflation leads to higher (and perhaps harder to achieve) return targets. 

Further, when asked how institutions have handled increasing costs in terms of spending, more than one in five institutions—22 percent—reported increasing spending to cover increasing costs. Nearly one third—30 percent—of the largest institutions reported increasing spending in response to inflation in FY2024. The impact of inflation on spending likely contributes to the other most-cited concerns—as costs increase, there is more pressure on meeting goals related to fundraising, enrollment, and returns. 

2. Percent of Operating Budget Funded by the Endowment Increased 

The share of the operating budget funded by institutions endowments, and how it changes over time, is a gauge of how important the endowment is for financial stability, relative to other factors. In FY2024, the percent of operating budget funded by endowment increased to 6.7 percent from 6.4 percent in FY2023. By size, the largest institutions funded a substantially higher share of operations with their endowments, 11.2 percent on average in FY2024 (unchanged year over year). The mid-sized cohort reported an average of 4.2 percent of operating budgets were funded by the endowment in FY2024, down from 4.4 percent in FY2023, and the smaller cohort reported an average of 1.9 percent of operating budgets was funded by endowment up 1.7 percent in FY2023. 

3. Purpose of the Endowment

In last year’s Study, we started asking a new question: What is the purpose of your institution’s endowment? In other words, why do institutions work tirelessly year after year to ensure positive long-term outcomes for this pool of funds? And why do we, as researchers, thought leaders and partners put together this Study? 

The most-cited purpose of endowment reported was general operating support. This is a change from FY2023 when the top answer was need-based financial aid. In FY2024, the same share of institutions (37 percent) had the same answer. However, general operating support took its place as the most selected (39 percent, up from 34 percent in FY2023). When looking at institution size, the biggest changes year over year came from the largest size cohort (45 percent said operating budget in FY2024, up from 43 percent in FY2023) and the mid-sized cohort (37 percent said operating budget in FY2024, up from 28 percent in FY2023).

Perhaps the data presented so far—that fundraising and inflation are increasing concerns, and endowments are being increasingly relied on to support increasing operating budgets—help paint a picture of why general operating support was the most-cited purpose of the endowment, and why it may have grown in significance, in FY2024.