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What About the Endowment?

With such a significant endowment, it’s reasonable to wonder why Stanford can’t spend more. The endowment makes amazing things possible, but there are limits on how it can be used.

The endowment does not sit idle. Every dollar is at work, funding about 20 percent of Stanford’s operating expenses every year.

Endowment is defined as assets invested to generate a steady stream of funding year after year, in perpetuity. Over the course of each year, Stanford draws down a portion of the endowment to support its operating expenses.

For example, at the beginning of fiscal year 2021-22, Stanford’s endowment was valued at $37.8 billion. The endowment payout of $1.47 billion 3.9% of the endowment’s value covered about 21 percent of the university’s operating costs of $6.84 billion.

Spending approximately 5 percent of the endowment each year typically covers about 20 percent of Stanford annual operating expenses.

This payout supports nearly every part of the university, including financial aid, student services, faculty salaries, research, libraries, and athletics. Stanford must fund the rest of its operating expenses from other sources, such as research grants and contracts, student tuition and fees, health care income, and gifts from alumni, parents, and friends.

The payout from the endowment is carefully calibrated to continue supporting the university’s operating budget over time.

Like most peer institutions, Stanford’s annual endowment payout rate is approximately 5 percent. The endowment payout is adjusted annually based on market performance and other factors that help smooth payout from year to year despite market volatility.

Over the long term, increasing the endowment spending rate by just 1 percentage point could cause the endowment’s value to decline, in which case the annual payout would fall, covering an even smaller portion of the budget.

Almost 75 percent of the payout from Stanford’s endowment is restricted or designated for specific uses.

The endowment actually includes more than 7,300 different funds established by donors. Most of these are designated for specific purposes, such as supporting first-generation college students or advancing a particular field of study. Stanford has a legal and fiduciary obligation to use these funds as intended.

For example, payout from the endowment is the largest source of undergraduate and graduate student financial aid. Stanford is one of the few institutions that commits to meeting the demonstrated need of undergraduate students through scholarships—not loans.

With the help of alumni and friends, Stanford can keep supporting everything it does.

Stanford’s endowment provides support for nearly 17,000 students, 2,300 faculty members, approximately 2,500 postdoctoral scholars, seven schools, and dozens of centers, institutes, and programs. If the endowment continues to be spent at a sustainable rate, then it can provide that support forever. The partnership of endowed gifts and annual gifts from alumni and friends make this possible.

It’s the income generated from investing the endowment, not the endowment principal itself, that supports our annual operating budget. If we start to consume the endowment principal, there will be less to invest and therefore less income to support the university in future years.

Randy Livingston, ’75, MBA ’79,
Stanford’s vice president for business affairs and CFO

Randy Livingston