After the comments on Harvard’s reported $8+ mil of relief tied to the CARES Act, I’m seeing a lot misinformation on college finances. Just thought I’d put my two cents out there for what it’s worth. The “rich” are not getting “richer” in this case. 1/

First off, as Harvard eloquently pointed out, they didn’t pull money from the small business loan program. They have too many employees and aren’t structured to be able to qualify anyway. 2/

The money they received wasn’t to “stabilize” the school. As most would agree, including Harvard themselves, they don’t need “stabilization.” They need cash for their operating costs and financial aid. 3/

“They have a $40B endowment! How could they need cash!?” Endowments are very complicated. Typically, it’s comprised of philanthropic gifts with very specific payout methods, calendars, and designations. You legally can’t convert it to cash when you want. 4/

Endowments are basically just a pot of untouchable money that pays off dividends every year based on the market/investments. Some parts of endowment are externally managed too, which means Harvard doesn’t even have control as to what the money is doing. 5/

Much of the endowment is tied to niche things on campus per the philanthropist’s request. As mentioned, this is legally and contractually binding. It would be illegal to convert the cash earnings to something other than what the donor has designated. 6/

The main problem right now is that financially-needy students need cash to get home, stay on campus (if they have no home), continue paying for school if their parents lost their jobs, and a litany of other examples. 7/

Students at Harvard rely on financial aid too to go there. When all of a sudden you aren’t operating at full capacity, you don’t have cash flow to give students tuition relief when it’s needed. 8/

This creates a problem because all of sudden, cash is low and unless you have a bunch of unrestricted money (i.e. cash from donors that has no designation), you’re in trouble, regardless of your endowment size. 9/

How about some examples. Let’s say that a $1B of the endowment is tied to building and maintain the swimming pool, turf fields, and weight room in the athletic facility. Well that pool isn’t being used right now and may not in the fall either. 10/

All of sudden, numerous projects are getting roll-off money from their endowment, but there’s nowhere to use the money and it HAS to be used (legally) for the “building and maintaining of the swimming pool, turf fields, and weight room in the athletic facility.” 11/

Another example. $500 million toward genetic research for faculty and students. Labs are vacant right now, so that roll off isn’t being used either. It’ll be great for the future, but that doesn’t help the current problem for anyone. 12/

So now Harvard is left with all this money that’s pigeon-holed for things that are pretty useless right now. That’s why unrestricted gifts are the most important and valuable to an institution. It gives the school the ability to put it toward the greatest need. 13/

The anger toward Harvard is similar to someone getting mad at you for asking for $10 to eat dinner on a Sunday when you have a $50 Chickfila gift card. Sure, that gift card works great in the future, but it doesn’t solve the problem now. 14/

All that to say, endowment money is locked up and Harvard needs operating budget cash to keep their hundreds of employees employed and students continuing their education. 15/

There’s a bill being floated to tax large endowments very heavily. Different topic, but those that are upset about a $8+ mil handout from the government aren’t talking about how Harvard will likely be giving the government exponentially more if that bill gets passed. 16/

TL;DR: Harvard needed cash now to help students and keep employees because endowments are complicated.

If you make a gift to your alma mater, I recommend unrestricted. It’s easily the most valuable to an institution. 17/17