The Impact of Economic Recessions on the Relationship Between University Endowments and Tuition Cost: Private vs. Public

Abstract

University endowments play a central role in higher education finance, serving as a long-term financial tool that supports institutional operations. Given this role, further research is needed to understand how endowments interact with tuition pricing, especially during periods of economic downturns. This paper investigates the relationship between endowment performance and tuition costs by diving into how endowments function as financial tools during economic recessions and whether their impact differs between public and private universities. Using a dataset of high-endowment universities from 2003 to 2022, this study runs a multi-model Difference-in-Differences regression to analyze how endowment levels, institutional type, and macroeconomic conditions influence tuition-setting behavior. This paper found that while economic recessions correlate with decreased endowment performance, they don’t directly lead to tuition increases. Instead, macroeconomic indicators, such as unemployment, are more predictive of rising tuition. Although private universities maintain higher tuition and endowment levels than public universities, their spending practices during downturns are limited by long-term financial planning principles and donor restrictions. This paper challenges assumptions about endowment efficacy and highlights the limitations of current strategies while offering a foundation for future research surrounding institutional resilience and student affordability during economic stress.