Amid rising economic, geopolitical, and policy uncertainty, higher education institutions are under increasing pressure to adapt. FEG conducted a flash poll1 in July to better understand how institutions are responding to the current environment and the seemingly constant stream of changes.
Facing the Challenges
Recent actions and rhetoric from the current administration have created shockwaves and uncertainty across the higher education sector. Institutions are grappling with federal and state funding cuts and changes in Pell grants and student loan criteria. A significant drop in the number of international students and competition from online and trade schools are all straining budgets. At the same time, labor shortages, inflation, healthcare costs, regulatory compliance, and facilities upgrades are driving up expenses. It should be noted that some institutions, particularly top-tier and niche regional schools, are thriving with rising enrollment and additional athletic funding. The contrast adds to the difficulty the industry is facing in identifying best practices and what to do next.
Policy changes present additional complexity. New endowment tax increases (from 1.4% to 4–8%) currently impact only a handful of large, private institutions, but could expand again. On the positive side, tax changes for individual donors are generally stimulative, though their impact may vary.
To better understand institutional responses, FEG posed two critical questions. First, how is your institution diversifying revenue sources? And second, what changes are you considering in your endowment portfolio?
Question 1: How is your institution diversifying revenue sources?
Over half of respondents are focused on increasing revenue through fundraising, recruitment, tuition adjustments, and auxiliary income (e.g., housing, event rentals). This familiar playbook is highly competitive and may benefit a few institutions to the detriment of others. A more collaborative approach—where universities concentrate on core strengths and reduce program overlap—could offer broader, sustainable benefits across institutions.
A few other respondents also mentioned increased spending (17%) and scholarships (9%) to offset budget gaps. After years of conservative endowment spending following the 2008 financial crisis, some institutions are reconsidering a higher distribution rate. As a point of reference, findings from the 2024 NACUBO-Commonfund Study of Endowments2 show an average spending policy of 4.6% and a range of 4.3%-4.8%. The inherent challenge of course is that this presumes continued strong portfolio performance, which is hardly a given, or increasing portfolio risk allocations in search of growth. Analyzing how changes in spending policies affect growth and liquidity can help prevent issues before they occur.
Lastly, institutions are enhancing financial flexibility by expanding debt capacity and credit lines. These tools help manage irregular cash flows and guard against liquidity shocks but should be used cautiously in today’s higher-rate environment.
As is often the case, what wasn’t cited was similarly telling. Adjusting scholarship criteria and forming strategic partnerships across institutions were less frequently mentioned despite considerable - and differentiating – opportunity in these areas.
Question 2: What Changes Are You Considering in Your Endowment Portfolio?
When asked about portfolio changes, 44% of institutions reported making no changes—an approach FEG applauds. Long-term portfolios should be built to withstand volatility, and reactive decisions inevitably lead to mistimed adjustments. Instead, institutions are revisiting stress tests and liquidity scenarios to validate strategy and proactively uncover opportunities.
39% of respondents are reviewing risk profiles, asset allocations, or investment structures, including reducing private capital commitments. As of June 30, 2025, public equities outperformed private markets for the third consecutive year for institutions following a June 30 fiscal year. FEG still believes strongly in the long-term value of private capital, but manager selection and exit strategies are ever more critical.
Finally, 22% of responding institutions are seeking increased financial flexibility through raising cash or short-term fixed income exposure to leverage higher yields. These adjustments may enhance short-term growth, particularly given the increased contribution of yield-oriented investments like fixed income to overall portfolio returns in recent years. However, it’s essential that such changes are made with a long-term perspective to avoid compromising future objectives.
Planning for What's Next
This flash poll reveals institutions cautiously adapting to a complex and volatile environment as they prepare for even more potential upheaval. While market rebounds and policy clarity have temporarily eased concerns, long-term challenges certainly remain.
As a trusted advisor to higher education institutions for over 37 years, FEG continues to support clients through enterprise financial analysis, portfolio stress-testing and scenario planning, spending policy and liquidity reviews. In these uncertain times, governance and discipline are essential—but so too is vision. FEG encourages institutions to remain risk-aware and balance short-term opportunities with long-term discipline.
Footnotes
1 Given the rapidly evolving environment, FEG prioritized timeliness over maximizing response volume. While the sample size was statistically limited—with fewer than 50 institutions participating—the survey successfully highlighted key issues and offered valuable directional insights for discussion.
2 2024 NACUBO-Commonfund Study of Endowments, www.nacubo.org/Press-Releases/2025/US-Higher-Education-Endowments-Report-10-Year-Average-Annual-Return
Disclosures
The National Association of College and University Business Officers (NACUBO) is a membership organization representing more than 1700 colleges, universities and higher education service providers across the country. The NACUBO data was obtained from the 2024 NACUBO-Commonfund Study of Endowments (NCSE), an independent third-party. The study includes a survey of 658 U.S. colleges and universities. The study divided the data into seven categories according to size of endowment, ranging from institutions with endowment assets under $50 million to those with assets in excess of $5 billion. The survey data is for the 2024 fiscal year (July 1, 2023 - June 30, 2024) and based on the responses provided by the participants and is meant for illustration and educational purposes only. The NCSE average and median returns presented in this presentation are net of all management fees and expenses are taken directly from the NACUBO study and were not calculated by or achieved by FEG or its clients. FEG is not affiliated with the organization and did not pay for the survey data.
This article was prepared by Fund Evaluation Group, LLC (FEG), a federally registered investment adviser under the Investment Advisers Act of 1940, as amended, providing non-discretionary and discretionary investment advice to its clients on an individual basis. Registration as an investment adviser does not imply a certain level of skill or training. The oral and written communications of an adviser provide you with information about which you determine to hire or retain an adviser. Fund Evaluation Group, LLC, Form ADV Part 2A & 2B can be obtained by written request directed to: Fund Evaluation Group, LLC, 201 East Fifth Street, Suite 1600, Cincinnati, OH 45202 Attention: Compliance Department.
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