Funding Yale FAQs

Get answers to frequently asked questions about Yale’s finances.

You may submit any questions not addressed here through our contact form.

Does Yale spend from the endowment principal, and why or why not?

The gifts that make up the endowment are intended to provide lasting support for the university and its mission. As such, the endowment is invested with the goal of providing financial support in perpetuity for the purpose defined by the gift. The endowment provides income to the operating budget based on a policy established by the board of trustees (a target spending rate is 5.25%) which takes into account the preservation of purchasing power. Certain gifts, known as term endowment funds, allow the fund to be spent down completely by a future date or if a specific event has occurred.

How does the university decide how much endowment income to spend each year?

How much endowment income the university spends is determined by two factors: a target spending rate approved by the board of trustees and a smoothing rule that protects the university from instability in the financial markets. The spending for a given year depends on both the amount spent in the previous year and the endowment’s value from two years ago.

The university’s spending policy has two principal goals: to spend as much as possible for current uses without diminishing the amount that will be available for future generations of students, faculty, and staff. The target spending rate of 5.25% reflects considerable statistical analysis of potential investment performance to allow for this preservation of purchasing power. The smoothing rule helps avoid dramatic changes in operating revenue from year to year, particularly important given that salaries and benefits for faculty and staff comprise almost two-thirds of the annual operating budget.

How exactly does the spending policy work?

To determine the year’s spending, the target spending rate (currently 5.25%) is applied to the endowment’s year-end value from two years ago. Then 20% of that amount is added to 80% of the total amount spent in the most recent fiscal year, and adjusted for inflation.

When calculating the portion of spending that derives from 20% of the value of the endowment from two years prior, the university applies a cap of 6.5% and floor of 4.0%, to reduce the likelihood that the spending level will fall outside of those bounds in the year that spending is deployed relative to the value of the endowment in that (future) year.

For a series of slides with more comprehensive details, see the introduction to the endowment spending policy.

Why does the spending policy rely on the endowment value from two years ago?

As described above, the spending amount in a given year is determined, in part, by calculating 20% of the target spending rate of 5.25% against the endowment value from two years ago. The reason for this lag is because the university needs time to confirm the endowment value after the fiscal year is closed, and to construct a budget in advance of the year that spending is deployed. For example, to determine the endowment spending level and budget for fiscal year 2023 (July 1, 2022 to June 30, 2023), the university must construct that budget during fiscal year 2022 (July 1, 2021 to June 30, 2022). For that exercise, the most recent audited endowment value will be as of June 30, 2021, which is finalized within a few months after that date. To address this lag, the spending formula incorporates an inflation factor, noted above.

When the endowment went up by 40% in 2021, why didn’t spending? Why does the university need a target rate or a smoothing rule?

The significant endowment return in fiscal year 2021 provided an increase in operating funds beginning with the fiscal year 2023 budget (which began on July 1, 2022).

The target spending rate is important because it ensures that the university doesn’t spend too much or too little in any given year. The rate of 5.25% derives from the university’s expected ability to generate the investment returns, averaged over time, to replenish the funds it spends and keep up with inflation.

The smoothing rule is necessary to prevent market volatility from disrupting the academic activities of the campus and hurting Yale’s long-term ability to pursue its academic mission. Together, these components of the spending policy are designed to achieve “intergenerational equity”—that is, to spread the benefits of Yale’s investment returns equally over the current and all future generations.

How are budget decisions made?

Yale relies on its officers, deans, and unit leaders, supported by their lead administrators, to build budgets that reflect the needs and expertise of their particular areas of the university, as well as Yale’s short- and long-term goals. These budgets are finalized through a careful review process each spring. Yale publishes a University Budget Book each year, which identifies the institution’s various planning units and their budgets.

What happens if the market crashes?

The smoothing rule employed by the university helps protect the endowment from market volatility. If the endowment were to experience a negative 25% return one year, which is what happened in fiscal year 2009, the effect of that return wouldn’t be reflected in the endowment spending policy for two years—allowing the budgeting process to make gradual adjustments rather than more severe disruptions to the university’s core mission. And even then, it would be averaged in over time, just as positive returns are, so that endowment spending would decrease by a smaller percentage in the short run than the investment return might suggest.

Do we really need a $7 billion fundraising campaign, given the recent growth in the endowment?

Yale’s endowment is designed to maintain the university’s current program offerings, physical spaces, and size now and far into the future. Yet the needs of students, scholars, and the world continue to evolve. To take on new ambitions and solve global challenges through research and education, we must raise new funds.

Is Yale offering more support for the City of New Haven?

Yes. In November, 2021, Yale and New Haven announced a unique city-school partnership that includes significantly increasing the university’s voluntary payments to the city (already the highest in the nation) to $135 million over six years. It also calls for the establishment of a Center for Inclusive Growth, the development of a new pedestrian walkway on High Street, and a commitment to offset any loss of tax revenue from properties Yale removes from the tax rolls in the next six years. These augment Yale’s ongoing contributions to other civic and cultural programs and partnerships.

Learn more

Explore More Resources

Annual Financial Reports Finance & Administration Data Tables Annual Endowment Reports University Budget Books Endowment Spending Policy A Vision for Yale University-Wide Academic Priorities Yale Capital Campaign: "For Humanity"

Funding Yale FAQs

Explore this site

Explore More Resources