New Trend: Colleges Taking Money From Scholarship Funds

Deseret News
November 26, 2013

By Michael De Groote

Alison Tatum can’t see William R. Gann as she plays the violin in a performance of Shostakovich’s Piano Quintet in G minor, but in some way he is present.

Tatum received the William R. Gann Music Scholarship a few years ago when she was studying the instrument at the University of Missouri-Columbia.

Gann, however, isn’t happy about a new trend that siphons away 3 percent of his donations to the University of Missouri. It isn’t a practice that is unique to Mizzou, but it isn’t quite yet universal either.

“They are taking that money away from the student,” says Gann, a former dean at Harvey Mudd College (a member of The Claremont Colleges in Claremont, Calif.), who graduated in music from the University of Missouri in 1953. “It may seem like a small amount of money they are taking out, but for some students that can amount to lunches and dinners.”

Statistics from the National Association of College and University Business found that 39 percent of higher education institutions received less gifts to their endowment funds in fiscal year 2012 than in the previous year, while 41 percent reported an increase. With average gifts at $8 million, even small percentages going to fees can mean a lot of money.

Like cold water
Carrie M. Collins doesn’t think the practice taking a percentage of money donated for student scholarships is a good idea and wonders how it would affect fundraising for colleges.

“I think it throws cold water on fundraising,” says Collins, vice president of institutional advancement at University of the Sciences in Philadelphia. “It isn’t exactly a warm fuzzy.”

Scholarship donations are usually endowed funds – meaning the money is invested and managed in perpetuity and the scholarship awards are taken from the interest made on the investments. A gift fee percentage (usually in the range from 1 percent to 5 percent) are taken out of the money when it is donated.

Collins says it would be awkward to talk to potential scholarship donors and tell them all the good their money would do for students and then tell them that 5 percent will be taken off the top of the donation.

“You shouldn’t be passing the operating costs onto the donor,” she says. “There are other ways to increase operating revenues.”

Unlike Gann, however, Collins doesn’t see any ethical problems, if donors are notified and agree to the practice.

“As long as the universities are upfront in the gift agreement, then it is above board,” she says. “I just don’t think it is the optimal way to operate. You’ll get more money, if you can tell donors it is all going to the student.”

A search on the Internet for universities and colleges charging gift fees find a wide mix of institutions.

UCLA, for example, announces on its foundation website: “As is customary with universities and other non-profit organizations across the country, a one-time administrative fee is applied to all new gifts, providing essential support to UCLA’s overall operation. The fee is currently 6.5 percent.”

The University of Arizona charges a 6 percent “University Development Fund fee” on charitable grants.

Lane Community College in Eugene, Ore., assesses a 5 percent “administrative fee.”

Collins says it seems that taking percentages of scholarship money is being implemented more often in public institutions rather than private institutions. But she says this distinction may not last forever: “It may be, in 15 years, that private schools might be saying, ‘Of course we take a percentage,'” she says.

Money costs money
Steven Roy Goodman, an education and admissions advisor in Washington, says schools taking a percentage of scholarships isn’t strange to him. He says universities do other things that lower the amount of money students might get – such as decreasing financial aid, if a student gets an outside scholarship.

But, like Collins, he speculates taking a percentage of a scholarship can’t make it easier to find people to give money to the university.

“It raises the issue,” says Goodman, who founded the website, “of backlash on the part of donors.”

Backlash from donors like Gann.
“They don’t have to take this from what is meant to be aid for needy students,” says Gann, who lives in Independence, Mo. “I’m on the side of the students.”

Tom Hiles, University of Missouri vice chancellor for advancement, explains, however, that more is going on than just applying a fee for gifts: “Most donors know that it costs money to raise money,” he says.

Research grants, for example, take large percentages for administrative costs. Applications for grants build those administrative costs into the research grant package. When looking for scholarship endowment money, however, administrative fees are often not a part of the donor’s consciousness.

The administrative costs for fund raising are often paid out of a university’s central foundation. Missouri, however, doesn’t have central foundation as most private schools have.

Hiles also says the cost ratio for raising money is better than at most non-profit agencies.

He says the endowment assets are well-managed and returned about 13 to 14 percent last year. Since the scholarships are paid out depending on how large a particular endowment fund is, the amount earned in interest affects how much money gets to scholarship recipients.

Currently, he says, there is about a 50/50 mix between using central funding and the gift fee funding to support the fund raising programs of the university.

Hiles says the university started its gift fee about two years ago.

“I think all of our donors know that it costs money to run a major operation that is raising gifts and pledges,” he says.

At the same time, Hiles says he certainly understands the sensitivity some donors might have to the fees, and appreciates the support and pride in the university. He also says he would welcome discussing the issue with any donors who are balking at the fees.

Collins says she would also like to talk with disaffected donors such as Gann.

“How about donating to the University of Sciences?” she says with a laugh. “We’d be happy to take his very generous donation.”

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