Princeton University president defends endowment, DEI and ‘institutional restraint’ in annual letter

As the spring semester begins at Princeton University, President Christopher Eisgruber wants to be loud and clear — not just on the issues faced by endowments, but also how they function.

“Few people understand how endowments work and the public benefits they create,” Eisgruber wrote in his annual “State of the University” letter published Jan. 29.

Fundamental to his letter this year is bringing clarity on how endowments work — and shaking off concern over the university’s most recent fiscal year.

While some think an endowment functions like a savings account that institutions can “dip into” to pay for emergency costs or special projects, Eisgruber noted the fund “is nothing like a savings account.”

Instead, an endowment is like a retirement annuity that provides yearly income for the university’s operating budget by paying out more than 5% each year for costs such as salaries, financial aid and infrastructure.

Managed by the Princeton University Investment Co., the endowment on June 30 had $34.1 billion in assets, and returned 3.9% — the lowest among other Ivy League institutions during the fiscal year.

Eisgruber noted the fund’s most recent performance pales in comparison to the record 46.9% return during 2021 — when the economy rebounded from the COVID-19 pandemic, and the endowment reached a record high of $37.7 billion.

He added that the 2021 high is now offset by the 2024 return and two years of investment losses in between — returning -1.5% in 2022, and -1.7% in 2023.

And while the past four fiscal years saw “extreme” swings in returns, Eisgruber noted the university’s financial planning anticipates significant volatility.

“It is not surprising that the massive gain in 2021, which in effect pulled forward earnings that would otherwise have been booked in later years, would be followed by a series of more muted returns,” he added. “We cannot, however, assume that long-term returns will be as robust as those that university endowments have seen over the past two decades, when Princeton’s returns averaged 9.9%.”

“Despite these uncertainties, Princeton’s financial condition remains strong,” Eisgruber wrote.

Eisgruber wrote that he will be spending more time in Washington in light of endowment funds being the “subject of worrisome taxation proposals” by congressional lawmakers.

“Rarely, if ever has it been so important for university presidents to speak up for higher education,” Eisgruber wrote. “It is also, of course, an unusually fraught time for university presidents to make statements.”

While endowments are among the institutional investors targeted by U.S. President Donald Trump’s executive orders, Eisgruber noted that his letter would not address those as “there is much that we do not yet know about their implications.”

While not calling out specific lawmakers in the letter, Eisgruber said he will discourage the passage of a bill — now in the House Ways and Means Committee — that would increase a federal endowment tax.

In 2017, Trump signed the Tax Cuts and Jobs Act, which imposed a 1.4% endowment tax for institutions with more than 500 students, and endowments exceeding $500,000 per student. In the letter, Eisgruber said the act “breached” an “American tradition” of exempting charitable endowments managed by nonprofit organizations.

More recently on Jan. 15, Rep. Troy Nehls, R-Texas, introduced the Endowment Tax Fairness Act, which would raise the endowment tax on “certain private university endowment profits” to 21%.

If a larger tax is imposed on endowments, it would “damage higher education and our country,” Eisgruber said.

“Endowments at America’s leading research universities support world-leading teaching and research programs that strengthen the nation’s economy and enhance its security,” he added. “If endowments are routinely subject to threats of confiscatory or punitive taxation, it’s much harder to make long-term commitments that depend on annual endowment spending, such as expanding financial aid or investing in emerging areas of science that are critical to the nation.”

And Eisgruber said he invites questions from lawmakers regarding institutions such as Princeton.

With the advancement of online communication methods such as email and social media, he noted there’s been increased opportunity and demand for academic leaders to make statements on current events. Traditionally, Princeton has exercised “institutional restraint” or neutrality in regard to issues such as strikes and divestment, and with the current polarized political environment, it “behooves us to be even more restrained in the future,” Eisgruber noted.

“The worst choice, however, would be to remain silent,” he added, calling for peers at other institutions to speak up for the value of “teaching, research and a college degree.”

“We need to describe and defend the vital, vibrant activity taking place on our campuses,” Eisgruber said. “We need to explain why diversity and inclusivity are essential to the excellence of our campus communities and the achievement of our educational mission.”

Upholding inclusion and belonging

Eisgruber did not address the executive orders pertaining to DEI. But he did commend Princeton’s initiatives to “ensure that talented faculty, students, and staff from all backgrounds can thrive.”

As part of the university’s efforts to promote socioeconomic diversity, Princeton’s trustees set a target in 2024 to have at least 70% of the undergraduate student body on student aid. Among the students who entered the university in the current academic year, over 71% are receiving financial aid — and 21% are eligible for Pell grants, which Eisgruber noted are given to students coming from lower-income households.

During the week ended Jan. 31, Princeton will release its annual diversity report, which the university has produced beginning with the 2020-2021 academic year.

The report will include information on whether students in the graduating class would recommend enrolling in the university to a high school senior of the “same background, ability, interests, and temperament,” Eisgruber added. Data broken down by categories including race, ethnicity and gender.

The president noted that the annual report “shows disparities in the student experience across demographic groups.” But while the data may provoke criticism from groups, he said it informs the work the university and other higher education institutes to enhance the inclusivity — such as hosting conversations on “difficult topics.”

“All of this will require hard conversations — but difficult discussions are essential to the defense of our mission and policies,” Eisgruber wrote. “They are also the core of what universities do: we insist that even the most sensitive topics be examined on the basis of facts and careful analysis.”