Donor-Advised Funds a Critical Lifeline for Education
Recent discussions on key benefits of donor-advised funds (DAFs) often fail to mention the role of DAFs as an increasingly vital source of funding for many educational institutions, particularly higher education. In an age of declining state and federal funding for universities, including university research and development, DAF philanthropy provides a necessary lifeline for students and their institutions, in some cases truly transforming particular programs and colleges by enabling giving strategies, particularly to areas of great need. This giving tool also helps smaller donors and DAFs themselves to make a larger impact while providing anonymity to all.
DAFs constitute one of America’s top charitable vehicles by dollars raised, and their growing popularity is partly driven by many donor benefits such as their quick and inexpensive cost to establish and the privacy of anonymous giving. Brigham Young University Assistant Professor Dan Heist and co-authors’ recent study based on in-depth DAF giver interviews reports tremendous diversity in individual preferences for giving, with generally strong preferences to give strategically and anonymously.
As spotlighted in the well-researched 2021 Giving USA “Special Report on Donor-Advised Funds” (and also in Giving USA’s 2018 DAF report), approximately 29% of all DAF giving goes to education, which is about double the amount given to education through other charitable vehicles. Educational institutions receive the greatest share of funding from national foundations such as Vanguard Charitable (32%) and community foundations (29%), but only 14% of contributions from single-issue organizations like faith-based groups. It may surprise many that education constitutes the single largest share of DAF giving, a fact that receives little publicity, possibly because many DAF gifts are anonymous, with neither donor nor DAF mentioned in gift announcements. Furthermore, in cases where gifts are publicized, such as Netflix CEO Reed Hastings and his wife Patty Quillin’s generous $120 million gift to Historically Black College and Universities (HBCUs), members of the press generally neglected to mention the vehicle: the Silicon Valley Community Foundation (SVCF) DAF, a popular community fund with many successful entrepreneurs.
DAFs Support Educational Funding Where Needed Most
DAFs transform educational institutions by providing gifts to areas of greatest need, enabling smaller donors and DAFs to make a larger impact by pooling resources, offering tremendous growth in charitable assets, enabling giving strategies and allowing for private gifts.
Hastings’s and Quillin’s gift is consistent with the tremendous 341% growth in DAF-sponsored grants to HBCUs and other racial justice organizations from 2019 to 2020. As reported by the American Council on Education, HBCU endowments lag behind non-HBCU endowments by at least 70%, and experienced the greatest declines in federal funding per student between 2003 and 2015.
DAFs contributions also enable smaller DAFs and smaller individual donors to make a greater impact. As noted in Giving USA’s 2021 DAF report, smaller DAFs gave 34% to education while larger DAFs contributed 27%. Moreover, individual donors who contribute relatively smaller amounts can pool these contributions. One example is the many large and small individual donors who contributed to a variety of DAFs to provide naming and ongoing support to the Antonin Scalia Law School at George Mason University. Smaller DAFs and donors pooled resources to make key strategic hires and programs that contributed significantly to the Scalia Law School’s rapid rise in rankings. Another example is founding President and Chief Executive Officer of the Connecticut Center for Arts & Technology Erik Clemons, who honored his wife’s passing in 2020 by establishing a DAF with $38,000 at The Community Foundation for Greater New Haven. The Sharon M. Clemons “Butterflies” Fund helps young African-American women pursue education at the colleges their four daughters attended: Hampton University, Smith College, Spelman College and Tuskegee University, and has subsequently received more donations of varying amounts.
DAFs Allow for Growth to Meet Future Needs
Many DAFs also offer the benefit of tremendous growth in charitable assets. Although fund performance varies across DAFs and years, many donors recognize that DAF performance tends to outpace university endowments. For example, as noted by Pensions & Investments’s U.S. University endowment tracker, at least seven public and private U.S. universities experienced a negative performance return in fiscal year 2020. DAFs provide a vehicle to accumulate funds at a faster rate, and thus the ability to make even more substantial donations to worthy organizations, including education, particularly for spend-down accounts.
DAFs Facilitate Strategic Giving & Protect Donor Privacy
A fourth benefit of DAFs to educational institutions is the ability of donors to give strategically, a finding consistently documented in the literature from Heist’s recent DAF user survey article as well as by DAFs such as Fidelity Charitable Trust. DAF donors tend to be more strategic than other donors, and often apply the same rubrics they would in investing in their business or a start-up: donors are interested in the right university, leaders, program or other pillar. DAF donors are particularly interested in “giving while living” and target their donations. Among the many strategic gifts, here are a couple of examples: angel investors Scott and Cyan Banister used a DAF gift to fund $125,000 toward UCLA School of Law’s First Amendment Amicus Brief Clinic, and former Solers President and CEO David Kellogg’s contributed a $3 million gift to his alma mater Virginia Tech for the Kellogg Center for Philosophy, Politics and Economics. Strategic gifts are also a response to growing skepticism of unrestricted gifts to universities. As opposed to lump sum endowments that give top management at universities considerable rein regarding resource allocations, DAFs enable donors to act more like venture capitalists in allocating resources in ways likely to create value. DAFs are increasingly recommending targeted giving to specific departments, programs, student activities or scholarships rather than unrestricted gifts, and also taking over individual donors’ multi-year pledges to universities to help ensure donor intent.
DAFs also offer privacy to donors, as noted in quantitative evidence reported in Heist’s and others’ surveys. As a leader of teaching and research programs at several universities, most recently Florida Atlantic University, American University and Indiana University, I can offer personal, qualitative evidence from conversations with many successful but humble individuals who want to give back to their alma maters or to other universities with great program strategies and outcomes. These donors don’t want their “name in lights” and prefer to give anonymously.
As we start a new year, with new challenges for higher education institutions and their students, it is important to allow these giving vehicles to continue to support education where it is needed most.
Siri Terjesen is a researcher in higher education and business, and serves as professor and associate dean, Research & External Relations at Florida Atlantic University’s College of Business and visiting professor at the Norwegian School of Economics.