In the August 2026 issue of Planned Giving Today, Philanthropy Roundtable’s Adam Meyerson Distinguished Fellow in Philanthropic Excellence Joanne Florino examines the rising number of donor-intent disputes over restricted gifts as colleges close or merge.
She highlights the legal and ethical tensions that arise when institutions seek to repurpose restricted endowment funds, citing cases that include Earlham College’s court petition to tap restricted Eli Lilly gifts, the University of the Arts’ cy-près distribution of its endowment and the ensuing donor-family lawsuit, Concordia University Ann Arbor’s contested transfer of gifts after campus closure and Wells College’s more orderly wind-down with a legacy partner.
Editor’s Note: The following has been reprinted with the permission of Planned Giving Today. Florino has revised the section on Wells College to bring its status up to date.
What Happens to Endowments When Institutions Fail?
St. Michael’s College Case. In early April, The Wall Street Journal ran an article about financial concerns at St. Michael’s College in Vermont. It caught my eye because I had visited St. Michael’s with my older son in 1999 when he was beginning to consider his higher education options. At that time, St. Michael’s was thriving. But this summer’s situation is quite different. According to an excerpt on LinkedIn: “Enrollment is down by 45 percent over the past 10 years. The 120-year-old college has run recent budget deficits of $12 million and $9.4 million. It has sold property, rented out dorms, trimmed a third of its faculty, cut courses and about doubled its endowment withdrawals. In 2022, Moody’s cut St. Michael’s once-robust bond rating to junk.”
It’s a story we see repeating in many cities and towns across the country as enrollments and funding decline and skepticism regarding the value of a four-year degree (especially one in liberal arts) gains ground. The Wall Street Journal suggested potential dire results, noting, “Shrinking enrollment at 442 private nonprofit colleges, out of 1,700 nationwide, is placing them at significant risk of closing or merging in the next decade, according to a forecast by the Huron Consulting Group, which advises schools on operations and mergers.”
In May, when Forbes published its annual assessment of the financial health of more than 900 private not-for-profit colleges with enrollment of more than 500 students, another dismal forecast appeared. Forbes claimed its 2026 report “zeroes in on colleges’ true liquidity” in assigning grades from A+ to D. “Our ranking,” the magazine reported, “shows a stark disparity among private colleges. While the elite selective schools, with grades of A+ and A, remain healthy and strong, a large number of colleges with near open admissions policies and sagging enrollment are on life support. Nearly half of the colleges we graded scored C or worse. Even more alarming, 27 percent of the institutions received our lowest grade of D, and many were found to be plundering their endowments to survive.”
“Plundering” carries significant weight when discussing endowments, since it typically refers to stolen goods, especially when taken by force. And nothing prohibits a college or university from using unrestricted funds in their endowments to cover operating costs, pay employee salaries, or settle accounts with creditors. It may not be the wisest financial decision, especially in a volatile market, but it is hardly “plunder.” The misuse of restricted funds is, however, another matter, one which is already drawing public and judicial attention.
Because I consult with Philanthropy Roundtable donors about protecting donor intent, I’ve written recently about several interesting cases in my work there.
Earlham College Case. Earlham College, a private liberal arts college in Richmond, Indiana, was founded by a group of Quakers in 1847. It is currently serving nearly 700 undergraduates but has experienced a serious enrollment decline over the last decade. Like many private colleges of its size, its operating costs have surpassed its general revenue. The college projects a $15 million deficit in its operating budget for the 2025-2026 academic year and an up-to $40 million cash-flow deficit through 2029-2030.
With its unrestricted funds falling short of those numbers, Earlham is requesting court approval to use restricted funds, specifically gifts made by Eli Lilly, on a one-time basis to address the operating deficit. Lilly, who had a strong interest in assisting religious colleges, made gifts to Earlham in 1969 and 1973, and directed additional funds to Earlham in his will. As of June 30, 2025, the market value of those gifts, some of which carry restrictions, was about $93 million.
Earlham’s court petition says a variety of factors have led to the current problem, listing a change in Earlham’s leadership, COVID-19, a 2023 industrial fire in Richmond, and national demographic trends. With new leadership, the petition notes, “a broader recovery strategy is in place to restore financial health” and “return to prudent appropriations in future academic years.” As of this date, no hearings have been scheduled in the case.
Philadelphia University of the Arts Case. When Philadelphia’s University of the Arts closed abruptly in June 2024, administrators explained their decision by citing increased costs, combined with declining enrollment and operating revenue. Among the university’s remaining assets was a $63 million endowment that included donor-restricted funds, many of which were intended to provide student scholarships which could no longer be awarded.
More than 700 University of the Arts students took advantage of “teach-out” agreements that allowed them to enroll at other institutions. Nearly half enrolled at Temple University, but the rest chose 11 other universities and colleges. The University of the Arts then petitioned Philadelphia’s Orphans Court for a cy-pres ruling to disperse its endowment proportionately among these 12 universities “with the stated restriction that such monies shall first be used to provide scholarships to any University of the Arts students who are in attendance at the Teach-Out Partner and thereafter to further the mission of human creativity and art education in the areas of the visual and performing arts.”
The Orphans Court ruled favorably on the petition in September 2024, awarding funds as the University of the Arts requested. The amounts ranged from 44.34 percent of the endowment for Temple University to 1.10 percent for The New School. But neither the story nor its legal repercussions ended there. As Elizabeth Rembert reported in the Wealth Advisor on March 10, the family of the late Dorrance “Dodo” Hamilton has filed a countersuit to have the $37 million she donated to the endowment be returned to the Hamilton Family Charitable Trust.
Hamilton, Rembert notes, was the granddaughter of Campbell Soup’s founder and a generous donor to many of Philadelphia’s cultural institutions. Her family is arguing she preferred to give to private institutions and favored the University of the Arts because of its narrow mission. To give her donations to state funded colleges or to schools with much broader missions would “do violence to and ignore Mrs. Hamilton’s charitable intention and her donative intent.”
In the wake of the countersuit, the University of the Arts has reconsidered its original position and is now, according to Rembert, “suggesting that the court individually review the more than 200 restricted funds within the endowment and distribute the cash to the school that’s the best match.” And this suggestion is, in turn, causing arguments regarding “worthiness” among the schools which accepted UArts transfers. The Orphans Court has not yet rendered a decision.
Concordia University Case. Concordia University Ann Arbor has been part of the Concordia University System (CUS) since the system’s founding in 1992. At its peak, the system included 14 institutions. But following campus closings beginning in 2018, the system now includes only five. Concordia University Ann Arbor, a branch campus of Concordia University Wisconsin since 2013, shut down its physical campus in Ann Arbor in 2024. It now operates in a different location with a significantly reduced student body.
While there is considerable acrimony about the closing of the Ann Arbor campus, there is also the matter of moving the endowment of that campus into the endowment of Concordia University Wisconsin. The shared endowment of $126 million includes approximately $27 million contributed by Concordia Ann Arbor donors. One gift, made before the shutdown, has captured considerable attention because it has resulted in a lawsuit.
In 2021, the late Keturah Thunder Haab pledged a gift of $1.5 million to the combined Concordia University Wisconsin and Ann Arbor for a new fitness center on the Ann Arbor campus. Nearly a third of that pledge was paid to Concordia before Thunder-Haab’s death, and her successor trustee paid the balance in December 2023. With the closing of the Ann Arbor campus (and the likelihood that it would be sold), the Keturah Thunder-Haab Estate began a legal battle to recoup the fitness center payment and also block the additional 13 percent of Thunder-Haab’s trust designated for Concordia Ann Arbor from going to the combined Wisconsin-Ann Arbor institution.
In April of this year, Washtenaw County Probate Court Judge Darlene O’Brien ruled in favor of Concordia. This allowed Concordia University’s Wisconsin branch to keep roughly $3 million in donations, $1.5 million from the fitness center payment, and the 13 percent of Thunder-Haab’s trust designated for Concordia Ann Arbor. She was clear Concordia was to use the money from the trust for its Ann Arbor campus and required the construction of a fitness center in Thunder-Haab’s name or the money would revert to the trust. Finally, O’Brien ruled the eight entities not involved in the litigation, including Concordia University Chicago, St. Paul Lutheran Church and School, and others, would immediately receive their trust allocations.
Critics of the ruling are wondering how Concordia will use the funds at the severely downsized campus, and how a fitness center designed to operate with an athletic program will function when Concordia eliminated its Ann Arbor athletic program in 2024. Thunder Haab intended that the fitness center be built on a piece of Concordia property now likely to be sold to the University of Michigan and named for a former athletics director. “None of this is what (she) would have wanted,” commented Mary Kay Salminen, president of The Oscar & Keturah Haab Foundation. The Thunder-Haab Estate plans to appeal the ruling. What also remains unclear is the status of smaller donors to Concordia Ann Arbor’s endowment, those who may have made $25,000 or $50,000 gifts for specific purposes on a specific campus which no longer exists.
Wells College Case. A quite different, and hopefully more positive, outcome has emerged from the closing of Wells College in Aurora, New York. Established in 1868 as a liberal arts college for women by Henry Wells, co-founder of Wells Fargo and American Express, Wells enjoyed an excellent reputation for over a century for its teaching quality, reasonable cost, and the beauty of a campus perched on the shore of Cayuga Lake. Like many women’s colleges, however, Wells experienced declining enrollment in the late 20th century. As financial concerns increased, its trustees decided to accept male students beginning in 2005. It was not a popular decision, but the move brought some immediate financial relief to the institution. That relief had disappeared long before June 2024, when, only a week before final exams and the spring semester’s end, Wells announced its permanent closure.
Audits conducted in previous years revealed the significant operating losses Wells had been incurring in the years prior to its closing. They also disclosed that college leaders had received judicial permission in 2010 to borrow over $16 million of endowment funds to institute financial and strategic plans they believed would improve their situation. At the time Wells closed its doors in 2024, the college still owed the endowment fund over $10 million and was carrying external debt of nearly $5 million.
It appeared a significant portion of that debt would be repaid with proceeds from the $12.5 million sale of the campus to the Hiawatha Institute for Indigenous Knowledge, and additional funds would come from the sale of the college’s off-campus properties, artwork, and rare books. In late June, however, multiple news outlets reported that Wells College had cancelled Hiawatha Institute’s 12.3million offer to purchase the Wells College campus. Richard L. Weber, an attorney representing the college, claimed the termination was the result of the proposed buyer’s failure “to proceed to closing under the terms of the purchase and sale agreement.” The Hiawatha Institute, however, claims it fully intends to complete the purchase and establish an indigenous college on the campus, and is now suing Wells College. Any protracted delay in completing the sale of its campus will hamper the college’s ability to repay funds previously borrowed (with court approval) from its endowment.
Any sales and the disposition of the college’s remaining assets are subject to the review of the New York State attorney general’s office and the approval of the state supreme court. With that court’s approval, Wells named nearby Hobart and William Smith Colleges (HWS) in Geneva, New York, as its legacy partner. As the steward of the Wells College endowment, most of which is donor-restricted, HWS does not gain unrestricted access to those assets but is obliged to use them to the greatest extent possible for their originally assigned purposes. HWS also assumed responsibility for the student, employee, and financial records of Wells. It is planning an event for Wells alumni this fall.
Announcements. Colleges that have announced their plans to close soon have created information pages on their websites for students, parents, alumni, and others seeking information. The information regarding endowments varies considerably from one institution to another. Hampshire College in Amherst, Massachusetts, advises donors: “Future gifts to Hampshire College will be used in compliance with our regulatory duties and to maintain operations during wind down. Restricted endowment funds remaining after the teach-out period will be distributed in alignment with their charitable purposes according to the guidelines set forth by the Massachusetts Office of the Attorney General.” Lourdes University of Sylvania, Ohio, dedicates an entire page to the explanation of donor options. Other colleges are advising donors to contact their development officers or are taking the lead in scheduling necessary conversations.
Conclusion. It is difficult to predict how current and prospective donors to our smaller private colleges, even those which are not in crisis, will react to the increased number of closings and mergers they will witness over the next few years. Will they be more inquisitive about an institution’s financial health, more likely to make one-time and general operating support gifts, and much less likely to make endowment gifts? What seems more certain, unfortunately, is an increase in the number of legal disputes regarding endowment gifts as the nation’s smaller private colleges continue to close because of increased costs and declining enrollment.
