How and Why to Set Up Endowments for Christian Schools

We’ve mentioned before that a school shouldn’t rely on tuition as its sole means of income, and there are multiple ways to increase income for your school. Endowments for Christian schools are another potential source of income. Keep reading to find out how and why you need one. 

Three Reasons Endowments for Christian Schools Are Necessary

• Endowments help fund the school.

In the same way that it’s advantageous for individuals to diversify their financial portfolio, the same is true for a school. Facility rentals, capital campaigns, fundraising, grant proposals, etc., are all ways to increase streams of income beyond just tuition. An endowment falls into this category, as well. You can also refer to or think of it as a passive asset accumulator. There isn’t a lot of extra work you have to do beyond the initial set up for it to produce income, besides continuing donor development.

Once you do have the endowment set up (by a financial advisor or attorney), you can include a policy stating a percentage of all funds raised by the school go to the endowment. Just as with capital campaigns and grant proposals, it’s important to understand the purpose of the school and how an endowment will help fulfill this purpose. As always, people want to know where their money is going. When explaining that a portion of a donation from a major donor will go to the endowment, you need to be able to explain why.

• Endowments help the school remain independent.

Another reason endowments for Christian schools are necessary is because they help your school produce a healthy amount of income independent from donors and even the government. When the majority of income for a school comes from outside sources, those sources may feel entitled to a certain amount of influence over whatever they’re funding. 

Major donors have the potential to control the trajectory of your school. Just because your school’s purpose aligns with that of major donors and nonprofits doesn’t mean they won’t want to steer the school in a different direction. An endowment helps alleviate this.

Being financially healthy also helps you turn down tempting voucher funds from the government. We caution schools about accepting vouchers because it’s money controlled by the government, and they decide what’s required to receive it. You don’t want to put your school in a position that requires you to compromise its values.

• An endowment is tax-efficient.

Lastly, endowments for Christian schools help protect them from the IRS. Although they’re not tax-free, endowment funds are tax-efficient in that they operate separately from other income the school produces. Donors receive a tax receipt for the portion of their donation that goes towards the endowment.

Start Setting Up Your School for Success

As a long-term strategy, it’s better to begin sooner rather than later when starting an endowment. While it can grow to be so large that a school may not even need to collect tuition from its students, this takes a while to happen. Once/if it does, however, some schools tell their students to “pay it forward” because they were able to receive an excellent education cost-free.

 

We would love to help you set your Christian school up for long-term success. Schedule a call with us today to see how we can help you achieve your purpose. We look forward to connecting with you!