April 16, 2026
The Chronicle of Higher Education recently published an article by Ted Karns, Lecturer in Finance, discussing how colleges and universities must confront outdated assumptions about endowment returns as financial pressures mount across higher education.
Highlighting Princeton University President Christopher L. Eisgruber’s decision to lower the school’s long-term return expectation from 10.2% to 8%, Karns frames the move as a necessary acknowledgment of changing market realities.
He explains that as endowments fund a growing share of university budgets, overly optimistic return assumptions can obscure financial risks and delay difficult decisions around spending and growth. Karns also points to increased competition and structural shifts in capital markets as key drivers of lower long-term returns.
“Compounding is unforgiving about the assumptions underneath it. A roughly two-percentage-point difference might feel modest in any given year. Over a decade, it changes everything,” Karns adds.
Institutions that fail to reassess their financial assumptions now may face more severe and disruptive consequences in the future.
