Michigan State has settled suits that involved sex abuse by Larry Nassar, a sports doctor. The amount agreed upon to compensate approximately 300 women was $500 million. The university has an endowment of $2 billion, so the settlement is equivalent to a quarter of that. No one has stated publicly where the money will come from. Much of the university’s endowment is restricted, so it may not be available to cover payments.
Much of the fund is devoted to research projects. Another portion is used for scholarships and incentives to hire and retain faculty. That does not leave much, if any money, for the $500 million settlement.
Michigan State is owned by the state of Michigan, but it is not clear whether it can turn to the state for aid. If the settlement has recourse to the state for funds, it may not batter Michigan State’s endowment.
It is possible that the money will not touch the endowment at all, or that it will affect it very little. Thomas L. Harnisch, director of state relations and policy analysis for the American Association of State Colleges and Universities, told the Washington Post: “They’ll likely have to use reserve funds and borrow money.”
Since public institutions can usually borrow money in the capital markets, Michigan State could turn down that avenue. However, what financial institutions would invest in instruments to cover such a risky transaction? What would Michigan State put up as collateral?
It may be that Michigan State made the settlement without a sure plan about the source of the funds. That leaves its administrators scrambling to make good on their payment obligations.