Why divestment won’t affect your financial aid

Why divestment won’t affect your financial aid

Fossil Free Mac

In conversations about our fossil fuel divestment proposal, students ask one question more than any other: “Will divestment hurt my financial aid?” This is an extremely important consideration, as roughly 70 percent of Macalester students rely on financial aid in order to pay for their education, including the majority of Fossil Free Mac members. We did the research, and the short answer is no. The structure of Macalester’s endowment, the private oil and gas partnerships and the nature of the proposed moratorium all help to ensure that replacing the private partnerships with non-fossil fuel investments would not significantly affect the provision of financial aid.

Although the $40 million Macalester has invested in private oil and gas partnerships sounds large when taken out of context, it represents only around five percent of the endowment’s value (about $740 million) and the endowment is well insulated from potential negative effects. The main financial concern with divestment is that the endowment’s performance may decrease, if these funds are replaced with other investments. Even if the existing reinvestment (non-fossil fuel) options don’t have quite as high of returns as our current partnerships, the actual change to the endowment would be minimal. We can’t say what the exact returns on reinvestment options would be, but there is no reason to believe that they will be lower than the endowment’s current average return rate of seven and a half percent.

We must also consider the specifics of how the endowment supports Macalester’s budget. Each year, Macalester takes approximately five percent of the endowment to go towards operation costs. Adjusting for inflation, which in the past few years has hovered around two percent, the yearly return rate of the endowment should remain above seven percent in order to continue to grow and support operations and financial aid. Any decreases in return rates would lead to limited growth rather than a loss of funds.

Further, there is mounting evidence that previously profitable fossil fuel investments, including Macalester’s partnerships, will not continue to be good investments indefinitely. Since 2014, oil prices have dropped significantly and returns on investments in the fossil fuel industry have declined. This is why we believe that Macalester would see no real negative financial impact from divestment. Macalester could even benefit financially from investing in something like renewables, an industry that is trending upward and building the energy future we need.

Our divestment proposal would not bring about sudden changes to the endowment. We are asking that Macalester place a moratorium on all future oil and gas partnerships. This means that Macalester would not be able to enter into any new partnerships in the oil and gas industry and, as the current partnerships expire, they would not be renewed. This money would, in turn, be reinvested elsewhere. Currently, there are 18 partnerships set to end gradually over the next 15 years. This moratorium would allow for a gradual shift away from our current investments, giving Macalester the financial agency to reinvest funds elsewhere.

Macalester must realign its investments with the platform of global citizenship and environmental sustainability that we claim to uphold in our public image. Investments in fossil fuels are the antithesis of social responsibility. With climate projections growing more dire with each report, we must take action while we still have an opportunity to mitigate the damage caused by runaway climate change. Just this year Minnesota and neighboring states have seen record snowfall, record cold temperatures, and floods across the Midwest that have caused humanitarian disasters. We have to act now, and Macalester has the privilege of being in a financial situation to do so.

If you have questions, join us at the Fossil Free Town Hall next Monday, April 1, from 4:45-6:15 p.m.in the John B. Davis Lecture Hall of the Campus Center.