Endowments are funded by donations to an institution, with the primary goal of generating more income for the institution. Typically, the initial donation is invested and any income that is generated from the investment is used to pay expenses. The institution usually keeps the initial investment intact as the market allows, and only the excess income is spent. Institutions have varying guidelines on how this income is spent, but an average of 5% of the endowment is spent each year.
Endowments for tertiary public institutions can be enormous, with the largest one being The University of Texas System, which had an endowment of $30.9 billion in 2018. The majority of this money sits in an account and generates interest. However, this money can be coupled with government funds to eliminate the need for charging tuition. This would be beneficial to both the institution and the student, as the student would graduate with little to no debt. The institution would reap the rewards of it's generosity in the long run, as an alumni without student debt is much more likely to make donations that can be put towards replenishing the endowment. Student loans make it difficult for young alumni to give back after graduating, and the absence of habit when it comes to donating has been cited as a reason for low numbers of donors in recent years. In other words, increasing endowment spending may shrink endowment funds in the short run. However, in the long run the endowment would grow as more alumni would get into the habit of donating after graduation in the absence of student loan debt.
Endowments have grown so large due to the fact that only a small amount of money is taken out of them each year. If institutions were to increase the amount that could be spent from an endowment fund to the point of no longer needed to charge tuition, the endowment would become highly volatile. There would be so much cash flowing in and out of the fund that, in the event of a recession, donations would stop coming in and the endowment would be underfunded. In a worst-case-scenario, this could lead to an endowment running out of money, which would leave institutions without a financial safety net.
[P1] Public tertiary institutions have large enough endowments that, if they increase their spending, they can make the need for tuition obsolete.
Rejecting the premises
[Rejecting P1] Not all public tertiary institutions have an endowment large enough to support themselves without the income generated from tuition.