Friday, October 31, 2008

College and University Endowments are Shrinking

Yesterday, October 30, Reuters reports that the endowments of Colleges and Universities are dropping, no surprise, during these tough economic times.  The article states that many of the public and smaller, private schools are losing upwards of 20 percent of their endowments' value during these difficult times. 

Unlike the 76 or so, well-endowed elite College and Universities, like Harvard and Yale, the balance of the 400 or so, other institutions are having to dip (or plan to dip) into their endowments just to meet operational needs.  In light of these challenging times, many colleges and universities are considering hikes in tuition.  New hikes in tuition would come at a time when parents and students are finding it harder to get loans in the tighter financial market, the article suggests.

See story excerpt below -

Higher education has been a growth industry in the United States, evidenced by swelling enrollments, expanding campuses and growing endowments. But the global economic crisis has caught colleges and universities in a vice.

With their endowments shrinking along with stock markets, some schools may raise tuition more than usual, even as students complain it is already too expensive and struggle to get loans.

"This will definitely test many schools," said Ronald Watts, the finance chief of Oberlin College, an elite private school in Ohio whose endowment of nearly $750 million has shrunk by about 15 percent in the past four months.

To be sure, schools have proven resilient in past recessions, helped by rising student enrollment as people seek a leg-up in a bleak job market.

"It's not going to be as drastic as what corporations are doing," Watts said. "You don't just eliminate people and lay off faculty and expect not to destroy your academic program."

Nevertheless, a few schools have already announced fresh tuition hikes, and school officials said they were keeping a close eye on their finances. And, with schools under financial pressure, local economies all over the country are likely to suffer.

Tuition increases have outpaced inflation for years. Tuition and fees at public universities have risen 175 percent since 1992, while the consumer price index rose 48 percent.

. . .

Wisconsin, like many schools with substantial endowments -- 400 have endowments over $100 million and 76 above $1 billion -- use a three-year averaging system to smooth out how much they pay out from earnings.

The article further highlights an issue discussed last spring on the Nonprofit Law Prof blog, this blog, that there was mounting pressure on well-endowed, elite institutions to spend more of the endowed funds.  See earlier blog postings from 12/10/07 through 2/25/08.  This article also captures the discussion below:

The wealthiest schools have come to rely on endowments and there has been growing pressure from Congress to boost payouts, threatening to take away their nonprofit, tax-free status if they don't comply.

The article also states that, "[f]or most other schools, small endowments serve as a 'rainy day fund' that can disappear quickly in tough times, said John Griswold of Commonfund, which manages money for nonprofits."  And that,

[o]ften, much of the media's focus is on wealthy private schools with multibillion-dollar endowments like Harvard and Yale, which have promised to cover costs for many of those fortunate enough to gain admission.

But at less well-heeled private schools, which make up most of the United States' unrivaled roster of 4,300 nonprofit institutions of higher learning, significant tuition increases may be unavoidable.

'If history repeats itself, you're going to have falling state support on a per-student basis, rising enrollments, and probably rises in tuition,' said Paul Lingenfelter, president of State Higher Education Executive Officers.

I have yet to see news from the elite institutions in the wake of this financial crisis as to whether the schools will continue with the plans to provide tuition-free, room and board-free, in some cases, to middle class and poor students.  Some of the proposals highlighted last spring would give tuition-free educations to students that come from families making as much as $100,000.

For the full story, please click here - Reuters.

AMT

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