Colleges cope as endowments pinch

College endowment funds, like other investments, took a huge hit this fall – resulting in billions of dollars less to spend on school budgets that cover everything from staff to building projects to student financial aid.

For colleges that rely on income from their endowments to fund a third or more of their operating expenses, cost-cutting measures, including layoffs and hiring freezes at some schools, are already under way.

Brandeis University in Waltham, Mass., is making a controversial move in response to losses: It announced plans Monday to close its art museum and sell the collection.

If there's any good news for higher education, it could be that only a small number of colleges rely heavily on endowments to keep themselves running – and that college endowment funds in general performed better in the bear market than did the major indexes.

Still, between July 1 and Nov. 30, 2008, endowments lost nearly 23 percent of their value, according to a survey of 435 colleges and universities for a report released Tuesday by the National Association of College and University Business Officers (NACUBO) in Washington.

"For a small number of colleges, endowments have a very significant impact," says Sandy Baum, a senior policy analyst at the College Board, a nonprofit association in New York. Among the majority of colleges, which have smaller endowments, "the silver lining to not having a large endowment is [they're] not very dependent on it."

Despite the losses, most institutions, particularly those with large endowments, are expected to make financial aid a top priority. "There's a lot of hiring freezes or slowdowns going on, but ... student financial aid is one of those things, in bad economic times, where you don't want to reduce support," says John Walda, NACUBO's president and CEO.

Harvard, Princeton, Yale, and Dartmouth, for instance, all draw more than a third of their operating budgets from their multibillion-dollar endowments, but they've announced their intent to maintain financial aid – including relatively new policies to give more help to low- and middle-income families.

Less of a tuition increase

Princeton has gone a step further on affordability: On Monday, it announced its lowest undergraduate tuition and fee increase since 1966 – 2.9 percent. Next year's charges will top $47,000, but the average grant to students on financial aid is nearly $34,000. Also, Princeton is increasing its undergraduate scholarship budget by 13 percent.

"Even though [Princeton is] much less wealthy than before, they're not going to try to compensate for that through tuition increases," Ms. Baum says. "We don't know yet how many other similarly fortunate institutions are going to do that, but it wouldn't be surprising if they take that approach."

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