Colleges cope as endowments pinch
Budgets are cut as a new study reports an average loss of 23 percent in endowment value.
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Many colleges will have trustee meetings in the coming months before determining tuition. "How you proceed on the tuition side and the financial aid side is going to have a very big impact on families' willingness to enroll.... But because the economic markets are so unstable, it's very hard for institutions to make plans with any certainty," says Terry Hartle, a senior vice president at the American Council on Education, a research and advocacy group in Washington.Skip to next paragraph
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Like many of its peers, Dartmouth College in Hanover, N.H., is facing an unprecedented budget situation in the wake of an 18 percent decline in its endowment from July to December. That brought the value down $700 million, to about $3 billion. The school relies on endowment spending for about 35 percent of its undergraduate college's operations.
Dartmouth officials recently announced that "some staff layoffs are inevitable" to help trim more than $60 million from the annual $700 million budget for its undergraduate college and professional schools. Tenured and tenure-track faculty and student financial aid are not subject to cuts. Just more than 70 out of 600 eligible nonfaculty employees have taken retirement incentives.
"It's a little bit somber," says executive vice president Adam Keller of the mood at Dartmouth. But people aren't surprised that layoffs are coming, and the community is working together to minimize the need for them, he adds. "We have more than 300 suggestions from employees about ... things we could do to save money, and we're looking at those very seriously."
The University of Rhode Island Foundation has seen an 18 percent decline, too, from its June 30 value of about $88 million. But the impact is small relative to schools with large endowments. It marked the median point of the NACUBO survey, with half the endowments higher and half lower. Typically, the endowment contributes about $4 million to the $308 million operating budget for the public university.
"There's a possibility that we won't be able to award any of that $4 million in the next fiscal year," says foundation president Glen Kerkian. It won't be clear until the end of the foundation's fiscal year in March how much it can award, and whether the university will be able to bridge the gap with other revenue. "Almost 55 percent [of endowment spending] is for scholarships.... This is what makes this like a double whammy.... Scholarships are as needed, and possibly as unavailable, as they've ever been," Mr. Kerkian says.
Spending part of an endowment
As endowments have enjoyed strong returns over the past several years, Sen. Charles Grassley (R) of Iowa has raised the idea of forcing colleges to spend a certain amount of their endowments – perhaps 5 percent – to help reduce costs for students. Now the pressure may be off.
"The whole idea of endowments is ... [to] have security for the long run and continue your operations in bad times," Baum says. So it's "totally appropriate" for schools with large endowments to spend at a lower rate in periods of rapid enrollment growth and to raise the rate in a downturn.
Over the past 10 years, the NACUBO survey has seen average annual spending rates ranging from 4.5 to 5.1 percent.