US colleges punished by financial crisis

CHICAGO: Higher education has been a growth industry in the United States, evidenced by swelling enrolments, 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 per cent in the past four months.

To be sure, schools have proven resilient in past recessions, helped by rising student enrolment 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 programme.”

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 per cent since 1992, while the consumer price index rose 48 per cent.

At the University of Wisconsin in Madison, the school’s $1.8 billion endowment has shrunk by 18 per cent since the start of the year, Sandy Wilcox of the University of Wisconsin Foundation said. Dipping into the endowment to make a promised contribution to the school’s budget only shrinks it further.

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.

Rainy day fund

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 non-profit, tax-free status if they don’t comply.

For 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.

“Schools we’re most concerned about are smaller, less well-endowed private colleges,” said Roger Goodman, vice president at Moody’s Investors Service, which assigns credit ratings to 500 schools. He said endowment balances have likely plummeted by 30 per cent or more.“You still need a college degree to be a full participant in the work force,” he said. “What we may see is a shifting (of applicants) from the higher-priced, small, private colleges, to a lower-priced four-year university, and from the four-year universities to community colleges for a couple of years.”

A survey of 2,500 prospective students by MeritAid.com found 57 per cent were now considering less-expensive colleges due to the economic downturn.

Many prospective students encounter sticker shock when confronted by the $50,000 price tag at schools like Oberlin, Boston University and Bennington College in Vermont.

But financial aid and federal loans remain available, and families whose assets have declined qualify for more aid.

Boosting access to college is one plank of Democratic presidential hopeful Barack Obama’s platform. This may add pressure on publicly-funded universities to boost enrolment, which has already climbed 10 per cent since 2002.

Sticker prices at private colleges are usually much higher than pubic schools, but students rarely pay full price.

“Sometimes a small, liberal arts college will actually be better for a student and more affordable than in-state (public schools),” said Ken Himmelman, Bennington’s dean of admissions.

Public universities, which educate roughly 75 per cent of the 17.5 million US students, are anticipating cuts in state appropriations, which cover a substantial chunk of their costs.

State tax receipts have declined due to the economic slowdown and the bursting of the housing bubble.

“They’ll look to the university to cut. They don’t want to cut prisons, or roads,” Wisconsin’s Wilcox said.

Making cuts

Massachusetts’ public universities have cut budgets by five per cent as their part in covering a state-wide shortfall.

Some public and private schools have declared hiring freezes and made efforts to reduce expenses because of shrunken endowments, and actual or expected declines in gifts and government support.

The state of Arizona cut its contribution to the state university system by four per cent this year and five percent next year – with another mid-year cut possible. Its more than 118,000 university students may have to absorb a tuition hike next year of 10 per cent or more.Hawaii lowered its contribution two per cent, though enrolment rose six per cent. Pennsylvania’s public universities will raise tuition four per cent next year ahead of state cuts.

California sliced one per cent off its $3 billion contribution to universities but more cuts are expected as tax revenues lag projections. This spring, New York reduced its contribution and warned another 30 per cent cut may be in the offing.

The bursting of the housing bubble has dried up home equity loans many families have used to pay tuition. And the stock market drop has shrunk some families’ savings for education.

Often, 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’ unrivalled roster of 4,300 non-profit institutions of higher learning, significant tuition increases may be unavoidable.—Reuters