November 8, 2008
Tough Times Strain Colleges Rich and Poor
By TAMAR LEWIN
Arizona State University, anticipating at least $25 million in budget cuts this fiscal year — on top of the $30 million already cut — is ending its contracts with as many as 200 adjunct instructors.
Boston University, Cornell and Brown have announced selective hiring freezes.
And Tufts University, which for the last two years has, proudly, been one of the few colleges in the nation that could afford to be need-blind — that is, to admit the best-qualified applicants and meet their full financial need — may not be able to maintain that generosity for next year’s incoming class. This fall, Tufts suspended new capital projects and budgeted more for financial aid. But with the market downturn, and the likelihood that more applicants will need bigger aid packages, need-blind admissions may go by the wayside.
“The target of being need-blind is our highest priority,” said Lawrence S. Bacow, president of Tufts. “But with what’s happening in the larger economy, we expect that the incoming class is going to be needier. That’s the real uncertainty.”
Tough economic times have come to public and private universities alike, and rich or poor, they are figuring out how to respond. Many are announcing hiring freezes, postponing construction projects or putting off planned capital campaigns.
With endowment values and charitable gifts likely to decline, the process of setting next year’s tuition low enough to keep students coming, but high enough to support operations, is trickier than ever.
Dozens of college presidents, especially at wealthy institutions, have sent letters and e-mail to students and their families describing their financial situation and belt-tightening plans.
At Williams College, for example, President Morton Owen Schapiro wrote that with last year’s negative return on the endowment and the worsening situation since June, some renovation and facilities spending would be reduced and nonessential openings left unfilled.
Many students, increasingly conscious of costs, are flocking to their state universities; at Binghamton University, part of the New York State university system, applications were up 50 percent this fall. But with this year’s state budget problems, tuition increases at public universities may be especially steep. Some public universities have already announced midyear tuition increases.
With endowment values shrinking, variable-rate debt costs rising and states cutting their financing, colleges face challenges on multiple fronts, said Molly Corbett Broad, president of the American Council on Education.
“There’s no evidence of a complete meltdown,” Ms. Broad said, “but the problems are serious enough that higher education is going to need help from the government.”
And as in other sectors, she said, some financially shaky institutions will most likely be seeking mergers.
Nationwide, retrenchment announcements are coming fast and furious, as state after state reduces education financing.
The University of Florida, which eliminated 430 faculty and staff positions this year, was told recently to cut next year’s budget by 10 percent, probably requiring more layoffs. Financing for the University of Massachusetts system was cut $24.6 million for the current fiscal year.
On Thursday, Gov. Arnold Schwarzenegger of California proposed a midyear budget cut of $65.5 million for the University of California system — on top of the $48 million reduction already in the budget.
“Budget cuts mean that campuses won’t be able to fill faculty vacancies, that the student-faculty ratio rises, that students have lecturers instead of tenured professors,” said Mark G. Yudof, president of the California system. “Higher education is very labor intensive. We may be getting to the point where there will have to be some basic change in the model.”
Private colleges, too, are tightening their belts — turning down thermostats, scrapping plans for new gardens or quads, reducing faculty raises.
But many are also increasing their pool of financial aid.
Vassar College will give out $1 million more in financial aid this year than originally budgeted, even though the endowment, which provides a third of its operating budget, dropped to $765 million at the end of September, down $80 million from late June. President Catharine Bond Hill of Vassar said the college would reduce its operating costs, but remain need-blind.
Many institutions with small endowments, however, will probably become more need-sensitive than usual this year, quietly offering places to fewer students who need large aid packages.
At Dickinson College in Pennsylvania, Robert J. Massa, the vice president for enrollment and student life, said that about 200 applicants last year might have been accepted if they had not needed so much financial help, but that that number might rise to 250 this year.
Dickinson’s endowment was $280 million in mid-October, Mr. Massa said, down from $350 million in June. And while more than three quarters of the college’s operating budget comes from student fees, some endowment revenue will have to be replaced.
“Here’s the rub,” Mr. Massa said. “I really don’t think that colleges can afford to increase their tuition price at higher than inflation this year. I don’t think the public will stand for it. What we’ve done in higher education is let our dreams and aspirations dictate our cost structure.”
Most colleges will have a better sense next month of how many students are struggling, when second-semester tuition bills come due.
Paola Aguilar, a sophomore at Shenandoah University in Winchester, Va., is worrying about whether she can afford to return next year.
“My mom became a Realtor last year to try to earn more money, but that didn’t help,” Ms. Aguilar said. “I’ve talked to the people here, and they’ve helped me out a little more for next semester, but as of right now, if I don’t get more help, I’ll have to leave next year and go somewhere cheaper, near home.”
Tracy Fitzsimmons, Shenandoah’s president, said she began hearing about students’ financial anxieties in mid-September.
“They’d tell me they were thinking they might have to move off campus next semester and stay three to a bedroom, or give up the meal plan and just eat one meal a day,” Ms. Fitzsimmons said.
Shenandoah has started an emergency grant fund for students, increased its loan program and prepared to stretch out spring tuition payments for hard-pressed families.
Economic uncertainty touches every facet of higher education.
“We are planning to begin a capital campaign of $150-185 million,” said Karen R. Lawrence, president of Sarah Lawrence College. “We will still do that. We’re not compromising our ambitions, but the timing will be a little bit deferred.”
At the wealthiest institutions, endowment revenue usually covers about a third of operating costs, and most colleges and universities spend a percentage of their endowment, based on its average value over the previous three years, helping to smooth out economic ups and downs.
In recent years, with tuition rising faster than inflation, college affordability has become a significant issue. And with the sharp growth of endowments in recent years — Harvard’s hit $36.9 billion this summer — some politicians, notably Senator Charles E. Grassley, Republican of Iowa, have pushed for a requirement that colleges spend 5 percent of their endowments. Many of the wealthiest institutions responded by expanding financial aid last year, with dozens of them replacing loans with grants.
This fall, more universities are taking steps to increase affordability. Benedictine University, a Roman Catholic institution in Illinois, is freezing tuition; Vanderbilt University will replace loans with grants; Boston University has expanded scholarships for students who graduated from Boston public schools; and the University of Toledo announced free tuition for needy, high-performing graduates of Ohio’s six largest public school systems.
Presidents of many expensive private colleges are wondering how much more tuition pressure families can bear.
“I wouldn’t deny that a tuition freeze has occurred to me, but we can’t afford heroic gestures,” said Sandy Ungar, president of Goucher College in Baltimore.
Given the current climate, some say, colleges need to re-examine all of their economic assumptions.
“Several years ago, we started thinking about sustainability in environmental terms,” said Dick Celeste, the president of Colorado College. “Now we need to be thinking about sustainability in economic terms.”