Corporation boosts financial aid

Faced with the competing pressures of a slumping economy and the need to keep pace with peer schools that have strengthened financial aid programs, the Corporation approved a plan at its winter meeting Saturday that will decrease the financial burden on low- and middle-income students and draw more heavily on the University's $2.8 billion endowment than ever before.

The $752.7 million budget for fiscal year 2009, which begins July 1, will include $68.5 million for financial aid - an increase of 20 percent from the previous fiscal year. Most of that increase will go toward reducing student loans across the board, and eliminating them entirely for students whose families earn less than $100,000 a year. For families with incomes below $60,000, the required family contribution will also be wiped out.

"There are very few schools in the country that are going to have more competitive offers than Brown," said Provost David Kertzer '69 P'95 P'98. He added that the University felt it was "necessary to do something quite substantial this year to improve financial aid."

With the overall budget set to increase by 6.7 percent from the current year, the Corporation approved a 3.9 percent hike in tuition and fees to $47,740, a smaller increase than has been typical of the last several years, in which it has raised those costs by about 5 percent annually. Nationwide inflation was about 2.2 percent in 2007, according to the Treasury Department.

Tuition and student fees are expected to make up about 50 percent of the University's total income in fiscal 2009, down from 58 percent six years ago, before Brown introduced a need-blind admission policy and began gradually increasing its commitment to financial aid, according to a University press release.

Hoping to remain aggressive in lowering the cost of education and continuing to support the Plan for Academic Enrichment despite an inauspicious economic outlook, the Corporation decided to increase its annual draw on the endowment to 5.89 percent, estimating that such a move would add an additional $22.9 million to its resource pool. The University's highest governing body had long capped the endowment draw at 5.5 percent.

The annual draw is applied to an averaged endowment size over the previous 12 quarters to avoid reflecting short-term ups and downs in investment returns.

The University's budget is developed by the University Resources Committee, a group of faculty, students and staff that is chaired by Kertzer. That group presents a report to President Ruth Simmons, who reviews it and formally presents a budget to the Corporation for approval.

A cautious outlook

The URC struck a cautionary note in its annual report this year, saying that a possible economic slowdown "had a profound impact" on its recommendations.

Though the new budget appears to support the University's continued rapid growth during its $1.4 billion capital campaign - planning for expenditures about $3.5 million greater than the University's projected revenue - it is perhaps less aggressive than last year's budget.

For the current fiscal year, expenditures were expected to exceed revenue by about $9.3 million, with the gap filled in by drawing on reserve funds. The Corporation approved the use of $50 million in reserves in 2004 to fuel the Plan for Academic Enrichment, and each budget since then has drawn on the funds to pad its resources.

But the URC acknowledged that "for the first time in several years ... the current economic outlook is cause for concern," and that "it is clear that there will be constraints on the growth in revenue and resources for the next few years." It predicted more conservative budgets for the coming years and advised restraint in planning beyond fiscal 2009.

"It's a cautious budget," said Elizabeth Huidekoper, executive vice president for finance and administration. "But I also think it's ambitious." She said the smaller draw on reserves is not simply an indicator of the budget's attempt to limit use of reserves, but also a reflection of long-term planning goals.

"We had always planned on that deficit amount coming down," she said. "This current year (fiscal 2008) is high."

"But now we have to rethink pretty much everything because of this financial aid situation," she said. Had the University not been blessed with "extraordinary endowment returns," she added, it would have faced a difficult choice in budgeting for financial aid changes. Instead, it was able to devote money toward slashing loans for students by tightening up the budget in other areas.

"We're conservative on salary increases, and we're conservative on other things," she said.

However, both Kertzer and Huidekoper said the need to excite prospective donors about the Campaign for Academic Enrichment means that overreacting to a perceived blow to the economy could hurt more than help. Since prospective donors want to feel that their money would contribute to an exciting cause, the University must continue to implement the plan in order to sustain donations, Kertzer said.

With a gloomy economic outlook in mind, the Corporation also felt pressure from its competitors - some of the country's wealthiest colleges and universities - as well as from Congress to make Brown more affordable to students.

Late last month, a letter from Senate Finance Committee leaders Sens. Max Baucus, D-Mont., and Chuck Grassley, R-Iowa, was sent to Brown and other wealthy schools to request detailed information on their endowment management, spending, tuition and financial aid.

That letter came on the heels of Grassley's suggestion in October that he might introduce legislation to require that colleges and universities spend at least 5 percent of their endowments each year to help ease students' tuition burdens, a requirement Brown and other universities have opposed.

"We all feel that having Congress involved in managing private university endowments is a very bad idea for a lot of reasons," Kertzer said, adding that the United States has a higher education system that is "the envy of the world" because the government does not exert much control over its private universities.

In what was partially seen as an attempt to ward off such legislation, Harvard, the nation's richest school with a $34.6 billion endowment, announced in December that it would replace all student loans with grants and eliminate financial contributions for families earning less than $60,000. Since then, many other top schools, including Princeton, Yale, Stanford, Dartmouth and the University of Pennsylvania, have followed suit by announcing improved aid packages of their own.

"Brown and its peers face tremendous public and political pressure to keep the overall level and the annual increases to our tuition and fees as low as possible," the URC said in its report, noting that such a situation was "especially difficult" for Brown because it is more dependent than many competitors on tuition for its operating budget.

"It's a matter of balance," Kertzer said, noting that because the University's financial aid budget is supported only in small part by its endowment, it must use "unrestricted" dollars that might otherwise go toward libraries, dorms or other essential services. It is in that sense, he said, that Brown is "in a different situation" than some wealthier schools like Harvard, Yale and Princeton.

"We don't have limitless resources," he said, adding that the URC discussed "both doing less and doing more" than the financial aid improvements that were ultimately settled upon. But unlike some of its richest competitors, it decided not to expand aid to upper-middle-income students and instead to focus on helping those who were "most feeling the pinch," he said - that is, those already receiving financial aid.

Forging ahead