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Reports show historic endowment losses

Last Tuesday, as President Ruth Simmons announced devastating losses to the University's endowment, two reports released by the National Association of College and University Business Officers painted a bleak picture for the state of college and university endowments in general.

Though NACUBO conducts research on college endowments annually, this year it released a second report covering the five-month period from July to November 2008 "in order to document the effects that the market downturns" had on college endowments, according to an online press release.

According to the first study, which surveyed 796 colleges and universities in the United States and Canada, college endowments on average grew 0.5 percent from June 2007 to June 2008. However, the second study showed that between July and November 2008, the market value of endowments plunged by an average 22.9 percent, for a loss of about $94.5 billion among the 435 responding schools.

This marks the first time the national average of college and university endowments has dropped since the downturn of the early 2000s and is the biggest drop since the mid-1970s, according to The New York Times. The current recession has meant that colleges and universities have seen decreased returns on investment - an average 2.7-percent loss in the last fiscal year - as well as decreased giving, both of which have caused the dramatic drops in endowment values.

On average, the 39 schools with endowments greater than $1 billion that participated in the second survey reported slightly less severe average losses, experiencing 20-percent decreases in the market value of their endowments.

Schools have reported losses ranging from Georgetown University's 9.5 percent to Cornell's 27 percent over the past several months. Johns Hopkins University, whose $2.1-billion endowment is close to that of Brown, lost about 11 percent of its endowment. Simmon's recent e-mail projected a loss of about $800 million, or just under 30 percent, from the endowment by the end of the fiscal year in June. Brown's figures are more recent than those included in NACUBO's study, and unlike other schools' data, are projections rather than hard numbers.

According to Ken Redd, director of research and policy analysis of NACUBO, "Brown is not alone. Many universities are in the same position, having lost 20 to 30 percent of market value in a relatively short span of time."

Private schools tend to use a greater share of endowment returns to support their operations than public schools, Redd said, and so they will probably see a greater adverse impact from the decline in endowments.

"Typically an institution such as Brown derives anywhere between 10 and 15 percent of its annual operating funds from it endowments," he said. "From the declines we've seen, that type of a loss would mean there's much less money to spend."

As a result of these losses, many schools said they would decrease spending out of their endowments. NACUBO's follow-up survey asked respondents whether they intended to change their endowment spending rates, calculated as the amount spent from the endowment divided by the endowment's initial market value. Seventeen percent of institutions overall said that they planned to reduce spending, while only 3.7 percent said they intended to increase payouts.

Sen. Charles Grassley, R-Iowa, who has been critical of colleges and universities for what he believes to be unnecessarily low payout rates, issued a statement in response to NACUBO's report in which he called on colleges to continue to strive to spend more out of their endowments. "The right kind of modest pay-out requirement for endowments above a certain dollar amount might do a lot of good for universities and students regardless of economic conditions," the statement said.

Many schools have taken various measures, including freezing hiring and construction, cutting costs, deferring maintenance and selling assets. This is consistent with past behavior, according to Redd. But, he added, because "this recession is turning out to be much more severe" than previous downturns, institutions may be forced to take more drastic steps. "The impact is going to be pretty large and potentially pretty devastating for a number of institutions. It's going to be hard to make up that kind of loss anytime soon," he said.

Despite the turmoil, it is unlikely that schools will decrease student aid in order to cut losses. "One area that most colleges tend not to reduce is financial aid," Redd said.

Some schools are even increasing financial aid as families may now have a harder time paying for college. Princeton expects to lose 25 percent of its endowment by the end of June, according to spokeswoman Cass Cliatt, and has increased its financial aid budget from $92 million to $104 million for the fiscal year 2010.

"This accommodates the needs of an increase of students on financial aid - from 56 percent to 58 percent - in addition to the increase in scholarship amounts that we've been awarding already this year to meet the increased need of individual families," she wrote in an e-mail to The Herald.

Though she did not go into specifics in her letter to the community last week, President Simmons similarly pledged to protect the University's financial aid program.


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