Colleges recoup recession losses
Big investment gains; tuition cuts unlikely
By Jodi Upton and Christopher Schnaars
USA TODAY
College endowments are at their highest levels ever for many universities, and schools are spending the money on anything from luxury dorm rooms to the lacross coach at Harvard. And, sometimes, on tuition breaks for students.
Endowments have long been popular among private schools. Harvard’s $32 billion is the biggest and best known. Private schools were also the first to start using at least some endowment money - usually amounting to about 10% of all aid money - to make tuition more affordable for middle-class students.
At Stanford, for example, most students from families earning less than $100,000 pay no tuition and families earning less than $200,000 get a discount, spokeswoman Lisa Lapin says. That discount comes partly from endowment money and partly from other students’ tuition.
The result: For high-achieving students, the actual price at some Ivy-class schools can be cheaper than public schools, especially in California, Lapin says.
Few public schools offer a break on the sticker price, even though by 2011, 29 schools with endowments of about $1 billion or more were public, according to USA TODAY analysis of data from the National Association of College and University Business Officers.
However, many schools are still trying to make up for losses from the recession, and funds have to earn enough to cover management fees, inflation and the 4% to 5% of their endowments that many schools spend each year, NACUBO President John Walda says.
That money may be used for faculty salaries or for building projects. “Building a new building or maintaining an old one is helping students too,” Walda says. “It means the school isn’t using tuition for that.”
Emphasis on long term
Not all schools have endowment, and for many, the pot is small. Much of the money is also often restricted by the donor for a specific purpose, Walda says.
Schools tend to use endowments for long-term plans and whatever will help attract students. That could be helping to ensure the future of certain positions - such as 15 athletic department positions at Harvard. It may also be a tuition cut or dorms and facilities that set it apart from other schools. “Their first step on the campus isn’t in the classroom, so they’re looking at your housing, they’re looking at your dining, they’re looking at your facilities,” Brian Dawson told CNBC in May. As Associate Dean of Housing and Residential Life and Pepperdine, a small California school known for its luxorious dorms, he will help oversee a $50 million expansion that will include dorms with ocean views and housekeeping.
At public schools, it’s more likely to be athletics buildings. But at University of Texas - which has the largest public-school endowment in the country and spends more on athletics than any other school system - students are just beginning to reap the benfits.
While the Austin campus provided about $38 million in need-based grants from its operating budget last year, $61 million in financial aid that came from Austin’s $7.5 billion share of the Texas system’s endowment was merit-based, says Tom Melecki, Austin’s director of financial services.
The real culprit behind rising student debt, Melecki says, is lawmakers who have cut state and federal tuition relief. Fewer than half of Austin’s May undergraduates had outstanding student loans, he says, and those students owed an average of $25,000. Meanwhile, state and federal financial aid have been slashed while the school’s Board of Regents recently voted to freeze tuition.
“Public policymakers are downsizing their commitment to financial aid for students who need to go to college,” he says.
‘Treasure chests’
Most public schools don’t offer wide-ranging tuition discounts because they don’t have to, Walda says. They attract plenty of students and keep tuition below about $12,000 a year.
Schools such as University of North Carolina, University of Florida, University of Virgina and Georgia Tech - all with endowments of more than $1 billion - limit most financial aid to families making $46,000 or less, a study by the Insitute for Higher Education Policy shows.
It wouldn’t take much to offer a tuition discount - or slow the rapid rise: 1% of a $2 billion endowment is enough to give a $1,000 break to 20,000 students.
Colleges get $10 billion to $32 billion each year in tax breaks - and billions more in government research grants - which is one reason why U.S. Senate finance and taxation committees are interested in how they handle student aid.
Critics say the endowments are treated as “treasure chests,” says Lynn Munson, who has testified before the Senate Finance Committee. “They are used on projects to reflect wealth and self-esteem, not as a functional pot of money.”</p>
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Led by big investment gains in 2011, U.S. colleges have built investment behemoths and rainy day funds of more than $408 billion, and most have recouped recession losses, according to a USA TODAY analysis.
Even so, parents and students are unlikely to see much of a break in tuition.
In 2011, 74 U.S. schools had endowments of more than $1 billion, compared with 54 schools in 2009 after the recession hit, according to data collected annually by the National Association of College and University Business Officers (NACU-BO) and analyzed by USA TODAY.
By last year, nearly 70% of schools had either recovered from losses or were within 5% of their previous maximum amount, the analysis found. Gains include both investment returns and fundraising.
Nearly 40% of the largest endowments are at public schools, The University of Texas System’s endowment of $17 billion is higher than Princeton’s, Stanford’s and MIT’s. Nevertheless, few public schools use their endowments to offer no-loan programs or steeply discounted tuition for middle-class families.
“Colleges and universities are sitting on more wealth than has been amassed by any other group of non-profit institutions in the history of our nation - including private foundations,” says Lynne Munson, an adjunct research fellow at the Center for College Affordability and Productivity. “Tuition accountability is long overdue.”
From 2006 to 2011, tuition fees rose 30% above inflation at public, four-year schools, according to the College Board. Rising costs have led to more student debt. In 2005, the average student-loan debt was $15,651, according to a Federal Reserve Bank of New York study. By 2012, that had increased to $24,301.
The issue of how to deal with rising education costs has become part of the 2012 campaign as President Obama courts young voters by promoting more tax credits and expanded Pell grants to pay for school, while Repulican challenger Mitt Romney has pushed for reduced federal spending.
Congress has noticed, too. The Sentate Finance Committee held hearings in late July, which included questions on why tuition has increased so rapidly when schools have such large endowments. More hearings on financing higher education are expected to be scheduled this fall.
In spite of 2011’s strong gains, not all schools have caught up to where they want to be, NACU-BO President John Walda cautions. The endowment fund still has to earn management fees, cover inflation and the 4% to 5% schools spend each year - which is sometimes used for new buildings or to pay for faculty positions.
“Based on our data, it’s clear schools are using endowments wisely and spending as much as is prudent,” Walda says.