Top US colleges face cash squeeze

By Deborah Brewster in New York
April 19 2009

Top colleges in the US, such as Yale, Stanford and Harvard, are facing an unprecedented slump in the value of their endowment funds resulting in a cash squeeze, just as they are getting record numbers of applicants and more requests for financial aid. College endowments fell in value by an average of 24 per cent in the six months to December, with smaller ones falling more, according to a survey by the Commonfund, a non-profit organisation. Princeton and Harvard have both said they are expecting a drop of 30 per cent for the full fiscal year to June, and others have indicated they will see similar or greater falls. At the same time the colleges are facing higher pay-outs of financial aid to students, partly because many expanded these programmes during the boom endowment year of 2007. John Etchemendy, the provost of Stanford University, said Stanford was committed to paying out $110m (£74.4m) in financial aid in the coming academic year, $10m more than last year. However, the university had to shave more than $300m from its $3.5bn operating budget because of endowment losses. A record 30,428 students applied for the 2,300 freshman places available at Stanford this year – 20 per cent more than last year. Harvard and Yale, both of which also expanded their financial aid programmes, had similar record numbers of applicants. More than 29,000 applied to Harvard for 1,650 places, while Yale had 26,000 applicants and admitted 1,951. Tuition and board at Harvard costs close to $50,000 a year, but 60 per cent of students receive some form of aid. Most colleges are trying to maintain their aid programmes. Mr Etchemendy said: “We will try to maintain it as long as we can. But even if we pull back a little, students will still be able to attend .”Stanford has frozen staff salaries and ended a $1.3bn capital works programme. The college will lay off about 350 people in this fiscal year, said Mr Etchemendy. Harvard said in February it would freeze salaries and offer early retirement. It also suspended work begun on the big expansion of its Allston science centre. Both Stanford and Harvard last year relied on endowments to provide 30 per cent of their budgets. Some Harvard schools, such as the Kennedy School of Government, rely on the endowment for more than 50 per cent of their costs. Princeton’s endowment provided close to 50 per cent of its annual budget.
Copyright The Financial Times Limited 2009