Colleges Feel Impact of Market Decline, Begin Cutting Fin. Aid

For years, as the stock market roared, educational endowments swelled, helping private secondary schools and colleges provide more financial aid, expand, and attract better faculty. But with the financial markets in crisis, those days are over.

Today educational institutions are cutting spending, delaying projects, and holding off on hiring. While many schools and colleges say their commitment to helping families pay the costs of education will not waver, some experts maintain that as investments shrink and donations fall, some institutions will be forced to cut back on financial aid.

Morton Schapiro, president of Williams College in Massachusetts, which has long had a commitment to accepting students without considering their financial situation, said he doubted that all colleges with such full need-blind policies would be able to hold to them.

“The major dial you turn for most financial crises is that you admit more students who can pay, as a way of increasing revenues,” Mr. Schapiro said. “With the tremendous decline in wealth, I think fewer people will hold on to needs blind.”

Molly Corbett Broad, president of the American Council of Education, a group of 1,800 public and private colleges, said the problems would be worse where endowments are smaller and enrollments larger, like at some public universities. “The farther down the food chain you go in terms of endowment per student,” she said, “the harder it will be to sustain need-blind admissions.”

One of the few college presidents speaking publicly about making some adjustment is Douglas Bennett of Earlham College in Indiana. About 18 percent of its students are from families with less than $60,000 in income and receive financial aid.

“If you are truly need-blind, you can go broke,” Mr. Bennett said bluntly during a telephone interview. “It is like writing a blank check to the world.”

The relative share of financial aid that is picked up by the government is declining as well, he added. As the burden is shifted to families and institutions, Earlham is trying to figure out what to do. The college is particularly concerned about students that it accepts and enrolls but whose financial needs it may not be able to meet.

Mr. Bennett said Earlham, which had a $350 million endowment at the end of June, was considering limiting its need-blind admissions policy to three-quarters of the class. The college would then know how much it had committed in financial aid and would be able to take that into account in admitting the remaining 25 percent.

Endowment management at most colleges involves a “smoothing strategy” that tries to blend spending over good years and bad in the hope of avoiding abrupt layoffs or other cuts if the endowment falls precipitously.

Though endowments generally pay out about 5 percent of their assets annually, they often calculate the amount on an average of the previous three years, or other formulas. So in a rising market, colleges appear to be giving away less than 5 percent of the current endowment value; in a falling market, they appear to be giving away more.

A prolonged bear market would be likely to depress returns or even create more losses. Contributions from alumni might also decline, putting even more pressure on endowments just as the colleges need more financing from them.

For the moment, colleges with heftier endowments say they can weather the storms. In late October, Anthony Marx, president of Amherst College, posted a letter on the college Web site that said the endowment had fallen 25 percent since June 30, the end of fiscal 2008, when it stood at $1.7 billion. Still, Mr. Marx wrote, the commitment to financial aid would not be scaled back, although Amherst would postpone a renovation project and would review plans for new hires more stringently.

But the new financial realities mean that “every school is looking at what they can cut and what they can reallocate,” said Steven Rattner, a managing principal of the Quadrangle Group and acting chairman of Brown University’s investment committee.

“Nobody thinks the market will turn around and go back to do what it did before,” he said. “That means everyone is having to plan for a more difficult and turbulent financial environment to bring our expenses in line with resources.”

Everywhere, the goal is to keep entry to colleges accessible. “Just as schools have less money, the families need more,” Mr. Rattner said. “While they are all looking to trim fat, the needs-blind issue is seen as muscle.”

As part of a $1.4 billion fund-raising campaign, Brown is seeking $400 million for financial aid. Ronald Vanden Dorpel, senior vice president for advancement, said the university tells potential donors that such gifts let Brown admit the best and most diverse students — “whomever we want without looking at their ability to pay.”

During freshman weekend at Williams last month, Mr. Schapiro told families that if their financial circumstances had changed, the college wanted to know and would try to accommodate their needs.

The college has 2,000 students, and “I got about 12 calls from families that told us they might need more help,” said Mr. Schapiro, who is also president of the 568 Presidents’ Group, 30 colleges that have agreed to admit all American students on a needs-blind basis.

Mr. Schapiro has already alerted the Williams community about other cutbacks. In a letter several weeks ago, he said the endowment budget had been predicated on an annual increase over the long term of 8 percent; last year, Williams’s endowment was down one-tenth of 1 percent. He also warned that Williams would have to think about the impact of the roiling economy on giving.

Williams has decided to delay the completion of a sports field and a library. That will save money, Mr. Schapiro said, and avoid the need to borrow. In the current credit crunch, he noted, “the preferential interest rates once afforded to schools are temporarily gone.”