Market Losses Tighten Screws On Colleges

American colleges and universities lost an average of 23 percent on their endowment investments last semester, according to a national survey to be released today, a drop that is hurting the bottom line across the board, from major state institutions to the Ivy League.

Colleges are feeling financial pressure from all sides as the economic crisis deepens. State funding has dropped. Private donations are expected to decline. And with more families facing job losses and dwindling savings, some schools say they are reluctant to raise tuition or cut financial aid.

Instead, half of the private colleges taking part in a separate survey said they are freezing hiring, delaying building projects or restricting staff travel.

"This is the most challenging environment that any of us in higher education have seen in our professional lifetimes," said Molly Broad, president of the American Council on Education, "because of the combination of revenue declines from multiple sources and because of the continuing uncertainty."

For the fiscal year that ended June 30, investment returns -- a mix of interest, capital gains and dividends that is considered the best measure of an endowment's performance -- produced an average loss of 3 percent at U.S. colleges and universities, according to a voluntary survey of nearly 800 institutions with endowments of at least $1 million. The participating institutions are members of the National Association of College and University Business Officers, which released the survey results with the investment firm TIAA-CREF Asset Management.

A follow-up survey of more than 400 schools found that from July through the end of November, endowment investments fell an additional 23 percent on average, based on preliminary estimates.

For those schools that are highly dependent on endowment funds, the impact is profound, and the scramble to make cuts is well underway. Those that rely more on state funding and tuition income have seen those revenue sources shrink as well, and they are cutting back on some of the extras that make the schools more competitive, such as endowed professorships to lure top faculty.

They are all watching to see how the economic stimulus package fares in Congress. It could provide significant funding to higher education and help families pay for college,

Meanwhile, schools are making some tough choices.

Public colleges and universities in Virginia are considering raising tuition by as much as 10 percent. In a survey by the National Association of Independent Colleges and Universities, more than two-thirds of the schools that responded planned to raise tuition. Dartmouth College leaders announced last week that they would need to make $60 million in cuts. Brown University declared a hiring freeze.

"The budgets for the most part have a very thin margin," said Sanford J. Ungar, president of Goucher College, who has frozen hiring and instituted budget cuts. "Once something goes haywire, it's very hard to make up for it."

But even as they postpone hiring and construction, many schools have worked to minimize the effect on students and families by holding down tuition -- which has risen much faster than the general rate of inflation for years-- and increasing financial aid. More than 90 percent of colleges responding to the NAICU survey said they were increasing their financial-aid budgets.