Market Losses Tighten Screws On Colleges

In Maryland, Gov. Martin O'Malley (D) has proposed a budget that would continue a freeze on tuition for the state university system for the fourth year. Catholic University's tuition increase next year will be its smallest in years, even though the school has had to cut spending and freeze hiring. Princeton and Cornell universities announced their smallest increases in more than 40 years.

At George Mason University, school officials are deciding what to trim. But a university spokesman said officials would protect financial aid, which they increased from $2.1 million to $2.6 million over the past fiscal year.

Schools such as the University of Virginia and Harvard University are standing by their recent and expensive commitments to ensure that low-income students don't have to borrow money to attend.

The losses may be painful at schools such as U-Va., where the market value of the investment pool dropped more than $1 billion in the last six months of 2008. But higher education returns generally outperformed market indices. The 3 percent drop for the 2008 fiscal year compares with a 13 percent decline in the Standard & Poor's 500. And higher education's nearly 23 percent decline in the second half of last year compares with an S&P 500 drop of 43 percent.

Some schools, such as Harvard and Yale, have such huge endowments and had enjoyed such strong growth in the tax-exempt funds that they became targets for politicians, who urged them to spend a higher share of the money on financial aid.

On average, schools were spending nearly 5 percent of their endowments annually for capital and operating budgets. In the survey, nearly half of respondents said they did not know yet whether that would change in the next fiscal year.

The survey includes responses from 796 of the 1,028 public and private institutions that are members of the university business officers group;435 answered the follow-up questionnaire on which the more recent data are based. A smaller percentage of public institutions than private ones responded to the second survey.

Overall, fund managers said they are investing for the long term.

"We have every reason to be confident we can get through this . . . but it will take time," said Leonard Raley, president and chief executive of the University System of Maryland Foundation.

"No one knows," he added, "what's around the corner."

Washington Post polling analyst Jennifer Agiesta contributed to this report.