College endowments last year turned in their worst performance since 1974, a stark contrast to the investment boom of the 1990s and a financial blow at a time when many public schools are losing state aid.
The average college endowment shrank 6 percent in the fiscal year ending June 30, 2002, according to a survey of 660 institutions released last week by the National Association of College and University Business Officers. The findings matched those of another study released last month by Commonfund Institute.
It was the first back-to-back decline since Washington-based NACUBO began its survey in 1971. The 2001 survey showed an average decline of 3.6 percent.
Belt-tightening is evident at schools such as Boston University, with 29,000 students, which plans to cut faculty positions through attrition, and tiny Hillsdale College in Michigan, which is cutting four varsity sports teams. Even wealthy schools like Dartmouth, Duke and Stanford have been forced to cut costs.
"It's forcing academic leadership throughout the country to really think about what's most important," said Scott Malpass, vice president and chief investment officer at the University of Notre Dame, where the endowment fell nearly 10 percent, to $2.55 billion, in fiscal 2002. "Some of it's healthy, but on the other hand it's a tremendous challenge."
Colleges typically spend about 5 percent of their endowment per year. The 6 percent decline was less than the drops in the major stock market indexes, however. And while the bear market has made it more difficult to raise money, two-thirds of the institutions in Commonfund's survey said they expected donations to be at least as strong this year as last.
Many schools have also found a silver lining to the slump: They are refinancing debt at lower rates.
And, schools insist, recent losses are a small price to pay for the enormous gains between 1992 and 2000, when endowments enjoyed double-digit investment growth every year but one, according to NACUBO. Those gains funded scholarships, research and an unprecedented campus building boom.
"You had the greatest expansion probably in the history of higher education in terms of scholarship aid, new facilities and new programs," Malpass said.
For now, most such projects are on hold. A few schools have laid off faculty members. Many are reducing staff through attrition.
Illinois Wesleyan University, whose endowment fell 22 percent to $136 million, will have $3 million less to spend this year than it projected in 2000. The school has frozen departmental budgets, is slightly accelerating tuition increases and is dipping into some gifts it would normally set aside to prop up the endowment.
"We've slacked off on some of the technology stuff, building smart classrooms, that kind of thing," said Thomas Corts, president of Samford University in Birmingham, Ala., where the endowment is now $218 million after losing 19 percent of its value last year. But he said he doubts students will notice the effects.
Richer schools tended to do better than other universities. The average school with an endowment of $1 billion or more lost 2.1 percent, while the average school with less than $25 million lost 6.1 percent.
At Harvard, the world's richest university with $17.5 billion, the endowment did comparatively well, finishing last year down 2.7 percent.
Those who invested aggressively say they have no regrets.
"We still want to be in the equity market. We recognize that in the long-term that's the best place to be," said Ken Browning, vice president of business and finance at Illinois Wesleyan, which bet heavily on stocks. "Universities are the ultimate long-term investors."