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When the markets were booming, billionaire colleges like Harvard, MIT and Stanford tapped their swelling endowments and launched spending binges on faculty, buildings and scholarships.
Now, they're seeing firsthand the one downside to relying on a huge nest-egg: The market crash has them confronting the sharpest budget cuts in memory.
A new survey released Tuesday reports college endowments fell 3 percent in the fiscal year ending June 30. In a follow-up, a smaller group estimated declines averaging 23 percent in the first five months of fiscal 2009, which began in July.
That decline is nearly twice as big as any full-year return since endowment performance was first tracked in 1974, said Brett Hammond, chief investment strategist at TIAA-CREF, which collected the figures with NACUBO, a college business officers group, and Commonfund Institute.
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The Associated Press
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The survey of 791 colleges accounts for virtually all of the endowed savings of American public and private colleges - some $522 billion last June. But the losses since then would erase nearly $120 billion. Colleges typically spend around 5 percent of their endowments annually.
The challenge for colleges with eroded endowments is that many of the faculty they hired now have tenure, all those new buildings still need heating - and financial aid demand is rising.
In recent years, Dartmouth College in New Hampshire spent $1 billion on new facilities and more than doubled its financial aid budget. But with its endowment down $700 million, staff cuts are inevitable. The college needs to slice $60 million from next year's $700 million budget.
"I don't think anybody believes there aren't going to be big consequences," said Adam Keller, who oversees Dartmouth's finance and administration. "At the same time, people have begun to think hard what priorities exist for them and ways they can do their job better."
From 2002-2007, college endowments grew 11.5 percent annually. Last June, there were 77 institutions with endowments of $1 billion or more - 30 more than in 2005. But in the seven months since, at least 30 may already have lost the distinction of being billionaire schools.
Commonfund's John Griswold says the 1970s were more dangerous overall, when endowments were smaller. But many colleges relied on them less then, too. What's unprecedented is the breadth of this decline, across the full range of investments colleges made, hoping to hedge against big losses.
"There's great concern and anxiety, I think partly because this is such a broad and sharp decline," Griswold said.
Emory University in Atlanta is expecting $60 million less annually from its endowment ($5.5 billion last June), the president there wrote recently. Even Harvard has cut travel, hiring and visiting faculty. Its endowment was $36.9 billion last June - the highest of any institution - but it is projecting losses that could exceed $10 billion.
Some public universities have been hit, too; the Universities of Washington and Illinois have lost around 25 percent, or $500 million and $370 million, respectively.
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