Q&A: Impact of college budget cuts
Harvard University on Monday became the latest college to announce that it is looking to cut spending, as the nation's financial downturn hits institutions large and small. Boston.com asked Richard Doherty, president of the Association of Independent Colleges and Universities in Massachusetts, to assess the coming impact on campuses.
Q. Do you forsee the economic crisis leading to sharp tuition increases next year? Will colleges boost or reduce their financial aid budgets in response?
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Colleges will do their best to allocate as much money as possible to financial aid recognizing that their students are facing extreme economic pressures, but as we have seen in recent reports even well-to-do colleges and universities are under significant financial pressures themselves.
Q. What type of colleges will be the hardest hit by endowment losses, and how will it affect their operating budgets?
A. All colleges, public and private, will be adversely affected by endowment losses. However, those colleges and universities which generate a greater percentage of their operating revenues from endowment income will probably be more immediately impacted by endowment losses.
Not surprisingly these tend to be larger, more well-endowed institutions. Our smaller colleges tend to be more tuition dependent for their revenues so they will be more focused on retaining current students and attracting new students.
Q. Will rates of endowment spending increase because of losses, and will this placate Congressional criticism of wealthy colleges stockpiling endowments?
A. Over the years, the rate of endowment spending has remained relatively stable-- at around 5 percent of principle. I would anticipate that prudent practice to continue.
I do think that last year’s relatively flat to negative endowment performance, and this year’s significant losses to date, support the colleges’ assertion that they are not just stockpiling endowment gains, but are protecting their institution and their students and academic programs from future downturns in the economy which we know from past experienced will occur again—unfortunately we are experiencing one of those significant downturns now.
Q. What can colleges do at this time to take advantage of the situtation? How can they best position themselves for the future?
A. Since almost all the private colleges in Massachusetts are not-for-profit entities, they have the advantage of being able to take a longer view in managing their endowments and their responses to this economic crisis. For-profit, publicly traded companies are under greater pressure to respond to quarterly results.
Additionally, colleges will be buffered some by the demographic reality that we are currently in the midst of the highest number of high school graduates going on to college. Finally, as has been reported recently, the not-for-profit sectors of higher education and health care have helped to both delay and soften the impact of the economic downturn for families in Massachusetts and that positions Massachusetts well for the future.
Q. What will the cuts mean for faculty? Will richer colleges seize on the opportunity to recruit professors from universities that are cutting back more drastically?
A. Colleges will try to protect their core missions of education and research, and that will mean supporting students and faculty. They are the two key constituencies which define the success of a college.
Each institution has its own unique set of challenges but support for faculty and students will, in general, drive institutional responses. I do not think colleges will be opportunistic in their recruiting practices.
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