The Homa Files

 Ken’s  Take: (1) On average, colleges apply 4.5% of their endowments to annual operating expenses … so, in most recent years (i.e. excluding 2008), schools were simply reinvesting most of their endowment income … not applying it to operations, (2) Begs the bigger question: why does it cost $25,000 to $50,000 in annual tuition to provide a private college education? Maybe shrinking endowments will get universities to attack their low productivity (of faculty and staff), and wasteful spending (e.g. recent reports on university contributions to the Clinton Library). Not likely, though..Tuition creep has become a way of life, and pretty soon, universities will qualify for more taxpayer funding via TARP or ‘infrastructure rebuilding’.’   …

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Excepted from WSJ, “2009 College Endowmwnnts Drop”, Jan. 27, 2009

College endowments have suffered a sharp blow in the financial crisis, with aggregate investment losses of at least $94.5 billion, according to a new survey.

The losses likely understate the severity of the hit schools have taken, since they don’t include losses in illiquid, hard-to-value investments that many schools have loaded up on. .

Some folks have questioned whether schools were hoarding their money at a time when tuitions were placing a heavy burden on middle-class families.

Endowment income is a critical part of budgets at colleges, especially at private schools … which, on average, spend 4.6% of their endowments annually to support operations.  that number is expected to increase to 6% because of endowment losses.

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This entry was posted on January 28, 2009 at 7:50 am and is filed under Education - Academics. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.