If whole nations are being adversely affected by the current economic downturn, how can educational institutions be immune to the circumstances? Even the world's richest university, Harvard, is feeling the pinch in spite of its massive $36.9 billion endowment, which has actually decreased in value over the last year.
Harvard's president, Drew Faust, said yesterday that the university is looking for ways to reduce spending across the campus, raising the prospect of cuts to programs and compensation, as Harvard's endowment plummets. It is also assessing all aspects of its sweeping plan to expand across the Charles River in Allston, she said.
"We must recognize that Harvard is not invulnerable to the seismic financial shocks in the larger world," Faust wrote in an e-mail to faculty, staff, and students. Citing ''the global economic crisis'' she said that the university might need to absorb losses in the fund.
''Given the breadth and the depth of the present downturn, even well diversified portfolios are experiencing major losses,'' Faust said in the mail. ''While we can hope that markets will improve, we need to be prepared to absorb unprecedented endowment losses and plan for a period of greater financial constraint.''
Colleges and universities across the country are taking measures to help cope with the worst financial crisis since the Great Depression. The University of Georgia in Athens is cutting subscriptions to at least 660 academic journals. Cornell University in Ithaca, New York, has imposed freezes of new construction and on hiring from the outside of employees for non-faculty jobs.
Harvard's endowment before the economic crisis was $36.9 billion. The money funded more than a third of the university's annual $3.5 billion operating budget. Harvard officials would not say how much the endowment has lost in recent months, but Faust referenced a Moody's projection of a 30 per cent decline in the value of college and university endowments this fiscal year. For Harvard, that would mean an $11 billion loss - that is, about $550 million in lost income.
Harvard's Faculty of Arts and Sciences derives about 52 per cent of its revenue from the endowment, according to Harvard's annual financial report. The School of Public Health, which relies on grants and outside funding, receives 13 per cent of its revenue from the Harvard fund.
Also under review are Harvard's expansion plans in Allston, Faust said. Faust's letter laid out other financial challenges that Harvard faces, despite its great wealth. The university cannot expect continued generous contributions from donors and foundations, she said. The pool of federal grant money for research is also at risk of drying up.
However, the school still intends to implement initiatives to make education affordable to students from low- and middle-income families, and will ensure that those with income below $60,000 will pay nothing to send children to Harvard College. Those earning up to $180,000 can expect to pay no more than about 10 per cent of their income, she said. Graduate and professional schools will also keep financial aid budgets at current levels.