Score a Great Deal During Memorial Day Sales -- Savings Experiment
Don't Worry About Today's Retirees: Boomers Are Fine, (but Gen X…Harvard reports that the value of its endowment has declined $8 billion between the end of June 2008 through October 2008. That would make Harvard's endowment worth 22% less than at the end of June, or $26.9 billion -- but it probably has further to fall thanks to illiquid assets like private equity interests. Meanwhile, Harvard and its peers could be in trouble because fewer people will be able to afford college given the market crash. That will mean college administrators are facing some tough choices.
Harvard is responding to the decline in its endowment by taking a "hard look" at staffing levels and compensation. It is forecasting a 30% drop for its endowment ending in June 2009, which would bring it to $25.8 billion, down another $1 billion. While this strikes me as optimistic, it does suggest the extent of the damage and the challenges Harvard and its peers face.
The options for universities are dwindling. A study suggests that tuition has risen 439% since 1982 while median family incomes have increased only 137% during that period. If tuition continues to rise at that rate, few families will be able to afford college. With the student loan market in dire straits and incomes likely to fall further due to layoffs, the only way for colleges to attract top students who can't pay will be to cut tuition even more on the lower income families while making up the difference by raising tuition for the wealthiest ones.
With endowments shrinking, there really won't be an option of using that endowment income to make up the difference. And in order to keep from losing money on operations, colleges will need to cut their costs drastically while maintaining teaching quality. This is something that colleges have little experience doing.
Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter.
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Reader Comments (Page 1 of 1)
12-03-2008 @ 1:22PM
Iridium said...
Lower tuition, duh.
Screw colleges. For the past fifteen years they have been on a tuition raising binge.
I started college for $24k a year at a top 12 university in 1996, by 2000 the tuition was $36k. In four years $12k more per year.
Top colleges raised tuition because foriegn enrollment was skyrocketing. Most of the time paid for by host countries. The number for foreign students at my college rose from 8% in the ealry '90s to nearly 26% in 2000.
The other major change was the near requirment of a college education to work at McDonalds. When you need a basic college degree to do almoat any meaningfull job, colleges can raise tuition. It is the exact same thing that plagues our health care system. Since people need to have insurance to cover medical costs, hospitals upcharge everything.
The rapid increase in the cost of college didn't mean much when you were guaranteed a near 6 figure salary and BWM signing bonuses like those that graduated from my school in 1998 and '99. In 2000 the situation was dire. Barely any corporations showed up for carreer days. You were lucky to even get one job offer. Many didn't even get an offer at all. People in my class resorted to working as managers at mall stores.
Paying back a $125k education without having a top 10% job became a near impossibility. Many of my classmates folded and had to declare bankrupcy.
The class of 2000 had a stigma attached to it and the lack of jobs meant a lack of experience to find new good jobs. The next few classes to graduate also benefitted from the huge technological shift that occurred at the end of the century.
The same thing is going to happen to the class of '09. They will graduate into a cloased job market with huge sums that need to be paid back.
12-03-2008 @ 9:03PM
Nicole said...
How ironic is it to see the products of Harvard are the ones that created this Ponzi mess. So smart they can't fail. Well they made their millions, while the rest of us losers in the middle class get our retirements stolen from us.
It was a sad day when I realized that the only things this country produces are bad music and money from nothing. Derivatives are money from nothing! GO HARVARD!
12-04-2008 @ 2:00AM
Tony, said...
it is a very sad news for those who are planning to or already applied to universities that getting any kind of financial assistances is darkening, especially for international students.
The ridiculous thing here is that the US and other developed country universities charge foreign students almost triple as much as they do local students whereas their countries are the richest ones, accounting for over 80 percent of world`s wealth.
12-04-2008 @ 7:21AM
sgentilejr said...
This article proves just one thing...the people runing Harvard are just a bunch of dumbaSSes like the rest of the bankers and Wall Street crowd. If their MBA professors that teach our financial wiz kids knew what they were doing and takling about, their endowment fund would not have taken a hit like this.
So in reality that leads to just one conclusion____there is no real value to any type of Harvard financial education.