How Olin hit hard times

Parents Forum
1

<p>Ideals get hit by the 2x4 of financial reality.</p>

<p><a href="http://hechingerreport.org/content/college-340-students-lost-220-million-five-years_16141/"&gt;http://hechingerreport.org/content/college-340-students-lost-220-million-five-years_16141/&lt;/a&gt;&lt;/p>

2

<p>Here’s Olin’s response <a href=“http://www.olin.edu/news-events/2014/open-response-may-27-2014-boston-globe-story-olin-college/”>http://www.olin.edu/news-events/2014/open-response-may-27-2014-boston-globe-story-olin-college/&lt;/a&gt;&lt;/p&gt;

<p>Olin may not have free tuition, but they do reduce the tuition 50% for all students. With each graduating class, their endowment should grow nicely with time. </p>

3

<p>That article (same one in the Boston Globe) was a badly flawed analysis of Olin’s financial situation. Olin’s founders mandated spending from endowment, but the reporter either ignored or didn’t understand that. The Globe later published a “clarification” backpedaling on some of the errors:</p>

<p>Clarification: This story on financial problems at Olin College of Engineering failed to include the most recent financial information available, numbers that would have shown gradually improving finances at the Needham school. The story, written by the New England Center for Investigative Reporting, should have included information from the school’s audited financials for 2012 and 2013, which showed that Olin has decreased reliance on funds from its endowment while posting modest losses in both years.</p>

4

<p>The issue is around how to treat spending from the endowment. It should be treated as revenue, but the article treated it as an expense. </p>

<p>Endowments increase or decrease based on market performance and alumni giving. As endowments increase, so will spending (revenue). If endowments decrease, then spending decreases, but it’s still treated as revenue (just less). </p>

<p>For example, lets say our endowment at Gator U is $500 million, and we spend 5% to support operations or $25 million a year. If our endowment goes down to $400 million (I thought investing in Detroit bonds was a great idea!), then I would only have $20 million for operations. Even though it’s 5 million less in revenue, it still counts as revenue and not a loss/expense.Of course, I now need to make up for the missing $5 million in revenue, time to hit up the alumni again…</p>