Will Admissions Stats At LACs Actually Decline This Year?

Parents Forum
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<p>How much to depend on endowment for daily operations is something every LAC is going to have to evaluate these next few years. </p>

<p>Only 18% of Wesleyan's operating budget is subject to stock market fluctuations (a tad more than Brown University's Press</a> Releases in February, 2008 | Brown University Media Relations;%5DPress">http://news.brown.edu/pressreleases/2008/02/corporationtuition);) and significantly more than Columbia. Columbia</a> University's endowment shrinks</p>

<p>It seems to me that part of the reason so many endowments are on the hook for bad hedge fund bets is that their managers must have felt they could afford the risk. Wesleyan was a fairly cautious investor. Over 72% of Wesleyan's portfolio was stowed in ordinary, publicly traded, instruments, 12% in bonds alone. </p>

<p>Wesleyan's overhang from private equity investments is only ~14%, depending on how you define "trusts held by others". That's down from 20% as late as 2004: Institutional</a> investor profile: Colin Ambrose, Senior Investment Officer, Wesleyan University</p>

<p>And, last I heard, only $11 million is stuck in the Common Fund.</p>

102

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How much weight do even people who can decipher them (interesteddad, monydad) give to all the numbers?

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<p>IMO, the answer is a lot. Everything a college can offer and do for your kid is determined by the available money. Build an Arabic program? Show me the money. Keep the health center open 24/7? Yep. It's all about the benjies. Fund the writing mentoring program? Enough counseling slots at the psych center? Loan free financial aid. Repair the dorm? Offer fresh fruit at lunch? All of these and thousands of more are ultimately dependent on the budget.</p>

<p>I think people are going to see stark examples of why per student endowment is important over the next two to three years as the extent of the budget cuts starts to sink in. When you reduce the size of the faculty and/or increase the enrollment courses get cancelled, classes get bigger.</p>

<p>I think pllaying a zero sum game will ultimately make the colleges stronger, but there are going to be some painful cuts over the next 30 months. Some sacred cows are going to be gored.</p>

103

<p>Johnwesley:</p>

<p>Wesleyan's biggest challenge is that they have been spending higher percentages from the endowment than their policy allows. 7.4%, 6.4% and 6.1% over the last three years respectively. Although headed in the right direction, those are pretty big numbers considering the growth rate of the endowment during three boom years. The spending is like to be through the roof next year and they will have to move quickly to cut the budgets.</p>

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<p>"I think people are going to see stark examples of why per student endowment is important over the next two to three years as the extent of the budget cuts starts to sink in. When you reduce the size of the faculty and/or increase the enrollment courses get cancelled, classes get bigger."</p>

<p>I think your posts show that there is more to a school's finances than endowment per student.</p>

<p>How liquid is the endowment? How much debt and what kind of debt the school has? What are the debt payments per year? How much does the school spend per year? How much it takes in? What is the school's capital budget?
How is the school reacting to the hit in its finances?</p>

105

<p>Exactly, Dstark. But as a fluid process that has no end in sight, it would be wise to keep an eye on all those things because it will continue to evolve and change -- how much and how far becomes the question. In reading all those Moody reports, even if most of it went over my head, I didn't miss that a lot of what happens next is going to be dependent on who is managing it all. I mean isn't that somewhat of a determining factor? And I would guess there is a big difference between having Madoff on your board of directors and well.. just about anybody else. :)</p>

<p>PS Trinity wasn't even on the bond rating which means they are either doing really not well or just refused Moody's request for info. Either way it's not good because if I read it right, but not giving info they go down anyway.</p>

106

<p>Maybe Trinity has a small amount of bonds out there and doesn't pay to have its bonds rated.</p>

<p>Decline</a> in Endowment at Trinity Comparable to Other NESCACs - News</p>

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<p>Trinity has bonds that were rated A1 by Moody's with a possible downgrade back in 2006.</p>

108

<p>"How much weight do even people who can decipher them (interesteddad, monydad) give to all the numbers? It seems to me that so much is uncertain in the markets now that it would not make a lot of sense to counsel a kid to attend college A rather than college B because of bond ratings or liquidity issues."</p>

<p>Possibly we'd disagree about this less now than in previous circumstances.</p>

<p>My feeling was, and is, that, in healthy times, extra financial wherewithal does give a college the ability to do extra stuff. But as a consumer you can actually look at the results, stuff they are spending their $$ on, and decide if it helps you,personally, or not. If they are using it to "buy diversity", eg giving scholarships to people who have different ethnic backgrounds, and you care about that, well that's a good thing to you. If they are using it to equip varsity sports teams to compete well at a level above their size,and you care about that, well that's a plus to you. But if you don't care, and it happens that some other less wealthy school is good in Italian, which is what you want to study, and has stuff you personally care about more, and this wealthy place isn't/ doesn't, and the kids don't "fit": then to heck with the other school's big endowment; the choices they've made to use it for are not ones that personally benefit you , so much as to overcome other relevant factors of the decision. It will still have impact, but it's just one more thing to consider. IMO.</p>

<p>But in unhealthy times things are a bit different; these are the circumstances where the college's financial flexibility can actually be more important to you as a consumer IMO. It seems to me that a college with less financial flexibility may be more likely to have to do things that you might not like, while your kid is there:</p>

<p>Cut financial aid, cut programs and staff, increase class sizes,defer maintenance and building projects. So what you see now may not be identical to the situation three years down the road. If you are mostly interested in school z because of their special program in Florence, and it so happens that program actually is not profitable for them, it could be that program gets cut in a year or two. When you're a senior, it may seem like the incoming freshman class is both wealthier and stupider than your class is. If you care. Class sizes may rise. Some electives that they offered in the past via visiting professors may not be offered.</p>

<p>So IMO now, moreso than before, this is something one might at least think about. Because now you have to not only evaluate what's there now, but also think about if/ by how much what's there may adversely change during the time your kid is there.</p>

<p>But I personally would not be in a position to use bond rating information to make valid conclusions about what will happen; it's more food for thought.</p>

109

<p>"The interest rate swap agreements effectively change the interest rate exposure on the issues from a variable rate to a fixed rate of 3.07% for Series I and 3.13% for Series J."</p>

<p>wow, I don't know the market anymore, but those seem to me to be darned attractive effective borrowing rates, maybe they'd rather suffer through some short-term liquidity glich to keep those deals in place. Also, long-dated swaps like that may be harder to unwind, depending partly on what they negotiated with the counterparty. Because fewer counterparties will commit to a very long term.</p>

110

<p>On those interest rate swaps, I think there are cash calls on those to to keep them in balance as you described in an earlier post. I don't think it's just the interest rate that factors in the total cost.</p>

<p>On the bonds Swarthmore just sold to replace variable rate, they are paying a nominal 5% interest on the bonds, but they sold them at a premium getting more cash that the value of the bond, making the effective payout 2.95% on five-year fixed rate. Of course, that's still probably 2.95% more than they can earn on endowment money right now, so (in retrospect), they probably would have been better off to just pay cash for all the new buildings and not borrow!</p>

<p>I don't know. Once you get to that level of detail, it starts making my head hurt.</p>

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<p>BTW, I agree with everything you wrote above about the implications of college financials on college choice. I've never advocated attending an obvious bad fit or school with incompatible priorities just because of a larger endowment. However, lots of students are flipping a coin ("I like them both") between two schools with different financials. If you like them both equally, go with the signficantly larger per student endowment. Sometimes I see a "I'll just flip a coin" choice being made when large differences in financial muscle would make the choice crystal clear with one look at per student spending. Yeah, to an extent, extra spending can be spent on stuff that may not matter, but at a certain point, the impact on students is overwhelming.</p>

<p>As a practical matter, schools fall into financial tiers that correspond very closely to their perceived "prestige" or US News rankings (the exceptions being discounts for things like less prestigious midwest locations). Thus, the admissions process will likely establish your tier. Few students will be choosing between an Aaa college and a B3 college in the real world.</p>

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<p>InterestedDad, </p>

<p>Thank for your comments, I am going to run down to Bloomberg terminal later (no, I dont have my own -- GRRR) and check all of Ds choices.</p>

112

<p>InterestedDad,
Thanks for the info on Vassar. My d is a freshman and her experience w/classes as well as quality of students has been great. I know that awarding scholarships is very important to Catherine Hill. They have put a stop to all building projects and a freeze on hiring, etc.- like so many other schools.<br>
As far as Cappy going to Williams to replace Shapiro...I have read such rumors but I am hoping they are just that. Her husband works in NYC, I think, a short train ride from Vassar. She is so well liked at Vassar. Plus I hope she is HAPPY there! I feel Vassar is a more diverse world than Williams. Don't misconstrue. Williams is a great school, beautiful campus and facilities and smart kids. My personal opinion is that Vassar is economically more diverse, less jock oriented, a wider range of student population than Williams. So, I'm hoping Vassar keeps her if Williams comes a courtin'.</p>

113

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wow, I don't know the market anymore, but those seem to me to be darned attractive effective borrowing rates

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<p>Yeah, except the money they got from those bond issues went into investments that produced a negative 30% return this year. So, at least for this year, the colleges "paid" 33% to use that money!</p>

114

<p>"On the bonds Swarthmore just sold to replace variable rate, they are paying a nominal 5% interest on the bonds, but they sold them at a premium getting more cash that the value of the bond, making the effective payout 2.95% on five-year fixed rate. Of course, that's still probably 2.95% more than they can earn on endowment money right now, so (in retrospect), they probably would have been better off to just pay cash for all the new buildings and not borrow!"</p>

<p>Those bonds are federal tax-free to the investor?</p>

115

<p>"Those bonds are federal tax-free to the investor?"</p>

<p>He said before that they'd only issued tax-exempt debt, at least in recent years, so that would mean yes.</p>

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<p>Yes, I've often wondered about about this pervasive anti-Midwest bias in the education market. It makes me think the top Midwestern schools are significantly undervalued. On the other hand, value is partly perception, and so long as perception is biased in that direction, perceived value--and consequently market decisions---will continue in that direction.</p>

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<p>"I don't think it's just the interest rate that factors in the total cost."
There's some other stuff, but they shouldn't add up to much.</p>

118

<p>"Yes, I've often wondered about about this pervasive anti-Midwest bias in the education market. "</p>

<p>And here I just thought it was as simple as: people generally tend to prefer schools within a 5 hour or so drive of their home, and the predominance of people with the $$ for private colleges lived in the Northeast.</p>

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I just thought it was as simple as: people generally tend to prefer schools within a 5 hour or so drive of their home, and the predominance of people with the $$ for private colleges lived in the Northeast.

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<p>^ Well, I don't know about. As for staying close to home, Californians seem to have no problem going to schools in the Northeast in significant numbers, but my perception is there are not so many of them in the Midwest. Midwesterners go to schools in the Northeast and California in significant numbers, especially from greater Chicago and the Twin Cities, both large exporters of college students. And my perception is that while most Northeasterners prefer to stay in the Northeast, many will skip over the Midwest and go to schools in California rather than stopping in what many pejoratively refer to as "flyover land." </p>

<p>That's not universally true, of course. Schools like Oberlin and Carleton always have lots of Northeasterners, as do the Universities of Michigan and Wisconsin. But the terms of trade generally disfavor Midwestern schools. </p>

<p>As for the suggestion that people with incomes high enough to afford private schools are disproportionately concentrated in the Northeast: I'm not so sure. Connecticut, New Jersey, and Maryland all have very high median household incomes (and all three states are very large net exporters of college students), but just a notch behind, Minnesota's median household income is higher than Massachusetts', Illinois' is higher than New York's, and Wisconsin, Michigan and Iowa all have household medians above Pennsylvania's---in addition to which, the cost of living is generally lower in the Midwest, so that higher-income households there should have more truly disposable income. Over a third of Illinois and Minnesota residents attending college go out-of-state---rates generally matched only by the geographically smaller Northeastern states, along with Alaska and Hawaii. Illinois is the second-largest net exporter of college students, after New Jersey; and Minnesota is the #7 net exporter, despite not being a particularly large state in population. And of course California and Washington State---both large net exporters of college students--- have high median incomes as well.</p>

<p>The same is true in the academic job market, by the way. A wise old professor of mine once told me that it's much easier to land a tenure-track academic job in my field if you're willing to end up in the Midwest, because a lot of Northeasterners won't leave the Northeast for anything, others will leave for the West Coast but not the Midwest, Californians will skip over to the East Coast if necessary but not stop in between, and Midwesterners generally will go anywhere. </p>

<p>I think it means the top Midwestern schools are a little easier to get into than the top Northeastern schools. With their financial and intellectual resources, a Grinnell or a University of Chicago would be significantly higher up the selectivity charts if they were located in the Northeast. But there's a market bias against the Midwest, which means there are great educational opportunities to be had for those willing to go against the grain of mass consumer preference.</p>

120

<p>Amherst is issuing $100 million in taxable bond issues to be used as working cash (as opposed to the tax-exempt bonds tied to specific capital building projects LACs usually issue). This is related to the lack of liquidity in their endowment and the $500 million in cash call commitments from private equity and hedge fund partnerships.</p>

<p>S&P's is leaving the highest possible bond ratings in place, but forecasting a negative outlook for future bond ratings, i.e. watch for a downgrade. Amherst started the fiscal year in July with $172 million in debt. With this bond issue, they will have borrowed $150 million since the New Year -- $50 million in tax-exempt (for the ongoing dorm rennovation projects) and this $100 million in working cash.</p>

<p>S&P:</a> Amherst Coll, MA's Debt Outlook Revised To Negative On Possible Liquidity Concerns</p>

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Amherst Coll, MA's Debt Outlook Revised To Negative On Possible Liquidity Concerns</p>

<p>SAN FRANCISCO Feb. 18, 2009-- Standard & Poor's Ratings Services revised its outlook to negative from stable and affirmed its 'AAA' and 'AAA/A-1+' ratings on the Massachusetts Health and Education Facility Authority's outstanding debt, issued on behalf of Amherst College. In addition, Standard & Poor's assigned its 'AAA' long-term rating to the Trustees of Amherst College's $100 million taxable bonds, series 2009A, also issued on behalf of Amherst College.</p>

<p>"The negative outlook reflects possible liquidity concerns in the near term, as evidenced by the college's need to issue long-term debt ($100 million) to meet its working capital needs," said Standard & Poor's credit analyst Jessica Matsumori. "In addition, Amherst has experienced a substantial decline in financial resources, as well as deterioration in its investments due to recent market turmoil."</p>

<p>Proceeds from the series 2009A bonds will be used primarily to fund working capital at the college. The bonds are expected to be issued as fixed-rate debt, with a bullet maturity at the end of 30 years. Bond proceeds will be used in lieu of cash from the endowment to meet operational needs at the college over the next two years.

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