Tuition raise to compensate shrinking endowment
In order to make up for dwindling endowments and increasing costs, universities across the country have raised prices.

By Lacey Krause and Liddy Serio

If it’s any consolation, TCU’s continued increases in tuition is keeping in step with a national trend toward boasting upfront costs to compensate for decreasing endowments. And it could get worse before it gets better.

Tuition has risen more than 60 percent since the 1999-2000 academic year, from $12,290. Flat rate-tuition and fees that began in fall 2001 have risen to $19,700, a 30.9 percent increase.

Although TCU’s endowment is on the rebound, the 2004-2005 tuition hike will still be necessary to cover expenses, said Carol Campbell, vice chancellor for finance and administration.

TCU withdrew $40.3 million from the endowment for the 2001 fiscal year, when the endowment was at its highest.

“This past calendar year saw the endowment rebounding,” Campbell said. “The endowment is currently trending upward along with the market.”

When investments perform poorly in the market, the endowment will contribute less to the next year’s budget. A variety of other rising costs impact the budget, including increasing enrollment and rising costs for health care and utilities, Campbell said. Higher education is also a labor-intensive industry, Campbell said.

The endowment’s investment returns fell sharply after the stock market collapse in 2001.
“TCU’s endowment peaked in March 2000 at $1.026 billion and began to fall with the general market declines the next month,” assistant treasurer Dick Hoban said.

By February 2003, the endowment dropped 25 percent to its lowest point in recent years, $770 million. As of Dec. 31, it had increased to approximately $870 million.

The endowment money is invested in the stock market, real estate, government financial instruments, foreign stocks and other alternate investments by more than 15 different money managers, said Bronson Davis, vice chancellor for university advancement. The value of the endowment is taken from its average value over three years, and a percentage of this average value is taken each year for spending. Though the endowment itself has increased this year, spending is down because the poor investment returns from previous quarters still affect the average value.

The Board of Trustees is trying to decrease the volatility of the endowment by diversifying money managers, decreasing the spending rate and expanding the number of quarters over which to average endowment value, Davis said.

For the 2004-2005 academic year, the university will withdraw approximately 6 percent from endowment funds. This means that the endowment will contribute over $47 million to the university’s operating budget. This is a decline from the previous academic year, when the university withdrew $52.5 million from the endowment, the most ever.

“The sustained market declines of 2000 to 2003 are just now beginning to seriously impact endowment spending,” Hoban said. “The real endowment spending pinch will be felt in budget years 2004 and 2005.”

To lessen the impact on annual budgets, endowment contributions are being decreased in .05 percent increments over 20 years, Davis said.

“This will actually result in the university receiving more income over time from its endowment because there will be more principal to reinvest each year,” he said.

In the 2003 fiscal year, TCU lagged behind the national average in terms of earned returns on endowments. On the national average, endowments earned returns of 3 percent during the 2003 fiscal year, according to a report by the Chronicle of Higher Education. TCU’s endowment earned 2.5 percent.

However, TCU’s endowment’s three-year average return, from July 1, 2000, to June 30, 2003, was -4 percent. The university’s endowment was ranked at $796.8 million, right behind Southern Methodist University at $810 million.

“The dilemma we have is that when the endowment performs poorly, it puts pressure on out other sources of income and can also result in some serious budget reductions as happened last year,” Davis said.

To compensate for these rising costs, four-year private colleges across the country increased tuition an average of 6 percent for the 2003-2004 academic year. It now costs an average of $26,854 to attend a private university for one year. TCU is among the 23 percent of all private four-year institutions that charge $16,000 to $20,000 for annual education costs.

The university’s rising costs may actually help students’ perceptions of the school’s prestige, said Ray Brown, dean of admissions. Students sometimes assume that because TCU doesn’t cost as much as other private schools, it can’t be a high quality institution, he said.

“Folks in our office travel a great deal every year visiting high schools, staffing college fairs, etc.,” Brown said. “All too frequently, we hear comments to the effect of, ‘$25,000 for everything? That’s it?’ Ridiculous, but true.”

Chancellor Victor Boschini said he would like to raise $100 to $200 million within the next four or five years. He said he would like to increase the amount of scholarship money given, because he sees it as a permanent investment in the university’s future.

Boschini said the amount of endowment per student is more important than the lump amount. With 6,482 undergraduates at TCU, the endowment per student is about $134,000, Davis said.

“I would like to be able to provide a TCU education for every student we accept,” Boschini said.