Watered Down Economy: Increased Debt, Decreased Endowments

A few years ago Morris Brown College, a historically black college, in Atlanta, GA really felt the effects of cost disease.  In 2009, the water supply at the institution was shut off by the Atlanta water department after the institution failed to pay its $380,000 bill.  Struggling to pay its $1.5 million operating costs, Morris Brown was in dire need of financial capital.  This situation left administrators at the institution pleading for donations.  Alumni and college officials were able to raise enough money to keep the doors open, at least for now. 

Like Morris Brown College, many higher education institutions are struggling to pay bills.  While debt continues to increase, endowments are dwindling down.  The Commonfund Institute surveyed 842 higher education institutions during the 2009 fiscal year to study endowments.  According to survey results institutions that participated account for $306 billion in endowment assets.  Out of 842 respondents, 654 reported carrying some sort of debt.  The average total long-term debt for these institutions was $167.8 million, a significant increase from $109.1 million the year before.  Average debt increased for institutions with over $1 billion endowment assets.

In order to deal with the rapid increase of debt and decreasing endowments college are using several approaches.  Some schools are renegotiating interest rates on their current debts.  The market exists to sway interest rates by exchanging loans.  Even institutions with huge endowments such as Harvard and Princeton have started selling bonds as a response to decreasing endowments.  Lastly, the most obvious strategy institutions are using to be more cost effective is simply cutting back.  Institutions are cutting spending in order to save more money.   

Commonfund Institute (2009).  Education Endowments Returned 18.7% in FY 2009.  Retrieved October 24, 2011 from http://www.commonfund.org/InvestorResources/CommonfundNews/Pages/News%20Jan%202010%20III.aspx

Galuszka, P. (2010).  As Recession Ebbs, Heavy Debt Threatens U.S. Higher Education. Diverse Issues in Higher Education Online.  Retrieved October 24, 2011 from http://diverseeducation.com/article/13734/

Morris Brown College (2009). Morris Brown College: A Status Report on Recovery.  Retrieved on October 24, 2011 from http://www.morrisbrown.edu/03_01_pr_11-08-09.htm