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Higher Learning Brought Low


Credit crunch begins to squeeze universities, both public and private.

So far banks, insurers, and automakers have knelt before the federal government with their hands out. Up next: Universities.

"There's no evidence of a complete meltdown," Molly Corbett Broad, president of the American Council on Education, told the New York Times recently, "but the problems are serious enough that higher education is going to need help from the government."

The stock market collapse will have far-reaching consequences, but its impact on higher education is not yet fully recognized. Most universities keep their multi-million and sometimes billion-dollar endowments in equities. The decline in the value of those endowments has already forced serious cutbacks in public and private universities alike. Both Ivy League universities and state colleges have announced hiring freezes, postponed construction projects and suspended capital campaigns.

Even Harvard is in trouble. Instead of bleeding crimson, it's hemorrhaging green. Harvard's nearly $37 billion endowment, the largest of any university, funds more than one-third of the school's annual $3.5 billion operating budget. Because of the stock market's decline, Harvard may well suffer hefty losses in its endowment; it's currently reconsidering its sweeping 20-year expansion across the Charles River in Allston, Massachusetts.

In a widely publicized email sent several weeks ago, Drew Gilpin Faust, Harvard's president, said the university is looking for ways to reduce spending across the campus. "We must recognize that Harvard is not invulnerable to the seismic financial shocks in the larger world," Faust wrote.

According to the Boston Globe, a Harvard official said a wage freeze for faculty and a budget freeze on all programs are currently on the table.

Universities should have been keeping their money safe for students. But like pension funds and charities, they were swayed by the siren calls of hedge funds that guaranteed consistently high returns. It all perpetuated the cycle of excessive leverage.

The first chink in Harvard's armor came when Sowood Capital closed its doors in July 2007 after crushing losses. Harvard, one of Sowood's investors, reportedly lost $250 million. The hedge fund's founder once managed Harvard's endowment.

Harvard's not alone. Last month, Boston University instituted a hiring freeze and a moratorium on all construction projects not yet underway. Dartmouth College said it was trimming its budget after its endowment lost $220 million during the investment crisis. Brown and Cornell also imposed hiring freezes. And Tufts University, which has been a need-blind college for the last few years, may not be able to keep that commitment for next year's incoming class.

The cost of attending private universities is already prohibitive, and many students are flooding into state universities. According to the New York Times, applications at Binghamton University, part of the State University of New York system, were up 50% this fall. But even public universities are in trouble, as many have already announced mid-year tuition increases.

I can see an emerging trend in which students who can't afford private universities will consider state universities, and those that can't afford state schools will consider community colleges. Those that can't afford those will slip through the cracks.

Sadly, it's taken a crisis of historic proportions to expose the severe cracks in our country's higher education system.
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