questions

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By the end of this lesson, students should be able to:

Explain the different ways to manage endowments.

Discuss how to ensure that a university has an adequate plan for endowment management.

List the key factors of planning for fund-raising.

Discuss the various models of continuing education.

Explain the reasons retirement communities have been attractive to colleges.

Identify the major issues facing universities who have athletic programs.

Student aid is declining and new forces of competition are increasing which has set the stage for a new consumerism in higher education. Students and their parents behave more like consumers when dealing with the university. The aid given to students now exceeds what is charged for tuition. This has given way to a situation where students receive aid money to cover the cost of more than just tuition. In some cases students receive a refund of money to be spent any way they choose. We have a significant challenge when it comes to aid and college choice. Students who can borrow money to attend the college of their choice have an advantage over lower income students who cannot borrow and do not have enough grant aid to make the same choices. Over the long term it is clear that funding for higher education is cyclical; however, it is also clear that the public is demanding more accountability than in the past. This is a permanent shift in the U.S. and will continue to be a concern of higher education administrators at an ever increasing rate. Studies have clearly shown that as loans to students have grown so has the cost of attendance at most colleges. Grants make up a much smaller amount of the total cost today than they did 30 years ago. These facts seem to support the idea that the increase in loans has driven up the cost of going to college. If this is true then colleges must have increased their prices as students have access to more funds. An adequate endowment is essential to the long term success of a college. Until recently, colleges have been advised to spend some of the endowment earnings on operations. After the financial collapse in the year 2000, financial advisors have switched and recommend that colleges not use earnings for operations. Many colleges lost a significant amount of principal in their endowments during the collapse. When they could not use money from earnings they had serious shortfalls in operating cash. Smaller colleges with lower endowment portfolios may go out of business. There are three primary concerns for colleges when managing their endowments:

1. Spending rate: How much money they spend from the annual earnings versus how much they reinvest to grow the size of the endowment.

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2. Investment Policy: Colleges must decide how much risk they can tolerate and must ensure that there is enough growth without losing too much principal during times of economic downturn.

3. Fund raising: Colleges need to be aggressive when it comes to raising money to add to the endowment.

Do not assume that a college automatically does a good job managing the endowment. The past is full of examples of how colleges overspent their earnings or invested too much in high risk instruments and found the institution in a desperate financial situation. We know that if we fail to plan then we plan to fail. There is no denying that planning is important to higher education. Planning for fundraising is equally important. It is possible for an institution to have an effective fundraising plan. The plan will include at least a vision statement for the college, will have an agenda of what we hope to accomplish and gives some direction on what is most important to do. It is not uncommon to find that some universities do not pay enough attention to their investments. The most common mistakes are not having good strategies, no one person to track the performance, and never comparing the performance with other similar portfolios. The trustees of a college have a fiduciary responsibility to ensure that the investment portfolio is properly managed and protected. Failure to carry out this fiduciary responsibility could result in serious actions including prison terms. Continuing education is offered at most colleges in the U.S and another way for colleges to contribute to the overall financial health of the institution. When new programs are added someone must supervise them and a clear reporting structure must be devised. Sometimes new programs fit into continuing education. Universities look at real estate and other assets as opportunities for revenue production. One such endeavor has been to build and manage retirement homes on university property. There are several reasons for adding retirement homes such as involving retirees with college students for the extended learning possibilities. Retirees are more likely to financial support the college while living and at their death. The facilities can easily be converted back into living space for students. Athletic programs add a special dimension to the college experience but most programs run in a deficit budget most of the time. Because there is a large number of students involved in athletics, numerous events, expensive purchases for uniforms, and costly trips there is the potential for financial management problems. It is wise to pay closer attention to and to have a sound plan in place to help track expenses related to athletics.