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BY MARTHA MARRAZZA

In print | October 23, 2008

Although Swarthmore’s endowment of approximately $1.4 billion has dropped to just under $1.2 billion because of the recent economic crisis, administrators say Swarthmore will fare relatively well in the coming months due to its prudent investment policies.

According to an October 21 memo by Vice President for Finances and Treasurer Suzanne Welsh, the college’s financial management policies focus on sustainability through difficult times. These policies, such as investing much of the endowment in secure Treasury Bonds and maintaining a low endowment spending rate, have ensured that the college is well-positioned going into this period.
“What I feel comfortable about is that the college is by nature prudent,” Vice President Maurice Eldridge ’61 said. “Maybe it’s a trait lasting from our Quaker tradition, but I think we are managing well right now because we’ve managed well in the past.”

Welsh said Swarthmore has weathered similar financial situations before. “The endowment is now a bit under $1.2 billion, which is what it was at the 2005 level. We lost about $200 million, but you have to keep it in perspective,” she said. “We experienced this sort of volatility with the dot.com bust, and we got through that.” Since the endowment funds the majority of the college’s budget, Welsh said safety mechanisms are in place to protect the endowment in times of economic hardship. “Our budget is approximately $112 million this year, and a lot of how we pay that comes from the endowment, which is the largest source of revenue in the budget,” she said. “We try to determine a level of endowment spending that we can sustain through the ups and downs of the economy. I think our other policies have put us in a good position for this environment.”

Welsh said the current budget will not face cuts. “I don’t anticipate a change in this year’s budget,” she said. “The budget process for next year is just starting, so we have some months to assess how things are progressing [with the economy] before decisions have to be made for next year.”

At the faculty meeting this Friday, Welsh plans to discuss the impact of current financial market conditions on Swarthmore. “There is a lot to think about, but the bottom line is that we’ve had very prudent policies in all different aspects of spending, and that’s positioned us very well. We can get through this,” she said. “At the faculty meeting, I’ll probably give them a general update and answer questions.”

Economics Professor Mark Kuperberg said that although a recession is guaranteed at this point, he is not expecting to see drastic, immediate changes at Swarthmore. “The fall has been very dramatic across the country. There will be a recession for sure,” he said. “Friday at the faculty meeting I’m not expecting it to be scary. The scary things they could say would be that we’re facing cuts, but I’m not expecting the talk to be scary.”

As for next year’s budget, it’s still too early to predict how Swarthmore will reapportion its finances, Welsh said. “It’s hard to know what the budget will look like next year because the board ultimately decides. We are doing a lot of modeling of scenarios,” she said. “There was a mild and short-lived recession of 2001-2002 that we got through and didn’t feel too much. We didn’t add a lot of new programs during that time, but we didn’t make major cuts during that time either.”

Kuperberg said the college would probably cut back in some areas in reaction to the recession. “We might have to put some of our pie-in-the-sky plans on hold,” he said. “The fact is, stocks have been overvalued since 1996. Even when they fell after the dot.com scare, they were still overvalued. We’re returning to Earth, in essence, and now we need to live on Earth.”

Welsh said that the current economic conditions will probably affect other parts of Swarthmore, including Financial Aid and Development. “I think there might be an increased need for Financial Aid, especially if parents on Wall Street lost their jobs and now need Financial Aid,” she said. “I think we can expect to see some impact on giving. It’s early yet.”

Suneal Bedi ’09 said college students will be affected in a number of ways as the financial crisis continues to grow. “The way the crisis is affecting people our age is mainly with our ability to get loans. Banks are charging really high interest rates, and as students we don’t have credit, so if I have to get loans for Swarthmore or grad school it’s really hard,” he said.

“I’m not applying for a job right now, but it’s also really hard to get jobs,” Bedi said. “Since it’s not a good time to go into the job market, many students are deciding to go into graduate school, making it really competitive, or substantially more competitive, to get into different professional schools.”

Eldridge said the college is focusing on containing the scope of the crisis at the institutional level. “I think our philosophy is that we have our eye on supporting the college in the present, and we want to provide enough to support the college in the future,” he said. “Our investment managers have made wise decisions and are continuing to make wise decisions, but if this goes on forever everyone will be in trouble.”

Swarthmore is hardly the only college to be affected by the financial crisis. Endowments across the country have taken a hit, leading to projected tuition increases at colleges across the country. According to an Oct. 3 story in The Boston Globe, “Financial chaos threatens to besiege universities,” public universities will be especially impacted by the economic downturn, as state governments lower their education subsidies.

This comes at a time when student loans are increasingly difficult to come by, which has led to a rise in requests for student aid. As a result of this, Congress has passed legislation increasing federal money for student aid.

The financial crisis has also forced numerous schools to put a halt to proposed construction projects. Carleton College has halted the construction of its Arts Union building. “Right now, we simply need to have greater clarity about the world financial situation before committing to a new timeline; any other response to the last three weeks’ events would be irresponsible,” the administration said in an e-mail circulated to the student body. Other schools, such as Boston University, have responded to the financial crisis by freezing both construction and hiring processes.

Additional reporting by Jon Emont

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