Colleges feeling the burn of Wall St. meltdown

STATE COLLEGE, Pa. - As the nation's economy spirals downward, America's colleges and universities are feeling the pain in multiple ways and must take steps now to adjust, said Pennsylvania State University president Graham B. Spanier.

States are cutting funding. Donors are pulling back. Students are having trouble getting loans, and so are colleges, causing a slowdown in building projects. Meanwhile, cash flows are tight and endowments are shrinking, Spanier said in an interview at his office on Friday.

Spanier, chair of the Association of American Universities, will lead a special session on the financial downtown at the association's annual meeting in Cleveland today. About 50 college presidents will participate in the session that was hurriedly put together to respond to the Wall Street meltdown.

One important issue for all universities, he noted, will be that families crunched by their own financial troubles may be unable to pay tuition.

"We need to be on the alert as to how this will affect our students' ability to pay tuition," Spanier said. "Tuition is our single biggest source of revenue."

It promises to be one of the most challenging financial times for colleges and universities, which already were facing an expected drop in high school graduates over the next 10 years.

With the university's campus awash in homecoming activities, Spanier pulled out a paper with notes he was sketching on 10 ways the economic downtown is affecting universities and how they can begin to cope.

"It's a late-breaking issue for all of us," said Spanier, who has been at the helm of the 92,000-student university since 1995. "We're going to talk about how to handle all of this."

Penn State recently got word that Pennsylvania will impose a 4.25 percent mid-year cut on funds for state-related schools. That will take $15 million from its $3.7 billion budget. Others affected are the University of Pittsburgh, Lincoln University and Temple University.

Penn State has already begun making changes.

"We already put some of our building plans on hold," Spanier said.

He also has directed the university's staff to work more closely with seniors on job placement, which looks to be increasingly difficult.

The university plans to cope largely by not filling vacancies among its 40,000 employees, he said. He has asked university departments to put off equipment purchases and reduce travel and expenses.

"It's a very serious level of rescission for us," Spanier said. "We understand it because state revenues are down and it will affect us in many ways."

Temple on Thursday announced a hiring freeze and travel cutbacks. Temple's cuts amount to $7.46 million or 1 percent of the university's education and general budget. Because state revenues are continuing to drop, Temple is anticipating deeper cuts and is planning for a reduction of 1.5 percent of its budget, $11.625 million.

Penn State and other universities also need to be concerned about the drop in their endowments, Spanier said. He said he didn't have current figures on Penn State's loss, but knows it is "significant." The endowment stood at $1.62 billion on June 30 before the markets began to tank.

"While we generally don't worry about wild swings over the long run, it is a concern to us now because 99 percent of our endowment is restricted, meaning the donors have given gifts for a purpose, and every year we have to pay money out for scholarships," he said.

Because Penn State has received little in state-funding increases since 2000, the cutback will virtually erase those increases and mean that funding has held static, he said. The state accounts for about 9.3 percent of Penn State's budget.

"Our society seems to be moving away from the idea that higher education is a public good," he said. "We've lost out now to health care, prisons, infrastructure improvements and highways, police services and K-12 education. We're sort of at the bottom of the pipeline."

The financial difficulties come as Penn State already has one of the highest tuitions for public universities in the country and as the percentage of students attending the university from lower- and middle-income families has declined. Tuition ranges from $13,014 a year for freshmen and sophomores to $16,798 for nursing students.

Spanier said that as a result, the university's current fund-raising campaign is primarily aimed at raising several hundred million for scholarships for students in need. The seven-and-a-half-year campaign kicked off in January 2007.

"We can't lower tuition, but what we can do is make more scholarships available for students who couldn't otherwise afford to come," he said.