Gradefund’s Blog

Just another WordPress.com weblog

Archive for the ‘Economy and School’ Category

Data Show College Endowments Loss Is Worst Drop Since ’70s

Posted by gradefund on January 30, 2009

Data Show College Endowments Loss Is Worst Drop Since ’70s

 

Published: January 26, 2009
The value of university endowments fell about 23 percent on average in the five months ended Nov. 30, according to two newly released reports.

Multimedia

Graphic

The steep declines are forcing colleges and universities across the country to contemplate wage freezes, layoffs and a halt to construction projects.

The drop found by the reports is the biggest in the value of college and university endowments since the mid-1970s, said John S. Griswold Jr., executive director of the Commonfund Institute, which manages money for educational institutions and other nonprofits.

“It’s been very sudden in some ways,” Mr. Griswold said. “There were people predicting the decline a year ago or more, but I don’t think anyone could claim to see the extent of this. These are unprecedented numbers.”

The reports, prepared for the National Association of College and University Business Officers by the financial services company TIAA-CREF and the Commonfund Institute, drew on data from 796 institutions for the 2008 fiscal year, which ended June 30, and on additional statistics gleaned from a follow-up survey with 435 for the period from July 1 to Nov. 30.

They found that while endowments gained in value by about 0.5 percent in the old fiscal year, they lost nearly a quarter of their worth in the subsequent five months, a period in which the financial markets sank.

“It’s a rolling contagion that hit us,” Mr. Griswold said.

The pain was spread among institutions large and small, private and public. When endowments were categorized by size, even the least affected — those worth more than $1 billion — were found to have lost an average of 20 percent. Those of $500 million to $1 billion saw the biggest decline, about 25 percent. Public institutions lost an average of 24 percent, private institutions 22 percent.

“Both public and private institutions are going to be very challenged, just in different directions,” said P. Brett Hammond, chief investment strategist of TIAA-CREF. “States are in trouble themselves, and the downturn in state support comes along with declines in investments. In the private sector, at the same time endowments have declined students need more help than ever.”

Cornell is facing a 10 percent budget shortfall for the current fiscal year because of a 27 percent decline in its endowment over the last six months, a drop in state financing and alumni giving, and students’ need for more financial aid, according to a report issued this week by the university’s president, David J. Skorton. To close the gap, the university plans to freeze campus construction and draw on $150 million in reserve cash and $35 million more from the endowment than was planned.

Syracuse University has already announced layoffs, and Dartmouth, whose endowment lost 18 percent of its value from July 1 to Dec. 31, has said they are inevitable.

“We continue to fund approximately 35 percent of the college-only operating budget through endowment distributions, and we do not have additional revenue sources that can replace this level of support,” Barry P. Scherr, Dartmouth’s provost, and Adam Keller, executive vice president, said in a statement issued last week.

“We anticipate that some of our endowment investments will continue to show losses,” they added, “and that many of our generous donors will be unable to give at the same levels for some time to come.”

Charles L. Schearer, president of the private Transylvania University in Lexington, Ky., said the endowment there, which finances about a quarter of the operating budget, had lost 28 percent of its value since June 2007. Transylvania has cut back on staff travel, declined to fill job vacancies, frozen overtime and halted all construction projects. The university is planning a major fund-raising push in the next year to help make up for the endowment losses.

“We’re going to have to capture some of that money back,” Dr. Schearer said in an interview. “We’re not looking at this as if there will be a rapid recovery. We’re anticipating a slow and gradual recovery.”

Sixty percent of the institutions responding to the follow-up survey said they did not expect to change the amount they draw from their endowments in the current fiscal year.

Mr. Griswold thinks that wise.

“People aren’t making snap decisions, decisions that seem based on a panic reaction,” he said. “That’s terrific. They should keep a steady hand on the helm.”

Posted in Economy and School, Rising Tuition | Leave a Comment »

Stimulus Plan Would Provide Flood of Aid to Education

Posted by gradefund on January 30, 2009

Stimulus Plan Would Provide Flood of Aid to Education

 

Published: January 27, 2009
WASHINGTON — The economic stimulus plan that Congress has scheduled for a vote on Wednesday would shower the nation’s school districts, child care centers and university campuses with $150 billion in new federal spending, a vast two-year investment that would more than double the Department of Education’s current budget.

The proposed emergency expenditures on nearly every realm of education, including school renovation, special education, Head Start and grants to needy college students, would amount to the largest increase in federal aid since Washington began to spend significantly on education after World War II.

Critics and supporters alike said that by its sheer scope, the measure could profoundly change the federal government’s role in education, which has traditionally been the responsibility of state and local government.

Responding in part to a plea from Democratic governors earlier this month, Congress allocated $79 billion to help states facing large fiscal shortfalls maintain government services, and especially to avoid cuts to education programs, from pre-kindergarten through higher education.

Obama administration officials, teachers unions and associations representing school boards, colleges and other institutions in American education said the aid would bring crucial financial relief to the nation’s 15,000 school districts and to thousands of campuses otherwise threatened with severe cutbacks.

“This is going to avert literally hundreds of thousands of teacher layoffs,” Education Secretary Arne Duncan said Tuesday.

Representative George Miller, Democrat of California and chairman of the House education committee, said, “We cannot let education collapse; we have to provide this level of support to schools.”

But Republicans strongly criticized some of the proposals as wasteful spending and an ill-considered expansion of the federal government’s role, traditionally centered on aid to needy students, into new realms like local school construction.

And they were joined by some education experts from across the political spectrum in wondering how school districts could spend so many new billions so fast, whether such an outpouring of dollars would lead to higher student achievement, and what might happen in two years when the stimulus money ends.

Analysts were also turning up surprises in the fine print.

One provision, which was sought by the student lending industry and went unmentioned in early Congressional summaries of the stimulus package, would temporarily increase subsidies to banks in the guaranteed student loan program by tying them to a new index, partly because recent federal intervention in the credit markets has invalidated the previous index. A spokesman for Sallie Mae, one of the largest student lenders, said the change was needed to keep student loan markets fluid. Critics said it represented a potential new windfall for lenders.

“This just continues the well-established tradition of welfare for the student loan industry,” said Barmak Nassirian, an expert in student lending.

The formulas by which the stimulus money for public schools would be allocated to states and local districts are complex, but take into consideration numbers of school-age children in poor families. The level received per student would vary considerably by state, according to an analysis by the New America Foundation, a research group that monitors education spending. New York would be among the biggest beneficiaries, at $760 per student, while New Jersey and Connecticut would fall near the bottom, with $427 and $409 per student, respectively. The District of Columbia would get the most per student, $1,289, according to the foundation’s analysis.

The foundation contends, however, that the formula does not effectively allocate the most money to states with the greatest need.

In recent years the federal government has contributed 9 percent of the nation’s total spending on public schools, with states and local districts financing the rest. Washington has contributed 19 percent of spending on higher education. The stimulus package would raise those federal proportions significantly.

The Department of Education’s discretionary budget for the 2008 fiscal year was about $60 billion. The stimulus bill would raise that to about $135 billion this year, and to about $146 billion in 2010. Other federal agencies would administer about $20 billion in additional education-related spending.

“This really marks a new era in federal education spending,” said Edward Kealy, executive director of the Committee for Education Funding, a coalition of 90 education groups.

The bill would increase 2009 fiscal year spending on Title I, a program of specialized classroom efforts to help educate poor children, to $20 billion from about $14.5 billion, and raise spending on education for disabled children to $17 billion from $11 billion.

Those increases respond to longtime demands by teachers unions, school boards and others that Washington fully finance the mandates laid out for states and districts in the Bush-era No Child Left Behind law, and in the main federal law regulating special education.

“We’ve been arguing that the federal government hasn’t been living up to its commitments, but these increases go a substantial way toward meeting them,” said Joel Packer, a lobbyist for the National Education Association, the nation’s largest teachers union.

Frederick Hess, an education policy analyst at the American Enterprise Institute, criticized the bill as failing to include mechanisms to encourage districts to bring school budgets in line with property tax revenues, which have plunged with the bursting of the real estate bubble.

“It’s like an alcoholic at the end of the night when the bars close, and the solution is to open the bar for another hour,” Mr. Hess said.

The bill would, for the first time, involve the federal government in a significant fashion in the building and renovation of schools, which has been the responsibility of states and districts. It includes $20 billion for school renovation and modernization, with $14 billion for elementary and secondary schools and $6 billion for higher education. It also includes tax provisions under which the federal government would pay the interest on construction bonds issued by school districts.

Mr. Duncan said the bill’s school renovation provisions would create a “huge number of construction jobs,” because so many school buildings need repairs.

But Representative Howard P. McKeon, Republican of California and the ranking minority member of the House education committee, said, “By putting the federal government in the business of building schools, Democrats may be irrevocably changing the federal government’s role in education in this country.”

In higher education, the bill would increase spending on Pell Grants, the most important federal student aid program, to $27 billion from about $19 billion this year.

“It’s a very good idea to increase Pell Grants in the stimulus,” said Terry Hartle, a senior vice president for public affairs at the American Council on Education, which represents colleges and universities.

But Mr. Hartle said that even he was having difficulty tracking all the new spending.

“A lot of things will go through, and only later will we know exactly what happened,” he said.

Posted in Economy and School, EducationalSpending | Leave a Comment »

Financial Aid Applications Rise by 10 Percent

Posted by gradefund on January 22, 2009

Financial Aid Applications Rise by 10 Percent

Posted January 13, 2009
Like a Midwestern tornado, the economic downturn appears to be touching down and wreaking financial aid havoc for some colleges while leaving others unscathed. Financial aid officers at Boston College, the University of Central Florida, and Washington University in St. Louis all report no dramatic increase in requests for scholarships. But foot traffic and calls to the aid office have spiked 50 percent this January at Prairie View A&M University in Texas. And “the line is out the door” at Quinsigamond Community College in Worcester, Mass., says Iris Godes, assistant vice president of enrollment management. Enrollment is up by about 6 percent, but financial aid applications are up 23 percent so far in 2009. Godes, who has been working in college financial aid offices for 21 years, says people who have lost jobs and savings in the economic downturn are now scrambling for new money to pay for college. “I have never experienced in my life this anxiety level of parents,” she says.

Nationally, 1.4 million more students filled out the Free Application for Federal Student Aid (the most important aid application) in calendar year 2008 than in 2007, a 10.4 percent increase, the Department of Education reports. Likewise, the College Board says its scholarship database experienced a 30 percent jump in visitors in December 2008 compared with 2007.

The biggest federal aid programs guarantee Pell grants and Stafford student loans to all students who qualify, no matter how many people apply. And some colleges have announced that they are pouring more money into scholarships next year. Boston College, for example, has announced it will cut its overall spending by 2.5 percent to free up $3 million extra in financial aid. And the University of Toledo announced it will offer free tuition to low-income B students from many major Ohio cities.

But those increases don’t appear to be making up for the many smaller aid programs—including Federal Supplemental Education Opportunity Grants and Perkins loans, as well as school-based scholarships and charitable grants—that expect to have limited or reduced funding this year. As a result, many aid officials say demand is starting to outstrip supply for some kinds of scholarships, forcing some schools and charities to make cuts.

Arkansas State University-Jonesboro, for example, has been so swamped that it has already cut off applications for merit scholarships for next fall, says financial aid director Terry Finney. The state of Rhode Island is reducing the amount of grants it will hand out to needy students. And many charities have said the declines in their investments are forcing reductions in the size and number of scholarships they’ll award this year.

“Demand has never been greater and money never been lower,” worries Godes.

 

Posted in Economy and School, EducationalSpending, Financial Aid | Leave a Comment »

Colleges cut instruction spending

Posted by gradefund on January 22, 2009

Colleges cut instruction spending

By Mary Beth Marklein, USA TODAY

http://www.usatoday.com/news/education/2009-01-14-college-spending_N.htm

Most of the nation’s colleges are gradually paring back their investments in classroom teaching, an analysis of federal data shows. And all colleges have in recent years been spending a greater share of their revenue on expenses other than instruction, including computing centers, student services, administrative salaries and lawn care.

Those are among findings of a report released today that sheds light on where various types of colleges and universities get their money and how they spend it. While instruction remains the largest share of education and general spending at most colleges, much of the revenue raised by increasing tuition is not going to that core function of higher education, it concludes.

With one notable exception, “Students are paying for more and arguably getting less, particularly in the classroom,” says Jane Wellman, director of the Delta Cost Project, a Washington-based non-profit that released the report. It is based on federally reported data from 2002 to 2006 of nearly 2,000 public and private institutions that enroll about 75% of all college students.

The exception is private research universities, which spend more per student than any other sector, but which enroll fewer students overall than most other institutions.

The report found that total spending on education and related services, including academic and administrative support, remained flat or declined between 2002 and 2006 everywhere but at those institutions, which can draw from more sources, including endowment income.

That could change as more private research universities, including Cornell, Harvard and Yale, see precipitous drops in their endowments.

At public colleges and universities, much of the decline in instruction spending — which is primarily faculty salaries and benefits — can be linked to a decline in state appropriations.

“I don’t think institutions have decided to disinvest in instruction,” Wellman says, but their spending patterns do show “a lack of a strategic approach.”

“The quickest place to cut costs is in instructional programs. When the primary focus is on balancing the budget from year to year, you grab what you can and spend where you must,” Wellman says.

Existing data can’t speak to the quality of education, nor is it detailed enough to determine whether specific spending is justified. A key goal of the report is to encourage institutions and policymakers to be more transparent about their finances.

“Policymakers and the public are showing increasing skepticism about spending in higher education, questioning whether tuition increases are helping to expand access and improve quality,” it says. “The data in this report show that this is a valid question.”

Other findings:

•More students, particularly low-income and minority students, are attending the colleges and universities with the least to invest in students. “Basically what we’re asking is (for) a set of folks who don’t have resources to pay more, even as we disinvest in their instruction,” says Kati Haycock, president of the Education Trust, a non-profit that works to increase access to college.

•If tuition increases were tied to increased spending on education-related expenses, tuition at most public institutions would have dropped between 2002 and 2006. At public research universities, about 8% of tuition increases can be linked to increased spending on education-related expenses.

•At some point between 2002 and 2004, most private four-colleges began spending a larger share of their budget on administrative and academic support than on instruction. The exception: private research universities.

Posted in Economy and School, EducationalSpending, School Reform | Leave a Comment »

Stimulus gives schools $142B — with strings

Posted by gradefund on January 22, 2009

Stimulus gives schools $142B — with strings

By Greg Toppo, USA TODAY

http://www.usatoday.com/news/education/2009-01-19-school-stimulus_N.htm

The USA’s public schools stand to be the biggest winners in Congress’ $825 billion economic stimulus plan unveiled last week. Schools are scheduled to receive nearly $142 billion over the next two years — more than health care, energy or infrastructure projects — and the stimulus could bring school advocates closer than ever to a long-sought dream: full funding of the No Child Left Behind law and other huge federal programs.

But tucked into the text of the proposal’s 328 pages are a few surprises: If they want the money — and they certainly do — schools must spend at least a portion of it on a few of education advocates’ long-sought dreams. In particular, they must develop:

• High-quality educational tests.

• Ways to recruit and retain top teachers in hard-to-staff schools.

• Longitudinal data systems that let schools track long-term progress.

“The new administration does not want to lose a year on the progress because of the downturn in the economy,” says Rep. George Miller, D-Calif., who chairs the House Education Committee. “So I think these are all things that are clearly doable.”

Testing, a key part of the No Child law, has gotten short shrift from most states, says Thomas Toch of Education Sector, a Washington, D.C., think tank.

“Existing state tests are not as good as they could be,” he says. “Putting new money into building stronger state assessments is what’s needed.”

But he and others say a big challenge will be to ensure that states don’t simply cut their own education budgets in anticipation of massive federal increases. “That’s going to be a challenge because the states are all hurting,” Toch says.

The plan also will help schools modernize and fix buildings. Kati Haycock, president of The Education Trust, an advocacy group, says she’s “pretty excited” about the requirement that states spend a portion of the stimulus cash attracting their best teachers to schools that serve low-income and minority students. “There’s nothing they could do with it that would be more important for high-poverty kids.”

But Charles Barone, a former congressional staffer who helped design the education reform law, says the plan doesn’t go far enough. He predicts states won’t do much to change how they hire teachers — and they’ll still get their money. “All they’re going to have to do is copy and paste what’s in their current plan to get this money,” says Barone, who now consults about education and writes a popular blog.

“This is a once-in-a-lifetime opportunity,” he says. “It seems to me you’d ask more from states and districts in terms of the kind of changes you’ve been talking about for years.”

Posted in Economy and School, EducationalSpending, School Reform | Leave a Comment »

School officials want a cut of federal bailout

Posted by gradefund on January 15, 2009

School officials want a cut of federal bailout

By Greg Toppo, USA TODAY

http://www.usatoday.com/news/education/2009-01-12-school-stimulus_N.htm

If banks, insurance companies and automakers are getting a piece of Washington’s bailout largesse, why not cash-strapped schools?

That’s the thinking of officials at a few hard-pressed school systems, who have set wheels in motion to get a share of the $700 billion Troubled Asset Relief Program, or TARP, intended for ailing financial institutions, and the economic stimulus package now before Congress.

 

EDUCATION & ECONOMY: Private schools feel the pinch
FULL COVERAGE: Latest education news

 

In Olmstead Falls, Ohio, Superintendent Todd Hoadley sent in the paperwork two days before Thanksgiving to request $100 million from the federal government, half of it for school construction. He has yet to see a check and concedes he dabbling in a bit of hyperbole by latching onto the program, but he says the problems are real.

“We were trying to make the statement: ‘Don’t forget public education,’ ” Hoadley says.

In Olmstead Falls, 1,200 students cram into a 40-year-old high school built for 800. The school board wants to cut $1 million from the district’s $34 million budget, and Gov. Ted Strickland has asked advisers to see what a 25% statewide school funding cut would look like.

Hoping for some help

In Florida, Broward County school board members directed Superintendent James Notter in early December to devise a plan seeking as much as $500 million from the pot of federal money.

The 260,000 student district, sixth-largest in the country, has trimmed $128 million from its operating budget the past two years.

School districts across the nation are quietly hoping that the federal government finds a way to include them in aid proposals. The National School Boards Association has published a list of priorities that includes money for construction and modernization as well as cash to reduce the cost of debt-servicing on bonds.

Also hoping for a slice of the pie: after-school and arts advocates, career and technical programs and Head Start.

Though no district yet has followed Hoadley and applied for the bailout, most are counting on Congress’ stimulus plan to include as much as $25 billion for school construction, teacher training and other chronically underfunded line items. Educators say they need the cash as they face budget cuts in the next two years. Nearly half of districts are cutting hiring and supplies, a November survey by the American Association of School Administrators found. One in five has laid off staff.

Trimming past the fat

“This has become, in my opinion, an economic development problem because we are endangering the preparation of the workforce,” says Miami-Dade Schools chief Alberto Carvalho.

A proposed Senate plan would give schools $2.5 billion for construction, but funding for the rest remains unclear until Congress acts, probably by mid-February.

“This is the first time that we’ve been in a big stimulus package like this since the ’70s,” says the administrators association’s Bruce Hunter. “That’s a big deal.”

In Miami, Carvalho says he has spent the past few months trimming nearly $280 million — but he faces another midyear cut of more than $100 million.

“We’re well past cutting through the fat, through the flesh, muscle,” he says. “We’re now sawing into bone.”

He has led a handful of Florida superintendents calling for federal aid to schools as state lawmakers, meeting this month in special session, consider nearly $500 million in school cuts.

In Florida and elsewhere, most schools are seeing the grim results of higher expenses and lower tax revenue. But in a few cases, they’ve taken hits from large investments gone sour. In Wisconsin, five small districts that funded retiree benefits by investing $200 million — much of it borrowed from an Irish bank — in collateralized debt obligations are suing after their “safe” investments went south.

Schools created the mess?

Mike Petrilli of the Thomas B. Fordham Institute, a Washington think tank, says many districts’ financial woes can be traced to long-term teacher contracts that have locked them into automatic raises and growing pension expenditures without the flexibility to cut costs “in a smart way.”

“School districts have gotten themselves into this mess by making promises they can’t fulfill,” he says. “And now the chickens are coming home to roost.”

When Hoadley filed for the bailout, he sent it directly to U.S. Treasury Secretary Henry Paulson and to the Federal Reserve of Cleveland, where an official said he didn’t think school districts qualify for TARP funding. Then, a few weeks later, Hoadley looked on as lawmakers offered the auto industry a piece of it.

The rules, he says, keep changing — who will get the rest?

“One wonders where that’s going or what that’s going to go for,” Hoadley says. “Hopefully it’s going to come our way.”

Posted in Economy and School | Leave a Comment »

Universities offering in-state tuition to out-of-state students

Posted by gradefund on January 15, 2009

Universities offering in-state tuition to out-of-state students

http://www.usatoday.com/news/education/2009-01-12-in-state-out_N.htm

ST. LOUIS (AP) — For 20 years, Southern Illinois University’s student numbers have languished, proving so vexing it cost a top administrator his job in 2006.

Much of the problem, the chancellor contends, is that would-be students from Illinois bolted to other states on the promise of sweet tuition deals.

Now, the university is fighting back: This fall, it will begin offering in-state tuition to first-year students from neighboring Missouri, Kentucky and Indiana.

Across the country, a bidding war of sorts has developed over prospective students seeking bargains in a bad economy. While some universities have long tried to lure students across state lines with lower tuitions, such incentives are gaining popularity as the nation’s financial meltdown has withered families’ college savings and home equity to help pay soaring education costs.

 

 

“We’re certainly seeing an acceleration of that” push to offer tuition cuts for its out-of-state scholars, said Bob Sevier, senior vice president of Iowa-based Stamats, a consultant to colleges and universities about marketing, student recruitment, fundraising and strategic planning.

“It’s something that should have been done a long time ago. This is not a gimmick. This is good public policy,” Sevier said.

And to Sam Goldman, Southern’s chancellor, it’s unavoidable. “We’re in probably the most competitive environment I’ve ever seen in higher education right now,” said Goldman.

Other universities have similar designs on recruitment.

In North Dakota, for example, the state’s Board of Higher Education recently approved offering in-state tuition to out-of-state and international prospects.

That’s something Minot State University last month pushed to make big use of by hiring two new recruiters, hoping to lure more students from Canada and Washington state.

Such efforts come when “the economic downturn is kind of churning the college market a little bit,” prompting many colleges and universities to evaluate ways to remain viable, Paul Hassen, a spokesman for the National Association of State Universities and Land Grant Colleges.

“The higher education market changes constantly, and each institution has its own challenges and opportunities,” he said. “Programs such as offering in-state rates to out-of-state students or some other way of packaging a pricing structure will occur. It’s a matter of fiscal survivability.”

Last month, an independent report on American higher education flunks all but one state — California, which got a C — when it comes to affordability. The biennial study by the National Center for Public Policy and Higher Education, which evaluates how well higher education is serving the public, found that almost everywhere the average family’s cost of education is up.

In Illinois, the average cost of attending a public four-year college has jumped from 19% of a family’s income in 1999-2000 to 35% in 2007-2008.

At Southern Illinois, tuition has jumped from $2,865 in 1999 to $6,975 this year for in-state students; during the same span, non-resident tuition ballooned from $5,730 to $17,437. The school’s student numbers shrank by 1,650 along the way to 20,673 now — well below the 24,084 that went there in 1990.

That lagging enrollment came to a head in November 2006, when the university’s president, former five-term congressman Glenn Poshard, ousted Walter Wendler as the Carbondale school’s chancellor. “We’re the only public university in the state losing students. We have to turn this around,” Poshard said then.

In trying to do just that, Southern Illinois University’s board voted to extend in-state tuition to first-year students from Missouri, Kentucky and Indiana. After the first year, the students could qualify as Illinois residents.

Such moves apparently have worked elsewhere. According to Hassen’s group, Penn State from 2005 to 2008 has seen 47% more out-of-state students accepting offers from the school since it began offering a reduced tuition rate at 19 of its 20 campuses for the student’s first two years.

Other university systems, while also trying to pad out-of-state recruiting, aren’t feeling as generous.

University of California officials, for instance, reportedly are mulling expanding its out-of-state recruiting but not give those students in-state rates. Out-of-state students in that university system now pay $20,000 a year more than in-staters — a premium that can be a handy revenue stream when the state’s budget is tight.

In Carbondale, Goldman says it’s far too soon to tell whether Southern’s tuition push to lure more out-of-state students is making a difference, though he insists the feedback so far has been encouraging.

“I’ve bumped into people from out of state here who have said, told me point blank, that because we reduced it they are coming here,” he said. For each student, “the tangible difference is $10,000. It’s that much. It’s like we’re giving them a scholarship; it’s not, truly, but that’s the equivalency.”

Posted in Cheaper Tuition, Economy and School | Leave a Comment »

Colleges Profit as Banks Market Credit Cards to Students

Posted by gradefund on January 9, 2009

Colleges Profit as Banks Market Credit Cards to Students

http://www.nytimes.com/2009/01/01/business/01student.html?ref=education#

 

Published: December 31, 2008

EAST LANSING, Mich. — When Ryan T. Muneio was tailgating with his parents at a Michigan State football game this fall, he noticed a big tent emblazoned with a Bank of America logo. Inside, bank representatives were offering free T-shirts and other merchandise to those who applied for credit cards and other banking products.

Skip to next paragraph

Fabrizio Costantini for The New York Times

Bank of America employees on the Michigan State campus offered giveaways like water bottles, backpacks and games to persuade students to apply for credit cards and other bank services.

Fabrizio Costantini for The New York Times

A Fifth Third Bank display offered bottles of water, tuition raffles and a bicycle as an inducement to get incoming freshmen at Michigan State University to open credit card and other accounts.

“They did a good job,” Mr. Muneio, 21 and a junior at Michigan State, said of the tactic. “It was good advertising.”

Bank of America’s relationship with the university extends well beyond marketing at sports events. The bank has an $8.4 million, seven-year contract with Michigan State giving it access to students’ names and addresses and use of the university’s logo. The more students who take the banks’ credit cards, the more money the university gets. Under certain circumstances, Michigan State even stands to receive more money if students carry a balance on these cards.

Hundreds of colleges have contracts with lenders. But at a time of rising concern about student debt — and overall consumer debt — the arrangements have sounded alarm bells, and some student groups are starting to push back.

The relationships are reminiscent of those uncovered two years ago between student loan companies and universities. In those, some lenders offered universities an incentive to steer potential borrowers their way.

Here at Michigan State, the editors of the student newspaper wrote this fall that “it doesn’t take a giant leap for someone to ask why the university should encourage responsible spending when it receives a cut of every purchase.”

At Arizona State University, students set up a table on campus last spring to warn of the danger of debt and urge students to support limits on on-campus marketing.

The contracts, whose terms vary but usually involve payments to colleges or alumni associations that agree to provide lists of students’ names, have come under harsh criticism in Washington.

“That is absolutely outrageous, the sharing of students’ information with the banks,” Representative Carolyn B. Maloney, Democrat of New York, who oversaw a June hearing on campus credit card marketing, said in a recent interview. “That should be outlawed.”

College campuses are one place that young Americans are introduced to credit and the possibility of spending beyond their means, a problem now confronting the nation as a whole. For banks, the relationships are a golden marketing opportunity. For colleges, they are a revenue source at a time of declining public funding. And for students, they help pay the bills and allow more shopping.

But debt incurred in college becomes a serious burden at graduation, especially in a recession in which jobs are scarce. A survey of more than 1,500 college students by US PIRG in Washington found that two-thirds had at least one credit card. Seniors with balances had an average debt of $2,623 on their cards.

University officials say that their agreements with card issuers comply with the law and bring in valuable revenue.

“It provides money for scholarships and other programs,” said Terry R. Livermore, manager of licensing programs at Michigan State. He said that the program was aimed primarily at alumni and the university would not include sharing student information in future credit card contracts. “The students are such a minuscule portion of this program.”

Jennifer Holsman, executive director of the alumni association at Arizona State, said the association tried to teach students about responsible uses of credit. “We work closely with Bank of America to provide educational seminars to students in terms of being able to get information about how to pay off credit cards, how not to keep balances,” she said.

Credit card issuers say that they try to educate students to use cards responsibly and that the cards they offer on campus have more restrictive terms than cards offered to alumni.

“The available credit for undergraduates is capped at $2,500,” said Betty Riess, a spokeswoman for Bank of America. “We want to take a fair and responsible approach to lending because we want to build the foundation for a longer-term banking relationship.”

Ms. Riess said the bank had agreements with about 700 colleges and alumni associations, making it one of the biggest, if not the biggest, card issuer on campuses. She said that only 2 percent of the open accounts under those agreements belonged to students, but also said it was not possible to determine what percentage of program revenue resulted from fees and charges on those student cards.

Stephanie Jacobson, a spokeswoman for JPMorgan Chase, wrote in an e-mail message that the bank had fewer than 25 contracts with colleges or alumni associations and that while some of the contracts gave it the right to ask for and use lists of student names and addresses, the bank had not done so since 2007.

That may be because football games present a marketing opportunity that requires no address information. Abigail D. Molina, a second-year law student at the University of Oregon, applied in 2007 for a Chase Visa offered at a tent outside a football game. In exchange, she received a blanket.

“I mostly wanted the blanket,” Ms. Molina said. She added that this was her second university credit card. In 1994, when she was an undergraduate at the university, she applied for a card at a booth on campus and then accumulated about $30,000 in debt, almost all of it on the card. In 2001 she filed for bankruptcy. Looking back, she said it was “shockingly easy” to get the card, even as a first-year student.

Mr. Muneio, the Michigan State student, said he did not apply for a Bank of America card because he already had two Visa cards. “The last thing I need is another account to keep track of.”

Many students are unaware of the contracts that universities have with credit card issuers and do not question the presence of marketers on campus or applications in their mailboxes, despite recent protests on a few campuses.

Sometimes, the contracts have confidentiality provisions. Universities may try to distance themselves, stating that the contracts are only between alumni associations and banks. But the universities provide alumni groups with lists of current students’ names, addresses and telephone numbers, which the groups pass on to banks.

The New York Times obtained information about and, in some cases, copies of contracts between lenders, public colleges and their alumni associations using open records requests. Because private colleges are not subject to open records laws, they are not included.

While most universities contacted for this article did not provide detailed financial information on the contracts — the University of Pittsburgh, for example, confirmed only that it had an agreement — two did share numbers.

The alumni association of the University of Michigan is guaranteed $25.5 million over the term of its 11-year agreement with Bank of America. Under the agreement, the association agreed to provide lists of names and addresses of students, alumni, faculty, staff, donors and holders of season tickets to athletic events.

Much of the money goes toward scholarships, said Jerry Sigler, vice president and chief financial officer of the alumni association. He was unsure what students were told about the program.

“Students are generally told how they can opt out of having their information publicly displayed in directories or provided in response to requests like this,” Mr. Sigler added. “But it’s not to my knowledge specific to the credit card program.”

Michigan State University gets $1.2 million a year but is guaranteed at least $8.4 million over seven years, according to its agreement. The contract calls for a $1 royalty to the university for every new card account that remains open for at least 90 days, $3 for every card whose holder pays an annual fee, and a payment of a half percent of the amount of all retail purchases using the cards.

For cards that do not have an annual fee, the bank pays $3 if the holder has a balance at the end of the 12th month after opening an account, a provision that appears to give the university an incentive to get cardholders into debt.

A few schools have adopted policies that prohibit sharing student contact information.

Ball State University’s alumni association, which has a contract with JPMorgan Chase, does not provide information on students, said Ed Shipley, executive director of the association. “Who we market to is our alumni because that’s our purpose,” he said. However, the bank is permitted to set up marketing tables at athletic events.

The University of Oregon, whose alumni association also has a marketing agreement with Chase, stopped providing student addresses as concern grew about student debt, according to Julie Brown, a university spokeswoman. The university still permits marketing booths at athletic events.

Some research suggests that students may be using credit cards less frequently, in favor of debit cards linked to their bank accounts. A survey last spring by Student Monitor, a Ridgewood, N.J., company that tracks trends on campus, found that 59 percent of undergraduate students had debit cards, up from 51 percent in 2000.

But universities have arrangements with banks that offer debit cards too, perhaps raising some of the same issues that the credit card deals do.

At New Mexico State University, for example, students are given the option of opening a bank account with Wells Fargo if they want to convert their campus identification into a debit card.

The accounts are not mandatory, said Angela Throneberry, assistant vice president for auxiliary services at the university. But, she said, “There’s some revenue sharing that happens as part of this.”

Posted in Cheaper Tuition, Economy and School | Leave a Comment »

Private Colleges Worry About a Dip in Enrollment

Posted by gradefund on December 26, 2008

Private Colleges Worry About a Dip in Enrollment

 

Published: December 21, 2008

First came the good news for St. Olaf College: early-decision applications were way up this year.

Now comes the bad news: the number of regular applications is way down, about 30 percent fewer than at this time last year.

“To be quite honest, I don’t know how we’ll end up,” said Derek Gueldenzoph, dean of admissions at the college, in Northfield, Minn. “By this time last year, we had three-quarters of all our applications. The deadline’s Jan. 15. If what we’ve got now is three-quarters of what we’re going to get, we’re in big trouble. But if this turns out to be only half, we’ll be fine.”

Not all private colleges are reporting fewer applications this year. Even in the Midwest and Pennsylvania, where most colleges seem to have dwindling numbers, some are getting more applications than ever. Still, in a survey of 371 private institutions released last week by the National Association of Independent Colleges and Universities, two-thirds said they were greatly concerned about preventing a decline in enrollment.

Getting exactly the right enrollment — always a tricky proposition — is especially crucial for small colleges with tuition-driven budgets. One case in point came last month, when Beloit College in Wisconsin announced it would eliminate about 40 positions because 36 fewer students than expected had enrolled. The college has about 1,300 students and gets three-quarters of its $55 million budget from tuition.

Admissions officers nationwide point to several possible reasons for the drop in applications. Some students have pared their college lists this year. Many more are looking at less-expensive state universities. Many institutions accepted more students under binding early-decision programs, and each such acceptance drains off an average of 8 to 10 regular-decision applications. And some experts suspect that students are delaying their college plans.

The deadline at most colleges is still a few weeks off, so a last-minute flood of applications could raise the numbers to last year’s level. But admissions officers say they are not counting on that.

“I’ve been doing this a long time, and I don’t remember a year when applications started out behind and didn’t end up behind,” said Steve Thomas, director of admissions at Colby College in Waterville, Me., where early-decision applications were higher than usual but regular applications are running about 14 percent behind.

At Gettysburg College in Pennsylvania, where early-decision applications were up, regular applications are down about 15 percent, said Gail Sweezey, the director of admissions.

“One thing that’s happened this year is that there’s all this talk, and one-sided media stories, about how private colleges are unaffordable,” Ms. Sweezey said. “It’s become almost viral that there’s no loans, that schools are having problems. The truth is that a lot of private colleges have more financial aid available this year, but there’s lots of misinformation out there. And my guidance counselor friends tell me students may be applying to fewer places and turning to their state university, which will be at capacity.”

If some private colleges are grappling with the specter of too few applications, public universities and community colleges are having the opposite problem — more students at a time when their state financing is being slashed.

In California and Florida, some public institutions have been forced to cap enrollment. And even in states like Pennsylvania, where the number of high school graduates is declining, applications to public universities are growing.

“We have 47,971 applications as of now, compared to 45,760 at this time last year,” said Anne Rohrbach, executive director of undergraduate admissions at Pennsylvania State University. “We’ve been making offers since October, and we’ve already had 1,638 students say yes, compared to 1,096 at this time last year.”

Generally, Ivy League universities with generous aid packages to low- and middle-income families have as many applicants as ever — and even more applying for financial aid.

“We had 27,462 applications last year, and we’ve been running almost exactly on last year’s pace,” said William Fitzsimmons, dean of admissions at Harvard College, which has eliminated early decision. “More students are applying for financial aid. It’s a significant increase, four full percentage points ahead of last year.”

Yale received 5,556 applications this year, 14 percent more than last year, for its nonbinding single-choice early action program, said Jeffrey Brenzel, the dean of admissions, who added that regular applications were running higher, too.

Dartmouth has more applications than ever, early and regular, as do Duke University, the University of Denver and the University of Rochester.

Jonathan Burdick, the dean of admissions and financial aid at Rochester, said the school’s reputation for generous merit aid helped draw applicants.

“This is a time when families may be looking at options that are less costly,” Mr. Burdick said. “There are a lot of families who may make $180,000 to $200,000 but can’t afford $50,000 a year and might apply to a Rochester, where merit aid this year can be as much as $14,000.”

Many selective private colleges say fewer applications are no problem.

“We’re down about 16 percent now, and I think we’ll be down 10 to 15 percent at the end, Jan. 1,” said Monica Inzer, the dean of admission and financial aid at Hamilton College in Clinton, N.Y. “If our acceptance rate goes up a little, that’s O.K.”

Mark Hatch, vice president for enrollment management at Colorado College, said he expected to have about 5 percent fewer applicants this year and took a similar view.

“We admitted 26 percent last year, and if it’s 31 percent this year, we’ll make more people happy,” Mr. Hatch said. “I think the economic uncertainty has families, even families of means, telling their children to round out their college lists with state universities. This year, families want two safety nets, one for the first hurdle, admission, and one for affordability. Anecdotally, I’ve noticed a lot of parents this year listing their occupation as unemployed.”

At many colleges, financial aid requests are up significantly. At Connecticut College, for example, 42 percent of the accepted early-decision students applied for financial said, compared with 34 percent last year — and 36 percent qualified for aid, compared with 24 percent last year.

This has been a particularly difficult year for small private colleges that accept a majority of their applicants.

Stephen MacDonald, the president of Lebanon Valley College in Annville, Pa., where applications are down about 15 percent, is taking steps to lure more students, including adding lacrosse for men and women and hiring a prominent coach, which he thinks will attract 20 to 25 students.

“We’ve also increased our scholarship award to children of alums, from $500, which is a nice gesture, to $2,500 a year, which is more than a gesture,” Mr. MacDonald said.

“We could still end up down 3 percent, which could sting,” he said. “This is a time when schools like ours, private liberal arts colleges that don’t have a big name, are in a potentially dangerous realm.”

Posted in Economy and School, Rising Tuition | Leave a Comment »

Obama Picks a Moderate on Education

Posted by gradefund on December 26, 2008

Obama Picks a Moderate on Education

The president will ultimately decide whether to take on the teachers’ unions.

http://online.wsj.com/article/SB123025581101034681.html

Barack Obama picked Arne Duncan only partly for his skills on the basketball court. As secretary of education, he will be running one of the administration’s most important finesse games.

[Commentary] AP

Arne Duncan and Barack Obama in Chicago, Dec. 16.

The CEO of the Chicago public schools and the ultimate diplomat, Mr. Duncan rises to the rim at a moment when teachers unions are, for the first time, facing opposition within the Democratic Party from young idealists who favor education reform. They want to recapture what should always have been a natural issue for Democrats: helping underprivileged kids get out of failing public schools.

Considering the reviews from the right and the left, you might be confused about whether Mr. Duncan is a signal that Mr. Obama’s administration is lining up behind the reformers or supporting the status quo. Washington, D.C., schools Chancellor (and über reformer) Michelle Rhee endorsed the pick, as did President Bush’s Education Secretary, Margaret Spellings.

But Mr. Duncan also has fans among traditional Democrats, whose main interest is keeping the teachers unions happy. House Speaker Nancy Pelosi applauded the choice, and Senate Majority Leader Harry Reid promised that he would enjoy a speedy confirmation.

So what should we make of Mr. Duncan? One promising clue comes from a group called Democrats for Education Reform, part of the growing voice for reform in the party. DFER is known to cheer Democrats brave enough to support charter schools and other methods of extending options to parents. Joe Williams, the group’s executive director, predicted that Mr. Duncan will help break the “ideological and political gridlock to promote new, innovative and experimental ideas.”

In Chicago, Mr. Duncan is credited with laying out plans to close 100 underperforming public schools. Fans also note that he helped raise the cap on charter schools to 30 from 15.

But his record is short of miraculous. Why have a cap on charter schools at all? And the teachers unions extracted plenty of concessions, including a ban on new charters operating multiple campuses.

Mr. Duncan is certainly no bomb thrower. His role instead will be to harness the entrepreneurial spirit of young idealists in the party, like DFER and the tens of thousands of young people who join Teach For America each year. This group, which continues to attract highly skilled young people, is fast creating the new Democratic elite in the education arena while challenging the education establishment.

At forums during the Democratic National Convention in Denver, several big-city mayors lined up with reform principles against union demands. Cory Booker of Newark, N.J., said that “As Democrats we have been wrong on education, and it’s time to get it right.” Washington, D.C.’s Adrian Fenty, a strong backer of Ms. Rhee’s effort to negotiate tough terms with the unions, remarked that the politics of school reform are changing fast.

At one DFER event last year, Rep. Jesse Jackson Jr. used the word “monopoly” — a major affront to teachers unions — to describe failing schools. James Clyburn of South Carolina, the third ranking Democrat in the House, is another important convert to the idea of more parental choice in education.

It’s all a bit delicate, which makes Mr. Duncan Mr. Obama’s man for a good reason. He’s known for a flexibility that allows him to float between the traditional Democratic strongholds and the new wave of reformers in the party. With proper implementation, Mr. Obama could accomplish on education reform what President Bill Clinton did for welfare reform — taking a previously Republican issue and transforming it from within the left.

But unions aren’t about to slink off into the sunset. If they’re losing some of their clout at the national level, they maintain their grip locally. In many places, teachers angle to usurp the language of the reformers while pushing their own agenda. Thus “merit pay” has been twisted into a system that bears little resemblance to the original concept of paying teachers for teaching kids successfully. Instead, it has become pay-for-credential, offering salary bumps for continuing education and other qualifications, with no anchor to proven results in the classroom.

Mr. Duncan is a reformer at heart, if one who works collegially within the system. But in the end, much will depend on his boss. Whether Mr. Obama is an artful fence walker or a real agent of change — on schools or anything else — is a mystery the coming year may finally clear up.

Ms. Levy, based in Washington, is a senior editorial writer at the Journal.

Posted in Economy and School, School Reform | Leave a Comment »