Money Matters
The assumption is widespread: Prosperity and largesse go hand-in-hand with prestige and selectivity for the likes of a venerable private liberal arts college such as Oberlin. A sizable endowment--$618 million at its 2001 peak--and a generous alumni body work hand-in-hand to buffer any economic downturn. Unfortunately, this assumption is false.

by Jennifer Stoffel

The reality is that no college or university is immune from financial pain in our country's current economic climate. Oberlin's administrators, like their colleagues elsewhere, are faced with a difficult task: how to balance a $150-million operating budget that has been hit with rising costs and falling revenues. Yet, while the next few years will surely test the College's resilience, the mood on campus is one of confidence and optimism. Institutional goals reinforced by President Nancy S. Dye and the Board of Trustees--to retain strategic gains in competitiveness in admissions and financial aid, faculty recruitment and salaries, and curriculum development while remaining committed to a richly diverse campus--are steadfastly intact. These gains, plus others in scholarship and bricks and mortar, are expected to help sustain Oberlin through the years ahead. And good news lies in the support of Oberlin alumni. While fund-raising totals have plateaued or fallen for other colleges and universities, the New Oberlin Century Campaign is on target with more than $150 million raised toward its $165 million goal.

But the stock market downturn that began in 2001 introduced a new scale of vulnerability to college endowments, and even the by Jennifer Stoffel most prosperous of institutions are reacting to new economic realities. Duke and Stanford announced sizable budget cuts last November. Harvard plans to close the Washington office of its Kennedy School for Government. Hiring and salary freezes are in place at many colleges and universities. Public institutions--with their reliance on battered state budgets and their own shrinking endowments--are faring even worse. At Ohio State University, administrators eliminated 600 positions recently and announced a 19 percent tuition hike; more cuts and hikes are expected.

Early Signs Bring Measured Response

Few people could have predicted the suddenness or the degree to which the economic environment would change. A 10-year cycle of growth in America between 1991 and 2001 was replaced by a post-September 11th recession, news of corporate scandals, and political instability--which translated into low investment earnings for colleges. Oberlin's endowment fell from a $618-million high in 2001 to $519.6 million in June 2002. "Twenty-five percent of our budget revenue comes from the endowment," says Andrew Evans, Oberlin's Vice President of Finance. "You can't have a substantial decrease in endowment performance and not have a substantial impact on the overall budget. And yet, we have to preserve and continue to enhance the excellence of our academic programs."

Adding to Oberlin's problems were rapidly escalating health care costs for faculty and staff. The College faced $9.5 million in claims in 2001--nearly double the $5 million amount in 1999--due to catastrophic illnesses and rising costs of doctors' visits, diagnostic tests, hospitilization, and prescription drugs. Compounding the cost was an unusually generous, open-choice policy for employees. "It's the same story everywhere--all institutions are facing health care costs that are out of control," Evans says.

The financial picture is nothing less than sobering. Oberlin ended its 2002 fiscal year last June 30 with a budget deficit of close to $5 million. Oberlin, like its peer schools, found itself asking some agonizing questions. Should the College violate its rules on endowment spending, perhaps at the expense of future generations of students? Increase student enrollment and tuition at the expense of exceptional classroom instruction? Reduce financial aid packages at the expense of a diverse and inclusive student body? Resort to layoffs and staff cutbacks? Of the few options on the table at any college, none has been universally popular.

"Fortunately, we've been a little bit ahead of the curve," Evans says. "We have a president who believes that if she sees a problem, she wants to address it--immediately."

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