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Tough times put the squeeze on colleges

With family investments and house values battered by the financial crisis, colleges and universities in California and around the nation are seeing an increase in students seeking financial aid and are bracing for even more.

At the same time, higher education's ability to meet that extra need is in question because the value of many college endowments has dropped as well, experts say.

"It's putting more demands on the system when the system can least afford the new demands economically," said Phil Day, president of the National Assn. of Student Financial Aid Administrators. "It's going to be tight."

Nationwide, applications for financial aid jumped 16% this fall compared to last year, said Day, a former chancellor of the City College of San Francisco. And that figure probably will rise again in the spring and next fall if Wall Street does not bounce back from its recent losses, he said.

Some schools may need to cut back on other spending to fund extra scholarships, Day predicted. "What's more important than making sure the students have access?" he asked.

Whittier College, Stanford University, Santa Clara University and many University of California campuses are among schools that have recently seen additional students asking for extra aid, officials said. They and others are expecting even more if the economy worsens.

"Like every individual American and every corporation, colleges are concerned about what is happening in the economy. We are well aware it might affect our enrollments," said Lisa Meyer, Whittier's vice president for enrollment.

Meyer said her office is increasing grants and boosting staffing to help students find loans if their families' college savings accounts have been hit by Wall Street losses or if they can no longer borrow against their homes.

But she said that Whittier, which enrolls about 1,300 students, cannot afford to meet all of the new need with grants. "There are fiscal realities we have to live within," she said. Whittier's relatively modest endowment was about $80 million on June 30, and officials there and at many other schools are awaiting figures on their portfolios' current, presumably lower, values.

Stanford University, which enrolls about 15,000 undergraduate and graduate students, had a $17-billion endowment on June 30. That allowed Stanford this year to expand its undergraduate financial aid to offer free tuition to most students from families earning less than $100,000 a year. It joined a small number of affluent schools giving such breaks to students from middle- and lower-income families.

In recent weeks, Stanford also has seen a hike in requests for additional help and anticipates more appeals when tuition bills are sent out for the winter quarter, said Karen Cooper, director of financial aid. "Some families are being impacted by the economy. We have examples of parents who have been laid off, small-business owners facing difficulties. All that is going on," she said.

John Etchemendy, Stanford's provost, said any decline in the university's endowment would not alter the new aid plan. "Earlier this year, we made the largest financial aid increase in our history because we knew that lower- and middle-income families were already facing serious financial pressures," Etchemendy said in a statement.

Before taking steps to reduce financial aid, schools will probably first postpone new construction and stop hiring faculty, several experts said. Boston University, for example, has announced a construction and hiring freeze, and other schools may follow suit if the situation does not improve.

"Is everybody worried about return on endowments with the market down so heavily? And are we worried that philanthropic giving will be diminished? Sure," said Molly Broad, the president of the American Council on Education, the research and lobbying organization for higher education.

But she said: "Financial aid is the last place I could imagine they would cut back."

In recent years, universities with significant endowments have faced pressure from Congress to spend more of the investment returns on scholarships or risk jeopardizing their tax-exempt status.

Another concern this fall is that some financially stressed families may push current high school seniors to apply only to community colleges, which cost less than four-year public or private schools.

"We are sure that's going on," said Nancy Coolidge, the University of California's systemwide coordinator of student financial support. In response, she said, UC would work hard to encourage students to apply for both admission and financial aid, and she predicted that many would be pleasantly surprised to learn how much aid was available.

Several experts said steps taken by Congress this year to bolster the student loan market had succeeded in most cases in providing financing. Families that previously tapped home equity lines of credit are turning in higher numbers to federally backed student or parent loans, schools report. Some concerns persist about loan availability next year if the banking system remains unstable.

Santa Clara University in Northern California has had a small increase in students seeking extra financial aid, but no one is in jeopardy of dropping out because of money worries, officials said.

If the financial crisis continues into next year and layoffs rise, requests for aid will probably increase, and the university will try its best to accommodate the need, said Richard Toomey, associate vice provost for enrollment management.

Santa Clara, which had a $697-million endowment in June, is among many schools using formulas that average their endowment returns over three years.

That "evens out the hits and misses," Toomey said, and allows schools to maintain financial aid and other programs in bad years.

In Claremont, Pomona College had, as of June 30, $1.79 billion in its endowment, a very large amount for a school that enrolls 1,520 students.

Karen Sisson, Pomona's vice president and treasurer, said that a dip in the endowment's value would not lead the college to reduce aid. Pomona this year replaced student loans with grants.

"One of the blessings we have with our endowment is we do have the capacity to weather the storm," she said.

At Northeastern University in Boston, about 10% more students than last year have asked for additional midyear aid, according to Anthony Erwin, financial aid director.

His office also is fielding calls from parents asking "what if" questions about whether reduced investment values could make them eligible for more aid. So far, the university has been able to meet all legitimate needs.

"I think all of us in higher education are watching the financial markets and how families are going to react," said Ronne Turner, Northeastern's dean of admission.

If the crisis had begun two months earlier, some colleges might have lost freshman enrollment, said Sarah Flanagan, vice president for policy development at the National Assn. of Independent Colleges and Universities.

For now, she has not heard such stories, but "there is a lot of nervousness out there," she said.

larry.gordon@latimes.com

Copyright © 2014, Los Angeles Times
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