York area higher ed preps for financial aid surge, investment hits
With colleges and universities in southcentral Pennsylvania beginning to see endowment losses, a surge in financial aid requests could put them in a difficult position to manage the upswing.
Universities are seeing crushing blows to their endowments as a declining economy resulting from the coronavirus pandemic takes its toll on stocks and investments.
Already, some institutions have seen significant changes to their endowments locally, such as Millersville University, which year to date through March 31 saw a decline in its investments of about 15% to $38.5 million.
Donors faced with their own financial burdens could be hesitant to give, said Leslie Folmer Clinton, president and CEO of the Shippensburg University Foundation.
“Unless we get more donors or new donors in the pipeline, we're not going to be able to deal with that on an immediate basis,” said Clinton, whose foundation manages the university's endowments.
Elsewhere in Pennsylvania, Bucknell University saw a loss of $150 million, according to reporting from The Associated Press.
“As I am sure that you can imagine, the recent and rapid deterioration in the financial markets in response to the COVID-19 outbreak has had an impact on the investment portfolio," said Millersville foundation president Joseph Garner, in a letter to donors.
However, university officials say they are protected in the short term based on post-recession investment strategies and prior-year market values.
In Penn State York, Shippensburg and Millersville, yearly endowment spending is based on three-year or five-year market value averages, meaning this year's payouts will not be affected by the current market downfall.
York College declined to comment on its investments and finances.
"Endowments are a source of stability,” said Brian Flahaven, senior director of advocacy for the Council for Advancement and Support of Education, a global nonprofit to which Penn State and hundreds of other universities belong.
So if college officials do not spend too much when times are good, they won’t have to cut spending right away when markets are down, he said.
According to the National Association of College Universities and Business Officials, 74% of institutions are spending a percentage of a moving average of endowment market value.
Penn State York is doubly protected, as it can draw from a local endowment of about $20 million and a Penn State University investment pool — which as of June 30 was about $4.47 billion.
"The nice thing about being part of Penn State University is we locally don’t have to worry about how to invest our dollars," said Chancellor David Christensen, noting that those investments are distributed equally among all universities in the system.
How much a school will be affected financially also depends on the types of endowments it has, Flahaven said.
Large, private universities with larger endowments tend to be more diversified, but those with smaller endowments are probably not relying on them as much for revenue, he said.
Garner said his portfolio's diversification and a recent decision to hold a "higher-than-normal" cash allocation helped put Millersville's losses ahead of the U.S. equities' calendar year-to-date decline of 19.6%.
With investment strategies in place since the Great Recession, some officials say they feel prepared for this year's economic downturn.
Penn State York's endowment had grown 15% in the last year, leaving it in a good place, before investments were hit. And Penn State University officials said today's economy is a similar situation to what they saw with the recession in 2008.
"Based on that volatile market, we now have actual 'real-time' experience in dealing with these issues," said David Branigan, CEO for PSU's office of investment management, in a statement.
With a highly-diversified portfolio, spending that is calculated prospectively by about a year and a "smoothing mechanism" using a five-year average, there's no need to adjust spending yet, he said.
"Such a move would be premature," he added.
But it is the first time anyone has seen an economic downturn of this size attached to a pandemic, and all acknowledge that there's no knowing what the long-term repercussions could be.
Financial stability is a growing concern among families and universities, said Arun Ponnusamy, chief academic officer for Collegewise, a Washington, D.C.-based college counseling service.
"As colleges struggle to make ends meet, it will make it harder for them to offer financial aid,” said David Coleman, CEO of The College Board.
A large chunk of endowment dollars are already restricted for scholarships at Penn State York, Millersville and Shippensburg.
But in anticipation of more requests for aid, it's important to be "very strategic" in student funding, Penn State York's Christiansen said.
Millersville has a foundation spending policy in place since 2010 following the recession to address extreme changes and lessen the effect on spendable income, so officials do not predict student aid will be affected much this year, said associate vice president for advancement, Alice McMurry, in an email.
And despite concerns about donors, Shippensburg's Clinton said in the foundation's 2008-2009 year, it had the largest funding campaign in its history.
"You can still raise money in a recession," she said.