Last week I wrote about how the ongoing financial crisis makes it unlikely that Congress will impose mandatory spending requirements on universities and colleges, at least for now. As a political matter, the passage of mandatory spending requirements depends in part on how tuition has increased even as endowments have ballooned. This year, however, endowments are not going to earn impressive returns.
Endowment growth also depends on new gifts, so educational institutions can compensate for decreased yield with aggressive fund-raising. But yesterday’s New York Times contains evidence that gifts are already drying up, as the “financial straits of big boosters hit athletic departments.” I won’t lose any sleep over a university’s inability to “remake its facilities into a Shangri-La for . . . sports, complete with an indoor practice center and new facilities for baseball, equestrian, soccer, tennis, and track and field.” But this is an initial sign of the fund-raising difficulties that universities will face in the upcoming months. With lower (negative?) returns and decreased giving, endowment growth will be down, perhaps dramatically so. This makes the case for mandatory spending requirements all the more difficult.
Of course, it is also true that the financial downturn and the tightening of credit markets will increase the burden of paying for a college education. Therefore Congressional calls to increase voluntary spending are likely to continue, particularly for the nation’s wealthiest colleges and universities.