January 14, 2009

With Endowments in Decline, Elite Universities Go to the Bond Market to Make Up

Some elite colleges are selling bonds to make up for losses their endowments have suffered in recent months, the Bloomberg news service reported today.

Princeton University has sold $1-billion of debt, while Harvard University has sold $1.5-billion. The bonds allow the colleges to raise money while hanging on to investments, like real estate, that they expect will recover in value, Bloomberg said. Sharply falling endowments have reduced the money available to finance university operations on many campuses.

Wealthy institutions like Harvard and Princeton, with their AAA bond ratings, are safe bets for investors, experts said. Bloomberg determined that that Princeton had sold 10-year 4.95-percent notes and 30-year 5.7-percent bonds.

Princeton’s endowment may fall by as much as 25 percent by the end of the fiscal year, Princeton’s president said last week. “We wanted to make sure that if it does reach that minus 25, that we’re completely prepared and can continue to sustain our strategic priorities,” Carolyn Ainslie, Princeton’s treasurer, told Bloomberg. “We want to make sure we don’t have to take draconian actions in terms of our operations.” —Scott Carlson

Comments

1. One thing to watch is whether Princeton can sustain its “no loan” financial aid commitment. This ought to put some severe strain on that commitment. Excessive loan burden is a problem, but completely eliminating loans (rather than, say, setting reasonable limits) is very costly and not necessarily the best use of resources.

   — Alex    Jan 14, 01:42 PM    #

2. Alex –

   Princeton has so much money dedicated to undergraduate financial aid that it should have no problem maintaining the no-loan policy. Other schools that have adopted similar policies may be in trouble, but Princeton almost certainly isn’t.

   — CU Alum    Jan 14, 02:22 PM    #

3. CU Alum – If you read up on Princeton’s very successful alumni fundraising, you would know that they consider your ability to contribute in admissions. PU certainly has a lot of money for aid; but, they deploy it with an eye to economic recovery. They are not need blind in practice.

   — Stately    Jan 14, 04:31 PM    #

4. I think these guys are whistling in the dark. America has been living on credit cards too long. We cannot sell stocks at ever increasing prices while we are making nothing. We cannot sustain this economic surge based on taking in each other’s laundry.
   What Princeton and others are doing is bridging the gap not setting a long term economic strategy. They desperately need funds to get through next year or two or three then they will decide what to really do about the economic rubble we find ourselves. And make no mistake about it high flying spend at will universities will not be immune to the crash we have in the making.
   obama may be able to slow it down by printing a trillion or two dollars but that too will prove to be short term like Princeton’s.
   Good luck Princeston and Yale etc

   — Fred    Jan 14, 04:58 PM    #

5. So colleges are planning to use long-term debt financing to raise funds to finance operating budget expenses, like financial aid. Using long-term debt to finance short-term needs is not only bad financial practice but it may not even be possible unless these are taxable bonds

   — gfcr    Jan 14, 05:26 PM    #

Previous: Montana Governor Presses Universities on Pork-Barrel Spending
Next: U. of the District of Columbia Creates Community-College Division