NU unveils sweeping financial changes to cope with recession

An analysis of the actions taken by Northwestern University to handle the financial crisis, published on North by Northwestern in February 2009. Click on the link for the original article and accompanying graphics.

Next school year, Northwestern undergraduates will see a 10 percent increase in financial aid, and the lowest percentage increase in tuition in more than 40 years.

But all academic and administrative departments at Northwestern will have to cut 3 percent of their operating budgets — excluding salaries — as the university copes with “significant financial challenges as a result of the worldwide recession,” such as the 24 percent decline in its endowment since last April.

These changes, which the university announced early Wednesday morning via press release and a letter from University President Henry Bienen to the Northwestern community, come as part of the university’s financial plan for the ‘09-’10 school year.

In a Feb. 21 meeting, Northwestern’s Board of Trustees approved a 3.6 percent tuition increase — from $36,756 to $38,088 — for next school year, which is the lowest percentage increase since 1967, “when Northwestern did not raise tuition,” according to a university statement.

Compared to similar universities, “We’re sort of in the middle of where the tuition increases have been,” Vice President for University Relations Al Cubbage said. “Other universities are a little bit lower, other universities are a little bit higher.”

Room and board will also increase by 3.6 percent, from $11,294 to $11,703 for an undergraduate student living in a double room with a 19-meals-per-week plan. The undergraduate student athletic fee will increase by $4 to reach $37.

Graduate tuition increased 3.6 percent to reach $38,088 as well. Kellogg School of Management and Law School tuitions are to be finalized later this year, while Feinberg School of Medicine students will have to pay $42,974, a 2.5 percent increase.

Financial aid increases

Scholarship funds available for undergraduate students will increase from $78 million to $86 million next school year — a 10 percent increase.

The extra $8 million reflects of the needs of the undergraduate student population in the current economic climate, Cubbage said.

“The university took that action because it recognizes it is quite likely to be an increase in need for financial aid next year.” he said. “The number of students who are applying for financial aid has increased, and we also anticipate that it is likely that current students’ need for financial aid will increase.”

Cubbage added that this was a rare instance of the percentage financial aid increase far exceeding that of tuition.

“Historically, what has occurred is that financial aid goes up at the same rate as the tuition increase goes up, sometimes a little bit more,” he said. “It is very unusual for it to go up nearly triple the rate that tuition goes up.”

In his letter to the Northwestern community, President Bienen pledged that the university would preserve its need-blind admissions policy for U.S. citizens and permanent residents.

“At a time when many Northwestern families are facing their own economic pressures, we […] will maintain our longstanding commitments to need-blind admissions and meeting the full financial need of our undergraduate students,” he wrote.

Although Cubbage said there was a possibility that more high school students admitted to the class of 2013 would decide to attend Northwestern because of the extra available financial aid, Bienen said in his letter that this wouldn’t lead to a larger student population.

“Applications for admission are up in almost all undergraduate, graduate and professional schools — but that isn’t likely to translate into additional tuition revenue,” he said. “We simply do not have the capacity in most of our programs to add students, nor do we want to do so, as it would change the nature of a Northwestern education.”

University-wide cutbacks

Easing financial burdens for students isn’t without consequence for the university.

Bienen warned in his letter that there would be “a need for sacrifices” to sustain financial aid and faculty and staff salaries, and outlined the different aspects of university life that would be affected.

All academic and administrative departments will be required to cut 3 percent of their operating budgets for the next school year, excluding salaries. But this cut will actually be more significant than it seems, Bienen wrote.

“These areas normally receive a 2 percent increase annually, so the reduction will essentially mean a 5 percent cut in operating expenses for next year,” Bienen wrote.

“With a goal of adding to the budget as little as possible and only in those areas deemed critical to the University,” Bienen wrote, funds for salary increases will also be limited, and requests for incremental resources will be met with strong scrutiny.

Bienen added that budget cuts would also delay “several large construction projects totaling about $90 million.” According to Cubbage, parts of the Campus Framework plan will be affected, but the university hadn’t yet finalized which building projects would be postponed.

Any new programs, including projects proposed by student leaders, will also have a harder time finding university funding. The university recently withdrew funding for a six-figure winter speaker event in part due to financial constraints.

“Any requests for increases are going to be scrutinized,” Cubbage said. “Wherever there is an opportunity to realize savings of some kind, I think the university will try and take advantage of it.”

Keeping a positive outlook

Bienen remained optimistic about the university’s ability to weather the current economic storm.

“Like all institutions, Northwestern faces significant financial challenges as a result of the worldwide recession now under way. I am pleased to report, however, that as a result of the University’s historically prudent fiscal management, we enter this period in a relatively strong financial position,” he wrote. “I also believe that the financial plan that has been developed will enable Northwestern to not just survive, but to thrive, despite these challenging conditions.”

But Bienen noted that the university’s endowment has declined at an alarming rate since last spring.

“Our endowment, which reached a high point of $7.4 billion in April 2008, now stands at approximately $5.6 billion, a 24 percent decline,” he said. “There are no signs of a quick recovery; indeed, it is likely that our endowment will decline even more.”

“Because of the recent dramatic decrease in the value of the endowment, we are not increasing the amount that will be drawn from the endowment next year,” Bienen added. “That means we will face a tighter budget in the short term, but this will help preserve our endowment principal for the long term.”

Bienen also noted that contributions from alumni could decrease as a direct result of the recession.

“We do not expect our fundraising efforts to result in the level of success we’ve experienced in recent years,” he said. “Philanthropy is declining across the country; at Northwestern it has declined slightly in the first half of our fiscal year. Our hope is that our supporters will continue to make the University a priority during this period.”

Although the university’s efforts to limit spending for the upcoming year might curb damages to its finances, the possibility of a long-lasting recession could make the situation more difficult for Northwestern.

“If the current recession worsens or continues for several years, then it obviously will put increased financial pressure on not just Northwestern, but all universities,” Cubbage said.

Bienen wrote that he was confident in the university’s ability to remain financially healthy. The budget’s relative independence from the endowment compared to other schools may prove helpful in the years to come.

“We’re somewhat fortunate because our endowment contributes less to our overall operating budget than is the case for some of our peers,” he wrote. “At Northwestern, only about 18 percent of our operating budget is funded by endowment earnings. By contrast, some peer universities rely on their endowments for upwards of 50 percent of their budgets.”

“At a time when endowments are plunging in value and earnings dropping precipitously, the fact that we’re less dependent on the endowment for funding day-to-day operating expenses has actually made things more manageable,” Bienen added.

Bienen also advised putting the present crisis in perspective and not worrying too much for Northwestern’s future.

“In its 158-year history, Northwestern University has weathered some very difficult economic times,” he wrote. “Through all of those times, the University has remained a citadel of teaching, research and scholarship. With prudent financial management and your assistance, I am confident that Northwestern will continue to be a leader in the academic community and a financially secure institution.”


Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s