Harvard Has Funds To Raise Student Aid

The numbers say it all.

In the past three weeks, Princeton, Stanford and Yale Universities have each unveiled financial aid overhauls which will give many of their students thousands of dollars more per year.

The world's richest university has watched this revolution and not even suggested similar reforms to its own system. One thing is clear, however: Harvard can pay.

Harvard's own data shows the University could afford significant financial aid increases without taking a dollar from any existing programs--simply by drawing on the natural growth of the University's ballooning endowment.

Would increasing aid mean an enormous jump in tuition costs or an incredible drain on Harvard's multibillion-dollar endowment?

The numbers say no. To match its peers, Harvard would have to spend money from its endowment at a rate no larger than its traditional average.

In fact, Harvard could give aid to middle-and lower-income students on the scale of its peers using money already earmarked for financial aid.

The percent of endowment money spent in a given year is called the payout percentage. Over the last 20 years, Harvard payout has hovered around a 4.8 percent.

In recent years, however, total spending has remained constant while the endowment has exploded, making Harvard's payout 3.9 percent in FY '97 and 3.7 percent in 1998.

Merely by restoring the payout to its traditional level, Harvard could tap into its financial good fortune and pass the savings on to its students.

The reforms announced by Princeton last month,which will reduce loans and family contributionsfor many needy students, is projected to cost theschool an additional $6 million per year, anaverage of around $1300 per student.

Yale's changes will affect the entire studentbody and reduce both summer job requirements andfamily contributions. Total cost: $3.5 millionannually, about $650 per student.

Stanford's financial aid reforms will reducefamily contributions and apply outsidescholarships towards erasing loans and work-study,changes estimated to cost the school an extra $3.8million next year, or around $600 per student.

Can Harvard enter this higher education pricewar for America's middle class?

Again, the numbers say yes.

If the University would restore its payout to4.5 percent of the endowment next year, it coulddraw an additional $6.25 million from fundsrestricted to use for undergraduate financial aid.Of FAS's annual payout, 15 percent is specificallyreserved for financial aid.

This would come to an additional $943 perstudent, more than Stanford or Yale and far closerto Princeton's very ambitious package than undercurrent policies.

But according to administrators, students areunlikely to see significant increase in aid fromendowment funds in the near future.

The Layout and the Payout

According to the University's financial reportto the Board of Overseers--released lastNovember--and Dean of the Faculty of Arts andSciences (FAS) Jeremy R. Knowles' recent budgetletter, two-thirds of undergraduate financial aidfunding comes from the FAS endowment.

FAS's share is currently $4.7 billion of theUniversity's total $11.2 billion dollar nest egg.

As Harvard's coffers have swelled with theUniversity's capital campaign and the bull market,the dollar value of the 15 percent set aside forundergraduate financial aid has continued to grow.

But while Harvard's invested funds havefattened, the percentage payout of its endowmenthas not.

Last year alone, total endowment worth grewnearly 25 percent, a net gain of more than $2billion that far out-stripped the 7 percent rateof growth in the payout.

If markets continue to rise, the only way toreach a 4.5 percentage payout will be to increasethe actual sum extracted from the endowment at afar faster rate commensurate with the endowment'srapid growth.

Despite recent market growth, the University'scurrent plans for payout remain conservative.

Endowment payout has been set to rise 7 percentfor this year, FY '98, and 8 percent for the yearafter, according to Knowles' budget letter.

This means payout will rise from $161 millionto $172 million for this fiscal year and $186million in FY '99--not including additions fromthe capital campaign.

The bottom line? If the University sticks to aannual payout increase around 7 percent, Harvard'sfinancial gains will mean $2 million more forundergraduate aid each year for the near future.

Realizing Potential

But these millions could only be the tip of theiceberg for financial aid growth.

Were Harvard to bring payout to 4.5 percentnext year--a level even more conservative than the20-year average--funds earmarked for financial aidincome would increase roughly $8 million dollarsnext year, or more than $6 million more than undercurrent plans.

That increase would be enough to roughly matchthe amount Princeton, Yale or Stanford will spendon their students next year, without taking moneyfrom any other program or forcing FAS to pump infunds not already restricted to use for aid.

So What's the Catch?

The numbers work in principle, but it takesmore than numbers to pry open Harvard's burgeoningwallet.

According to Ann E. Berman, associate dean offinance for FAS, the probability that Harvard'sgoverning body, the Corporation, will revise itsplans to call for a 4.5 percent payout next yearis "almost nil."

"It's just not a prudent policy," she said.

University Vice President for Finance ElizabethC. "Beppie" Huidekoper, said the University willalways be cautious about enormous surges in payoutbecause its first priority is keeping itsmulti-billion nest egg intact for posterity.

"When one gives to the endowment, you aretrusting Harvard to manage those resources so thatthey will generate adequate funding to keep theactivity that you are giving for funded inperpetuity," Huidekoper said.

She said even in a strongly bullish market, theUniversity's financial policies must remainflexible for any possibility.

"If the market went up by 25 percent, we don'twant the payout to go up by 25 percent the nextyear because the next year, the market might godown by 25 percent, and then you have to takemoney away," she said. "You want to have steadyincreases in payout for operations."

Knowles conceded the College may make moreefforts to reduce student costs if the endowmentgrowth continues at its fast pace.

"If more funds become available, it iscertainly possible that some will go towardsfinancial aid," he said

The reforms announced by Princeton last month,which will reduce loans and family contributionsfor many needy students, is projected to cost theschool an additional $6 million per year, anaverage of around $1300 per student.

Yale's changes will affect the entire studentbody and reduce both summer job requirements andfamily contributions. Total cost: $3.5 millionannually, about $650 per student.

Stanford's financial aid reforms will reducefamily contributions and apply outsidescholarships towards erasing loans and work-study,changes estimated to cost the school an extra $3.8million next year, or around $600 per student.

Can Harvard enter this higher education pricewar for America's middle class?

Again, the numbers say yes.

If the University would restore its payout to4.5 percent of the endowment next year, it coulddraw an additional $6.25 million from fundsrestricted to use for undergraduate financial aid.Of FAS's annual payout, 15 percent is specificallyreserved for financial aid.

This would come to an additional $943 perstudent, more than Stanford or Yale and far closerto Princeton's very ambitious package than undercurrent policies.

But according to administrators, students areunlikely to see significant increase in aid fromendowment funds in the near future.

The Layout and the Payout

According to the University's financial reportto the Board of Overseers--released lastNovember--and Dean of the Faculty of Arts andSciences (FAS) Jeremy R. Knowles' recent budgetletter, two-thirds of undergraduate financial aidfunding comes from the FAS endowment.

FAS's share is currently $4.7 billion of theUniversity's total $11.2 billion dollar nest egg.

As Harvard's coffers have swelled with theUniversity's capital campaign and the bull market,the dollar value of the 15 percent set aside forundergraduate financial aid has continued to grow.

But while Harvard's invested funds havefattened, the percentage payout of its endowmenthas not.

Last year alone, total endowment worth grewnearly 25 percent, a net gain of more than $2billion that far out-stripped the 7 percent rateof growth in the payout.

If markets continue to rise, the only way toreach a 4.5 percentage payout will be to increasethe actual sum extracted from the endowment at afar faster rate commensurate with the endowment'srapid growth.

Despite recent market growth, the University'scurrent plans for payout remain conservative.

Endowment payout has been set to rise 7 percentfor this year, FY '98, and 8 percent for the yearafter, according to Knowles' budget letter.

This means payout will rise from $161 millionto $172 million for this fiscal year and $186million in FY '99--not including additions fromthe capital campaign.

The bottom line? If the University sticks to aannual payout increase around 7 percent, Harvard'sfinancial gains will mean $2 million more forundergraduate aid each year for the near future.

Realizing Potential

But these millions could only be the tip of theiceberg for financial aid growth.

Were Harvard to bring payout to 4.5 percentnext year--a level even more conservative than the20-year average--funds earmarked for financial aidincome would increase roughly $8 million dollarsnext year, or more than $6 million more than undercurrent plans.

That increase would be enough to roughly matchthe amount Princeton, Yale or Stanford will spendon their students next year, without taking moneyfrom any other program or forcing FAS to pump infunds not already restricted to use for aid.

So What's the Catch?

The numbers work in principle, but it takesmore than numbers to pry open Harvard's burgeoningwallet.

According to Ann E. Berman, associate dean offinance for FAS, the probability that Harvard'sgoverning body, the Corporation, will revise itsplans to call for a 4.5 percent payout next yearis "almost nil."

"It's just not a prudent policy," she said.

University Vice President for Finance ElizabethC. "Beppie" Huidekoper, said the University willalways be cautious about enormous surges in payoutbecause its first priority is keeping itsmulti-billion nest egg intact for posterity.

"When one gives to the endowment, you aretrusting Harvard to manage those resources so thatthey will generate adequate funding to keep theactivity that you are giving for funded inperpetuity," Huidekoper said.

She said even in a strongly bullish market, theUniversity's financial policies must remainflexible for any possibility.

"If the market went up by 25 percent, we don'twant the payout to go up by 25 percent the nextyear because the next year, the market might godown by 25 percent, and then you have to takemoney away," she said. "You want to have steadyincreases in payout for operations."

Knowles conceded the College may make moreefforts to reduce student costs if the endowmentgrowth continues at its fast pace.

"If more funds become available, it iscertainly possible that some will go towardsfinancial aid," he said