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TCU prepared for economic realities

The worldwide financial turmoil has created unprecedented challenges for TCU and all of higher education. So we headed to Sadler Hall for answers to some pressing questions.

TCU prepared for economic realities

TCU prepared for economic realities

The worldwide financial turmoil has created unprecedented challenges for TCU and all of higher education. So we headed to Sadler Hall for answers to some pressing questions.

What is TCU’s greatest threat in this difficult economic climate?

Chancellor Boschini: Fortunately TCU’s long history of fiscal responsibility and strong financial management has put us in a better position than many to weather the storm. I want to assure everyone connected to the TCU community that in spite of the current economic climate, we remain committed to building a world-class, values-centered university experience. We have been steadfast in our desire to keep this university’s doors open to those who can benefit the most from a TCU education, regardless of financial circumstance. During the current academic year, more than 5,000 TCU students will receive some form of financial assistance from the university. More than $51 million of that total comes directly from TCU-funded financial aid programs.

Brian Gutierrez: The unpredictability of the coming months is what is most troubling. There are so many new dynamics that are at play associated with the market turbulence. The challenges require us to be more thoughtful about the decisions we make in an environment such as this. Even so, there is plenty to be excited about. Being located in Fort Worth, we have the advantage of being in an economy that has been significantly sustained by natural gas production through the Barnett Shale, coupled with being in a real estate market that has been more realistically priced. Those factors, along with the growth in applications and enthusiasm by prospective students, have given us a pretty good wind in our sails as we navigate forward through the national economic downturn, and we hope enough momentum to pull us through it without being as negatively affected as other institutions around the country.

How prepared was TCU for the current economic crisis? And what steps were taken to weather the storm?

Gutierrez: We laid some groundwork early on and that’s been paying off for us. A few years ago, TCU joined a consortium of institutions to find a way to drive down the health insurance costs and premiums. That effort took close to three years to reap the benefits. We’re still seeing increases in health care costs but they are at a lesser rate relative to what’s happening in the marketplace. With respect to energy, about 2½ years ago, we saw the potential for increases in costs and felt compelled to lock in prices for a five-year period. So we did not feel the impact of rising energy prices for electricity. With energy prices dipping a bit, we’re looking to see if we can extend that contract. It is also important to note that our new buildings and renovated buildings are coming online with much improved energy efficiencies. I salute the efforts of the Physical Plant to continue to develop energy-saving opportunities. One example of the many I could offer relates to our efforts to move some of our electricity demand to off-peak hours. This is accomplished by making ice at night when energy rates are lower. We then use the ice to chill the water to cool the buildings during the day. Lastly, we have tightened up our discretionary spending, reducing our goods and services expenses by about 8 percent across the university during the budget planning for Fiscal 2010.

Jim Hille: Last summer, before the economic downturn, the endowment was earning a 5.1-percent return, which was rated No. 1 in performance among similar-sized universities. The national Standard and Poor’s 500 Index lost 13.1 percent for the same period. Ninety-three percent of universities were lower than that. We were one of the best performing endowments last year. Since May 2006, the endowment’s assets have increased 25 percent. So we had a good deal of momentum before the downturn. But we expect the endowment market value will fall and there’s almost no way of avoiding that. We’re working to mitigate the effects, and we obviously monitor that daily.

How much will TCU draw from the endowment during the crisis?

Hille: Through the first six months of 2008, the endowment’s growth roughly equaled its annual payout rate of 5 percent. (The average spending rate nationally for college endowments in 2007 was 4.6 percent). The payout amount — the dollar amount the endowment contributes to the university’s annual operating budget — in the coming year will be at least as much as last year. But I want to emphasize that the actual payout rate will probably go up as the endowment’s market value falls. In order to get us through this tough time, we’ll maintain the level of payout. We’re doing that in order to make sure that we buffer what’s going on in the general economy. A sustainable payout rate is about 5 percent of the endowment’s market value each year and this is what TCU’s payout rate has been. This will likely rise to more than 6 percent next year as the actual dollar amount paid out is maintained.

Related story: Faces of Financial Aid

With more students needing and seeking aid, how has TCU adjusted how it awards financial aid and scholarships?

Mike Scott: It’s definitely becoming more complicated. Applications for financial aid in the freshmen class alone have increased by 57 percent to date. Our challenge is to use the resources we have to help as many students as possible. We have to balance the needs of the current student body, in order to maintain retention goals, with the demands of helping the admission bring in a new freshmen class. We will administer $150 million in financial aid this year including scholarships, grants and loans. Much of it comes directly from the university, which is increasing institutionally funded financial aid to $73 million this year, in part to help students affected by the economic downturn. The university also set aside $350,000 to help students who have been most affected by the situation.

The majority of TCU students — about 75 percent — get some form of financial aid during their four years on campus — from scholarships to loans to work-study jobs. We’ve always increased the financial aid budget by at least the same percentage that tuition is increased — usually even more than that. We recognize, however, that the dollar gap continues to get bigger and bigger. It is becoming more and more difficult for families to make up that difference.

The Board of Trustees voted to increase tuition by 5 percent to $28,250 for the 2009-2010 academic year. What was the rationale behind that decision?

Gutierrez: We wanted to be sensitive to what was going on with families given the economic climate. We have a number of strategic initiatives to which we’re committed, but we felt that by trimming expenditures, limiting discretionary spending and providing more financial aid, we could manage our strategic initiatives with an increase of 5 percent. The budget planning process has always looked carefully at the balance between financial aid and tuition. About 1½ years ago, the chancellor’s cabinet, in setting budget parameters for Fiscal 2009, determined that increasing financial aid substantially would be an important strategic step given the economic conditions we could see coming. Fiscal 2009 financial aid was increased 18 percent to $73 million. This year we added 5½ percent more to the financial aid budget for an overall financial aid budget of $77 million. That commitment to financial aid represents approximately 21 percent of the university budget. Our desire is to make sure we have sufficient financial aid for our students. From what we see, we think what we’ve provided is adequate given the market conditions, but that could change. We saw an uptick in enrollment in Fall 2008 and again in Spring 2009 and that’s positive. It demonstrates the demand for a TCU education is strong and the balance of financial aid and tuition price are finding equilibrium.

Will TCU have to cut back on its planned growth or trim its expectations for the near future?

Boschini: Even with the modest tuition increase, we have to reduce travel, goods and services expenses by 8 percent to make the budget work. And we will also need to conserve our use of energy, go paperless wherever possible and reduce expenses every other way we can. All of this will result in no reduction of faculty and staff and still will enable a modest increase in the merit compensation pool of 3 percent for faculty and staff.

Is TCU seeing negative affects in recruiting or retaining students?

Scott: Actually, it’s been quite the opposite. Our freshmen retention from fall to spring increased by 2 percentage points this year. That would be noteworthy in a good year, so it’s certainly encouraging in the middle of an economic downturn, Dean Ray Brown says that admissions numbers show that we are a little behind where we were last year in applications, but we are ahead in deposits, which is really good news. He and the admission staff have done an absolutely incredible job this year.

Of course, as competition increases for students, the amount of money schools have to put in financial aid starts creeping up. It’s a two-edge sword — putting more money into financial aid is a good thing in one way, but it can also have a negative impact. Every dollar you put into financial aid is a dollar you can’t use for something else like hiring new faculty, remodeling classrooms or buying electron microscopes. What schools are finding increasingly difficult is balancing sufficient resources in financial aid to recruit and retain the students they want and also provide the services these students demand. That’s the big balancing act that’s so difficult to pull off year after year and stay competitive. If one of your competitors says, ‘We’re willing to sacrifice in one of these areas in order to improve in another,’ then that changes the balance of how your aid packages compare to those at other schools. We’re still seeing families and students from all walks of life and situations, from dad having heart surgery to families whose homes were destroyed by a hurricane. It’s our job to work with them individually. It’s not uncommon for our counselors to have a family come in and say, ‘I just found out I’m admitted and I have no idea how to pay for this.’ Middle income families usually feel the biggest squeeze because they typically earn too much to qualify for need-based grants and loans. On the other hand, some families who don’t qualify for help at lower-cost state schools, can actually get more financial aid at private schools, like TCU. The higher the cost of the school, the greater the chances you’re eligible for financial aid. You don’t really know what you’ll actually pay to attend college until you apply for financial aid and let us take a look and see if you’re eligible.

It’s difficult to make accurate predictions of what lies ahead, but what’s the best guess for TCU’s near-term forecast?

Boschini: For the foreseeable future, the trustees approved raising the effective payout rate of the endowment modestly in order to assist us in dealing with increasing expenses. The well-being of our students, faculty, and staff in this uncertain economic climate comes first. So I also want to assure you that cabinet and trustees seriously analyzed a multitude of scenarios involving our tuition for 2009-2010. It quickly became apparent with significant anticipated increases that we cannot control in utilities, in needed technology replacements, in campus repairs, in fulfilling federally mandated increases in minimum wage, and for many other increases, that a tuition increase of 5 percent was appropriate. We believe from what we know now that we have put together the most balanced approach we can to moving TCU ahead in uncertain times. With all of us working together, we can make it work.

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