At just under $500 million, Haverford’s endowment is approximately a quarter the size of rival Swarthmore’s and about 60% of Bryn Mawr’s. It is often a point of pride among students that Haverford is able to remain competitive with these institutions despite its lesser resources, but unbeknownst to many, Haverford has also been running an operating deficit for the last six years. This has put the college in a precarious financial position, and major changes need to be made to ensure the College’s current financial predicament does not cause long-term damage to the school, according to Haverford’s president Kim Benston.
On May 2 at 7 p.m. in the Bryn Mawr Room of the Dining Center, the College will hold an open meeting to discuss potential plans to put the college back into financial equilibrium with hopes that the Board of Managers will vote on a plan during its next meeting on May 6. Benston said Board members are looking for student input and suggestions.
“We aren’t wedded to a particular answer,” he said. “We just want to retain what we are” and stay true to Haverford’s mission.
To reach financial equilibrium, Haverford must cut expenses or raise revenues until the two are in balance for the foreseeable future, according to Benston. There are four main areas of expense for the College–faculty and staff compensation; operations; debt service; and financial aid–and four main sources of revenue–tuition; endowment draw; gifts and grants; and auxiliaries, such as room and board fees. Benston stressed that Haverford is “extraordinarily blessed and privileged” and is not facing an existential question. However, because of the compounding nature of running an operating deficit, the problem needs to be addressed soon.
“It will become harder and harder to narrow the gap as time goes on, especially when money is taken out of the endowment,” said Mitchell Wein, Vice President of Finance and Chief Administrative Officer. “We want to ensure that, collectively, the institution is allocating its resources as well as possible.”
The main source of the College’s financial problems is the drop in the endowment caused by the 2008 recession. In just under a year, the College lost $100 million, or about 33%, of the endowment value, according to Jesse Lytle, Chief of Staff. Since between 20 and 25% of revenues come from the endowment draw, the College’s budget was significantly adversely affected. While some have questioned why Haverford cannot make up this money with gifts, Lytle pointed out that on a per-alumnus basis, Haverford already receives as much philanthropic support as any of its peers. Due to the much smaller and younger nature of the alumni pool, however, this has not been enough to alleviate the deficits.
At the same time, financial aid costs continue to rise. Financial aid is about 20% of the annual budget and about half the student body receives some aid. Over the last decade, the discount rate for the College, meaning the percentage of tuition revenue used for financial aid, has increased by over 50%. Haverford’s current discount rate is 42%; for every dollar of tuition and fees collected, $0.42 is spent on aid, according to Lytle.
Financial aid is particularly difficult to budget for under Haverford’s need-blind system. Because students are admitted without regard to their financial need and the College meets the full demonstrated need of domestic students, it is impossible to predict the financial aid expenses from year to year, according to Benston. The financial aid section of the budget is an educated guess, so if that year’s incoming class requires more aid than budgeted for, the College must compensate in other ways such as taking more money from the endowment or putting off necessary maintenance.
Over the past few years, Haverford’s focus has been on cutting expenses. Faculty and staff compensation, which accounts for approximately half of expenses, has been depressed. According to Wein, a number of the operating areas within the budget have not kept pace with inflation or even decreased, such as the utilities budget. He also pointed to several smaller changes made in an attempt to save money, such as the switch from Coke products to Pepsi. These problems are also why the College ended the short-lived “no loans policy” in 2014.
Haverford has also begun admitting more students each year. The class of 2020 will be five students larger than the class of 2019, which was the largest class in Haverford’s history. According to Jess Lord, Dean of Admissions and Financial Aid, a new faculty member will be hired to offset the growth in the number of students. According to the College’s report to the Middle States Commission on Higher Education, there are plans to grow the student body so there are 1225 students on campus at all times. Any growth beyond that would require large expenditures such as building new facilities and hiring more faculty to ensure the same quality of student life and academics for a larger student body.
The Board of Managers has tasked the administration with modelling “pathways to restore fiscal equilibrium” within four to five years, said Lytle. Because of the size and long-term nature of the operating deficit, however, continuing to make these smaller changes is not enough, said Benston. While the College will continue to try to maximize efficiency within its operating budget, deferring maintenance and depressing compensation are not long-term solutions.
“At a certain point, [compensation] becomes an ethical issue,” said Benston. “We need to care for those who are caring for the school.” He also noted compensation for faculty in particular must remain competitive with peer institutions so the College can attract and retain the best professors.
Several models have been brought forward to alleviate the operating deficit. Though many seem extreme, there are “very few [parts of the budget] big enough to have the impact needed,” said Benston. The final model will also likely blend parts from various suggestions.
One solution is to bring in 28 extra students per year until 2021 with no correlating increase in resources such as facilities expansion or staff and only one new faculty member. Because any solution must be in line with Haverford’s commitment to academic excellence and a strong student experience, this is not a feasible model, according to Benston. The same goes for severe cuts to operating budgets that would impact the basic running of departments, technology, and maintenance.
Another solution is a large increase to tuition. Though the College has raised tuition slightly most years, this would be an unprecedented jump. Benston said this model is also not practical on its own. “We’re mindful that family incomes, particularly middle class incomes, are not developing to keep up with such an increase,” he said.
The final model is to eliminate the need-blind admissions policy and move to a need-aware policy for part of the admissions process. According to Lytle, these solutions would not cut financial aid, but allow the College to create the financial aid budget in advance by capping the total amount of aid given. Based on past years, the administration estimates financial need would factor into about 5% of admissions decisions.
The process would work in tandem with the current admissions process, as described by Lord. The admissions department reads every application, then brings the strongest 10% of applicants to committee and drops the bottom 50% of applications. Once those decisions have been made, the admissions team brings the remaining 40% of applications to committee. They go through each one, admitting and denying students, and set aside a “maybe” pile. Under the new need-aware policy, after completing this second round, the admissions department would check in with the financial aid office and see how much money remains in the financial aid budget. This information would then factor into the last round of decisions for the maybe pile, which Lord estimates would be approximately 5% of applicants.
“We’re incredibly privileged [when it comes to the quality of our applicants],” said Lord. “We wouldn’t be admitting any students you would regard as weaker candidates or who aren’t a good fit.”
Benston stressed that no matter what the decision on need-blind financial aid is, Haverford’s policy of meeting full demonstrated need will not change. Lord added that the admissions department would continue to try to make incoming classes as socioeconomically diverse as possible. Many students have not reacted favorably to this proposal, however.
The final decision about which, if any, of these models to pursue is in the hands of the Board, but one important part of these considerations is community input. “[If we implement these changes] are we going to be here and be recognizable as Haverford? That’s the discussion we need to be having,” said Benston.
Correction: May 2, 2016
This article misstated the size of Haverford’s endowment. It is just under $500 million, not $5 million.