Elite Colleges Have a Looming Money Problem

They gave it the old college try, but America's elite universities are facing money problems partly of their own creation. From a report: It might not seem that way compared with the broader world of U.S. higher education. Ivy League institutions and a handful in a similar orbit like Stanford, Duke and the University of Chicago aren't just blessed to have international cachet and their pick of excellent students and professors -- they also have the most money and the richest alumni. By contrast, public and especially smaller private colleges and universities are cutting staff and programs. Many are closing outright.

A school like Harvard, now well into its fourth century, will almost certainly survive for a fifth one. But there are financial problems below the surface that could emerge if the bull market stumbles and especially if some proposed Trump administration policies are enacted. Harvard's $53.2 billion endowment is so huge that the difference between a good and a so-so investment performance translates to sums that would dwarf most colleges' entire nest eggs.

Former Harvard President and former U.S. Treasury Secretary Larry Summers estimated this year that if Harvard had been able to just keep up with other Ivies and 'large endowment schools' in the past several years, it would have $20 billion more. For perspective, he says that just $1 billion could fund 100 professorships or permanently cover tuition for 100 students. But even Harvard's peer group isn't doing as well as it could. Veteran investment consultant Richard Ennis wrote this month that high costs and 'outdated perceptions of superiority' have stymied Ivy League endowment returns, which could have been worth 20% more since the 2008 financial crisis if invested in a classic stock and bond mix.

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