Northwestern Raises Tuition, Cuts Budget After 24% Fund Loss

The university president sent a note out this morning about this. If I recall the tuition increase was small, like 3-4% and they're also increasing financial aid. No word on what graduate tuition increases will be like.

Hi everyone. To add some clarity around this, Northwestern proper (undergraduate) and Kellogg are in very different situations.

Kellogg has one of the lowest operational dependencies on its endowment of any B-school in the country (around 12% of operational budget). Was in a talk with all the Deans a couple weeks ago and they reiterated that Kellogg is well positioned to weather any endowment storm (how this transitions to tuition who knows - but would probably mean not very much increases). Furthermore, the Deans emphasized that unlike other B-schools, Kellogg is actually investing through this downturn (hiring more Professors, keeping salaries high, investing in programs, etc.) unlike many of the other top 10 schools that were more dependent on their endowments and are cutting back.

Useful insight Steel. +1!

A 24% drop is actually better than a lot of top schools. Here's another article describing the fund drop . . .

https://www.northbynorthwestern.com/2009/02/21689/before-crisis-nus-endowment-was-healthier-than-at-other-affluent-schools/

"Despite these concerns, Bienen said NU is in better shape than many comparable universities because a smaller portion of its financial aid budget comes directly from the endowment. For instance, Princeton University's endowment funds about 80 percent of its financial aid, whereas NU's only funds around 15 percent."

All schools are facing the same endowment issues. I'm surprised that the tuition increase is only 3.6%. Has to be tempting to increase tuition a lot more in this environment.

We actually got a note about this...I that story comes across as being horribly unfair to the actual situation at Northwestern since it doesnt put it into perspective...basically Northwestern is far better than most other top schools.

Some highlights from the president's note:
-"In the coming year we plan to increase financial aid significantly while holding our tuition increase to the lowest percentage in more than 40 years."
-"Undergraduate tuition, room and board by 3.6 percent for 2009-10 while increasing the amount of scholarship funds by 10 percent"
-"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. Relying less on the endowment and more on other revenue sources, particularly tuition, has been a disadvantage to us when endowments were earning high rates of return. But 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."

If my tuition goes up less than 4% I will be psyched considering most top business schools have been in the 7-10% range for years now and I dont see many cutting back on that significantly since they have to make up the endowment shortfall. As Steel mentioned, the administration sees this as the time to pick up top talent from other schools who are in much worse shape financially. Kellogg's endowment is also not part of Northwesterns and rumor has it that its holding up fairly well...I mean how many of us wish we were down 25% and not the 40-50% or whaterver many of us are down. Also last I heard the Kellogg building schedule is not changing, but its already a few years off so its not a big issue...Yale already announced they are delaying their new building.

Very encouraging to hear that Northwestern considers Princeton a comparable university. Princeton's endowment funds 80% of its financial aid, because Princeton does not let its students take out ANY student loans (all financial aid is 100% grants) and gives international students the exact same consideration for financial aid as for domestic students. Northwestern does not, because it probably depends more on federal student aid programs.

That's just not a very valid comparison there.

I think the point that is being made is still valid - Princeton's financial aid programs (however they choose to design them) are much more impacted by changes in the endowment than Northwestern's financial aid programs. It's a separate debate to say whether Princeton's program is more/less generous than Northwestern's to begin with.

And again, this all applies to undergrad. Kellogg has different financial aid programs, including institutional loans for both US and international students, and a separate endowment.

They arent comparing the program but how the huge drop in endowments will impact how they will be operating going forward. Most universities dont actually touch the principal, so when they have been getting 30% gains for the last few years its actually been pretty easy for places like HBS, Princeton, and Yale to spend like crazy. However, with a 30% decrease in their endowment and no gains these days these schools are going to either have to cut way back or suck it up and spend tons of money from their endowment.

If you look at how endowments are spent, scholarships are a relatively small portion...most of it goes towards funding professors, yes that does help keep tuition lower since those people are basically subsidized and they dont need tuitions to cover those salaries. 67% of Kellogg's spending related to their endowment was on professors but only 14% was on scholarships...and Kellogg is pretty generous, if you look at last years thread the vast majority of us heading there got scholarships small but still nice (usually in the 5-15k range).

Also I think you are buying the hype about certain schools not making students take out loans since they only give out grants. I can tell you that my expected contribution on the FAFSA was pretty high and that Kellogg gave me a grant/scholarship that pretty much was the difference between tuition and what I could pay according to the government. Thats what those schools do, most students take significant loans too since their families might have expected contributions but they can't really afford that.

Tuition at top schools is out of control and part of the reason its so high is because the very top schools set their tuition so only a few people can afford it 100% and then they use scholarships to adjust it downward for each person so everyone pays the max they can afford...so basically the school (producer) gets 100% of the suprlus but the students (consumers) get 0%. Since HBS and those schools set the bench mark other schools can charge really high tuition too even if their students have to take more loans.

Look at it this way, you show up at Best Buy to buy a new TV. The sticker price is 10k which they set so that only 2% of purchasers would be willing to pay that but then they offer to run your financials and see what the max you can afford. It says you can pay 6k, so magically that becomes your sticker price since they will offer you a special discount. Of course you really only have 2k in your TV savings account, so they offer to lend you the 4k difference so that you can buy that TV.

Jerz and riverripper, I don't entirely disagree with you in principle; I understand that Kellogg operates as a semi-autonomous entity within the university. My earlier comment took issue merely with the quote that SolarMBA posted which claimed Northwestern is in "better shape" than other universities, and then proceeded to compare it with a university less than a third of its size, yet with an endowment that is more than twice as large. I just thought that made for a particularly fallacious argument from the start.

Princeton's financial aid programs need not be "much more impacted" by changes in the endowment than Northwestern's financial aid programs, because a "comparable" decline in Princeton's endowment would still leave them with a significantly larger endowment than Northwestern's, and significantly lesser students to cater to.

The "better shape" qualifier just came across as nothing else but journalistic spin. I just felt I had to call someone out on it. Apologies for the digression, we can go back on topic now.

And just as a side note, Princeton (and many other schools) do not use the FAFSA to determine need, so they don't go by what the FAFSA says your EFC will be. They have their own formula to determine how much you and your family can afford to pay, so students still needing to take out loans despite these universities' commitment to offering a 100% grant based financial aid package is extremely rare now.

Harvard Endowment Maintains ETF Strategy After Tough 2008

https://finance.yahoo.com/news/Harvard-E ... 10383.html