Market Crash Brings Reassuring Words, No Promises

St. Norbert College is one of the small, tuition-driven colleges affected by the current economic crisis. In the article, "Big Trouble, Potentially, for Little Colleges," from October 17, Jack Stripling wrote that "a subsection of cash-strapped private colleges could be in serious trouble, according to a report released by Moody's Investors Service.In order to gather a better understanding of how SNC is affected by the current economic hardship and uncertainty, the St. Norbert Times contacted knowledgeable faculty and administrators.

In an interview with the Times, Dr. Paul Bursik, assistant professor of business administration, identified several direct and indirect effects that the struggling economy could have on the college. According to Bursik, direct changes, such as budget decreases, can be handled, but indirect effects might be more serious.

"We need to be very concerned about what the turmoil in financial and real estate markets means to current and potential future SNC student families," he states and continues, "The loss of a relatively small number of students could lead to relatively large budget impacts."

As a result of the market crash, nearby Beloit College recently announced rather draconian cuts. According to news reports, a shortfall of 36 students from its projected student body of about 1,250 led to a $1 million budget deficit. In response, the institution had to let 40 people (about 10% of its employees) go.

Could SNC face similar distress? According to authorities contacted by the Times, there are at least four areas of possible concern that could have significant negative impacts on the college's budget situation:

1. The falling stock market results in less income from the college's endowment.

Since the beginning of the college's new fiscal on June 1, the endowment has shrunk from approximately $70 million to $50 million. Because the College expends 4.5% of its endowment value on its operating budget, this means that if matters remain unchanged, in the 2009/10 academic year, the College will only have interest and dividends (1.5% to 2%) available for spending from the endowment.

2. Tight credit markets and a down stock market will make it hard for students and their parents to find or borrow the money needed to pay for a college education.

Dr. Mark von der Ruhr, associate professor of economics, points out that students might experience increased difficulties in obtaining loans.

"Nationally, some students are losing their student loans as banks are unwilling to lend," he says. "If this affects our students, we see another way by which the current crisis can affect SNC."

According to Jeff Zahn, director of financial aid, 67% of SNC students and their families took out loans last year. While most students have not found out if their families' borrowing ability will be impacted, there are fears that the combination of tighter credit from banks and other lending institutions, declining values of families' investments and real estate, and increased joblessness may significantly impact decisions about which college to attend, or whether to attend at all.

Dr. Kevin Quinn, associate professor of economics, agrees.

"Current and potential SNC students may find their families' finances negatively affected to the point where paying SNC's tuition is too high a mountain to climb," he states.

Von der Ruhr hopes that economic worries will not impact family decisions about choosing the best education value for their students.

"SNC is a unique learning community that, to my mind, offers much more than a four year degree. Another concrete perspective is that we ensure that a student get her/his degree in four years. I know that many other competitors do not offer such a guarantee."

3. The challenging economy will impact donations and thus further reduce income.

Quinn points to the danger of losing donors who are low on money due to the market crash.

"Our donors and potential donors are taking losses," he states.

This year SNC has a $1.7 million goal for the St. Norbert Fund, which provides unrestricted dollars for operations and financial aid. Thus far, it appears that the college's two-year trend of declining giving is continuing. According to the data provided by Phil Oswald, vice president for college advancement, the Fund is currently running at 17% of the goal, which is 2% behind last year's pace. However, last year's pace led to a final St. Norbert Fund total of $1.5 million, whichh was $400,000 short of its original goal and 17% less than the final total of two years ago.

4. SNC may struggle to meet its new debt obligations.

The college recently borrowed $29 million to build the Mulva Library and a new residence hall and to remodel the Todd Wehr Library building. It is the College's intention to not tap the operating budget for debt service on the $29 million of bonds.

According to Eileen Jahnke, vice president for business and finance, debt service for the residence hall will be provided by rent from the students who will live in the new hall. An unrestricted investment fund consisting of donor gifts will be used to service the debt on the Mulva Library and the remodel of the Todd Wehr Library. Unfortunately, the current market downturn has affected the value of this investment fund, but it is projected by experts that the long-term return for the College's fund will be 7.25% per year.

Also, there has been little additional unrestricted gift support for the library, since late 2007, and a substantial portion of the money that has been pledged is still to be paid. According to Jahnke and Phil Oswald, vice president for college advancement, $15,856,521 (79%) has been committed toward the $20 million goal, and $12,102,452 (61%) has been received thus far.