On Tuesday night, College President Al Bloom and Treasurer Suzanne Welsh fielded questions from the student body about the budget during an event organized by Student Council.
The Big Picture
Bloom began by saying “I know you’re wondering… how could it possibly be that if we charge $45,000 in tuition and have a $1.4 billion dollar endowment but the president still has to spend more than half of his time fund-raising?”
The answer is that providing a world-class education is expensive. Bloom explained that tuition alone only really pays for faculty salaries, food, and some basic utilities. “None of our 600 staff members, no equipment, no technology, no library, no health center… all that comes from endowment and gifts, mostly the annual fund.”
A chart passed around showed that after financial aid, an average of $30,417 is collected per student per year, while the college spends $78,427 per student per year. The rest of the money comes from the endowment ($33,297), private gifts including the annual fund ($8,987), and miscellaneous sources including rental income and application fees ($5,726).
The figure of $78,427 goes to support faculty compensation ($19,220), staff compensation ($23,892), departmental expenses ($18,881), and everything else–insurance, taxes, and utilities, to name a few ($16,434).
The relatively fixed costs of college operation mean that “the budget is always tight,” according to Bloom. With only a few hundred thousand dollars of wiggle room per year, “any time we want to go in any truly new direction–new buildings, new faculty positions, a new department–the only way to do that is either by taking money from something else that we’re doing or by having a specific campaign.”
Why can’t we just take more money from the $1.4 billion endowment? The endowment is expected to support the college in perpetuity. Although the College has on occasion posted endowment returns of up to 13 percent, it tries to spend only 4.25 percent of the endowment per year. “We want to make sure that endowment stays in place,” explained Bloom. “We want to have the same amount of money for next generation of students as this generation, so we don’t want to overspend on this generation.”
Welsh explained that compared to similar schools, “our money goes to financial aid, staff, and a a low student-faculty ratio, which allows us to offer the breadth of departments of a larger school.”
After this big-picture overview, the floor was opened to questions.
How does the budget come to be?
Welsh explained that her office begans planning next year’s budget in October, updating their projections with “our best guesses of inflation, of growth in utilities costs… in December we ask for all the departments to let us know about their specific needs.” Throughout the entire process, the budget committee is meeting and making the needed adjustments.
Because most expenses are relatively fixed, Bloom said, “the actual construction of a budget is mostly slight adjustments around the edges.” Although “each budget is structured with a few hundred thousand dollars of extra money… for increases in electricity, faculty to replace leave-takers, temporary staff… what happens almost every year is when you make those adjustments there’s almost no money left.”
“We can try small new things with a small surplus,” explained Bloom, “but the amount that we can do compared to what you might think is really very constricted… we get $2-3 million in requests to maybe $500,000 to $1 million in what we can actually do.” For significant new plans, “we need to spend three years on a fund-raising campaign, and decide, what are the new things we most want?”
How do we invest our endowment?
Through a very diverse mix of investments. The college does index against other endowments and against the six categories of investment, and “we have outperformed our index consistently if not every single year,” according to Welsh. When asked about transparency, she explained that “we hire 75 different firms to manage the endowment.”
She continued, “in today’s world… very good managers have their pick of which groups they will mange money for and one of their requirements is confidentiality… if they revealed their investment strategy they would lose their competitive edge.”
Welsh said that “we would expect our endowment to earn 9 percent over a long period of time, so we’re spending about half of that and reinvesting the other half so that income will grow as costs grow.”
The College also needs a cushion for when the endowment is not earning as well, says Welsh, “so we don’t have to suffer budget cuts.” For example, from 1968-1982 the stock market “went nowhere for 14 years,” and more recently, from 2000-2003, it actually went down. Schools that spend more liberally with endowment earnings suffered during these times–“from 2000-2003, many schools had to lay off 10 percent of their staff.”
Many students asked questions about whether the endowment is invested in “moral” companies. Bloom said that most of the Board agrees that “our main moral obligation for the endowment… is not as a means of showing our responsibility on issues but to maximize our profits and keep the college going.” He continued, “almost every company has great virtues and serious flaws, when you start looking at every given company.”
Bloom stressed that the College does pressure companies to change through advancing shareholder proposals. “The advantage of holding stock is amazingly effective at times.” For example, Swarthmore helped move at least three Fortune 500 companies to include anti-discrimination clauses about sexual orientation in their bylaws, something Bloom says we could not have done had we not held stock.
What say do donors have in how their money is used?
Princeton is currently embroiled in a lawsuit with a donor who claims that their donations to the endowment were used inappropriately, for causes the donor did not explicitly agree to. Bloom explained that “this is a problem for all endowments… if someone gives you money for an Islamic Studies program and it makes more money than you can use on that program fifty years down the line, what are you going to do?” Now Swarthmore tries to make donors as flexible as possible, and “all donor agreements state that if the need for this thing is seen by the board as changed or not requiring all the money, the board has the right to change it.”
Why isn’t the budget more transparent?
Bloom said that if the College made department budgets and other budgets public without providing a full context, “those numbers would become political weapons or political tokens rather than a basis for a deeper understanding.” He continued, “we’re disposed to sharing the numbers when people understand them, but if I said the library needs 1 million, 5 million, 2.7 million, you couldn’t evaluate it… not even by comparing to other colleges, because Amherst has a Shakespeare Library and we don’t, we have the Peace Collection and they don’t.”
That said, “there’s not some policy saying that students can’t know the numbers… we’re transparent with the Budget Committee and the students on that Committee, and we’re transparent when the context is proper.”
Are there inefficiencies in the budget?
Bloom explained, “4 years ago the Board created a committee of members and staff to see if we could find inefficiencies… this institution has ended up to be extremely efficient, and contrary to public opinion, [academia] is an extremely efficient world.”
For example, Bloom said that faculty salaries, which range from $60,000 per year for first-year faculty and $150,000 per year at their highest, “are practically exploitative in terms of the amount of time and energy they put in… education is amazingly efficient in terms of how hard people work given their pay.”
One student brought up the curious problem of heating in Cornell during the dead of night, and asked “wouldn’t small steps like that help with financial and environmental sustainability?”
Maintenance Director Ralph Thayer said that this was probably a result of difficulty in getting systems right “when the season goes from warm to cold,” but invited similar student concerns. “The more information we have the better.”
Financial aid questions
One student asked for the median amount received by aided students. Welsh said that the average was close to the mean, and that she knew that “the average aid package is about $30,000, and the average scholarship is about $24,000.”
Several students asked questions about future plans for financial aid. The fact that financial aid now applies to study abroad programs was cited by Bloom as evidence that the college does value changing financial aid policies to help students, but that it has to carefully weigh the costs first.
One student asked why we have to pay full tuition when some study abroad programs costs less, and Bloom explained that ”we might only send $16,000 of your $22,000 to the program, but other expenses contingent on our being here… you need to support Steve Piker, there are faculty we still have to pay while you’re abroad.” Perhaps most importantly, “we can only afford to pay for aided students if everyone pays the full costs of a Swarthmore semester… the principle here is that everyone coming to Swarthmore pays the same amount and that allows us to support everything,” from expensive chemistry experiments to visiting professors for creative writing.
With the recent news that Williams plans to eliminate the loan component in aid packages, Bloom said that the possibility of doing this at Swarthmore is “very much on people’s minds.” Amherst was able to do the same when they had “a huge windfall– a 38 percent return when we had 19 percent, so they took that money and put it aside.” At the same time, noted Bloom “they’ve just started a social action center like the Lang Center, and we offer more courses per student… it’s all a question of choices.”
The choice in this case is one of $40 million, the amount of endowment that would be needed to devote to eliminating loans. “$15,100 as a loan for 4 years of education compared to other costs in life is substantial, but not huge,” explained Bloom. “So is eliminating loans the right answer for $40 million, or would you get a better education by doing something else with that 40 million? Would you rather eliminate summer work expectations? Would you rather develop a whole new area of the academic program?”
When asked whether any alumni oppose eliminating loans in financial aid, Bloom explained that “there is nothing that gets donors more excited than financial aid… the fact that they can allow a student to have a Swarthmore experience is the most inspiring giving experience they can have… there might be one out of 18,000 alumni who would disagree.”
In response to a question about international financial aid, Bloom said that “I think the lack of need-blind for international students really limits the number and diversity of foreign students… it’s something we haven’t been able to afford but I think it’s right, and I will make sure it is considered in our next campaign.”
Also interesting were numbers revealed about the composition of aided students on campus. 10% of aided students have a family income below $40,000 per year, 10% between $40 and $60,000 13% between $60 and $80,000, 12% between $80 and $100,000 13% between $100 and $120,000, 16% between $120 and $150,000 and 18% above $150,000 per year. It is unknown how this maps onto Swarthmore population as a whole, because Swarthmore does not know the family incomes of students who do not receive aid.
Furthermore, 13% of aided students identify as African-American, 21% as Asian, 7% are foreign nationals, 15% as Latino/a, 33% as white, and 11% as “Other” or did not report.
Will tuition ever be capped?
Bloom explained, “I think we’re charging the same amount each year relative to a different universe… how much beyond inflation can we continue to raise tuition? It’s like a progressive income tax… upper-level incomes are going up faster than inflation, so the smart thing to do is charge a little more for those students and use that money to pay for financial aid.”