Bloomberg News

Buffett Help Fails to Stop Grinnell From Weighing Aid Cut

October 02, 2012

Grinnell College, whose $1.4 billion endowment benefitted from the guidance of billionaire investor Warren Buffett, is evaluating financial aid, acknowledging rising costs and investment declines make current policies unsustainable.

Grinnell, the fifth-richest liberal arts school in the U.S., may increase the amount it requires some students on financial-aid to take out in loans. The Grinnell, Iowa-based school currently admits students regardless of their ability to pay. While it’s “highly unlikely” the college will scrap its so-called need-blind policy, that option is also on the table, President Raynard S. Kington said.

“The question is at what price is it sustainable?” Kington said in a telephone interview. “If we don’t do something, will we just slip into mediocrity?”

Grinnell, which costs about $51,000 a year, is the latest among wealthy liberal arts schools to backtrack on student aid. Wesleyan University, Cornell University and the Massachusetts Institute of Technology have all said they are scaling back assistance as a weak economy puts more students in need of financial aid. Their actions come as tuition at four-year private schools has more than doubled since 1995, outpacing the rate of inflation.

Buffett, chairman of Berkshire Hathaway Inc., spent more than 40 years as a Grinnell trustee, serving on both the finance and investment committees. He stepped down last year when he gave up appointments on boards unrelated to the company he built over more than four decades through stock picks and acquisitions.

Buffett didn’t respond to an e-mailed request for comment sent to an assistant.

Operating Budget

Grinnell’s endowment investments suffered a 4 percent loss in the year ended June 30, David Clay, the school’s chief investment officer, said in a telephone interview. A year earlier, in fiscal 2011, the fund had a 23 percent gain on its investments, helping it rebound from a 23 percent loss in 2009 following the global financial crisis.

Grinnell relies on its endowment for more than half its operating budget, Clay said. In comparison, private colleges and universities on average depend on their endowment for about 7.1 percent of operating costs, according to a report yesterday by Moody’s Investors Service.

College endowments are reporting stagnant or declining returns on their investments after the Standard & Poor’s 500 Index posted a 3.1 percent gain for the year ended June 30. Endowments and foundations had the worst returns of any class of institutional investor, gaining just 0.37 percent, Wilshire Associates said in an Aug. 6 report.

Roller Coaster

Last week, Harvard University, the world’s richest school, posted a 0.05 percent loss on its fiscal 2012 investments, while Yale University, the second-wealthiest, said it had a 4.7 percent return. These compare with gains of at least 21 percent at the two schools a year earlier.

“A lot of institutions believe that the recovery from this recession is not going to be the same pattern as we’ve seen in the past and everyone is very nervous about it,” said Donald Heller, dean of the College of Education at Michigan State University.

Schools like Grinnell are probably thinking they’re not going to be able to count on the same high endowment returns or the same increases in family incomes, Heller said.

“The demand for financial aid may accelerate more than it has in the past,” Heller said.

Wesleyan, Cornell

Wesleyan, which also has need-blind admissions, may start considering the financial need of applicants and is looking at granting three-year degrees to save money, President Michael Roth said in a website posting in May.

Cornell, the Ivy League school based in Ithaca, New York, will force students whose families make more than $60,000 a year to seek other financing to pay for part of their studies starting in 2013. This fall, MIT raised the amount low-income students contribute by 36 percent to $6,000 a year. Students who get Federal Pell grants can use those funds toward the student contribution, MIT said.

Founded in 1846, Grinnell’s alumni include Mary Sue Coleman, president of the University of Michigan, and Thomas Cech, a Nobel prize winner in chemistry and the former president of the Howard Hughes Medical Institute.

The school is holding talks with faculty, alumni and trustees this month and the board will vote on a course of action in February, Kington wrote in a letter to the Grinnell community late last month.

Grinnell’s plans to reconsider its financial-aid policies was earlier reported by Inside Higher Ed.

Grinnell’s financial-aid budget is increasing because the school is attracting more students with need and more need per student, Kington said. One option the school is looking at is increasing student-loan caps, currently at $3,000 a year for freshmen entering this year.

“We can’t make decisions as if we’re going to have returns of the pre-crash world, of pretty significant returns, for long periods of time,” Kington said.

To contact the reporter on this story: Janet Lorin in New York at

To contact the editor responsible for this story: Lisa Wolfson at

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