Weathering

the Economic Storm

It's a tough time for out nation's economy. Home sales are down, unemployment is up, and the stock market continues to be weak. So how is Texas Lutheran weathering the storm?

TLU officials are cautiously optimistic, thanks to a prudent fiscal management strategy.

“We have managed the amount and kind of debt we have,” Stan Ledbetter, vice president of finance, said. “We’ve created a budget process that may not be fun to live with, but we are operating in the black, and TLU is positioned to ride this wave.”

Some private schools with large endowments have been in the news recently as their endowments have fallen as much as 40 percent. While TLU has a good history of managing its endowment, it has, nevertheless, declined 25 percent in the past year.

“Three years ago ours was the second highest performing endowment in the country, and in 2008, we were in the top 7 or 8 percent nationally, based on return on investment,” Ledbetter said.

The Board of Regents Investment Committee, comprised of four regents and three non-board members, manages TLU’s endowment. A consultant helps carry out the committee’s diversified investment strategy.

TLU’s spending policy allows for a 4 percent draw from the endowment’s market value, limited to the extent that the 4 percent draw does not decrease the original value of the endowed gift. The endowment is used for a number of purposes, tied to donor restrictions, that include funding endowed professorships, special programs, and financial aid.

“Many scholarships are funded from the endowment, and as market values change, some of the individual endowed scholarships could be worth less than the original gift, so we could not draw on them,” Ledbetter said.

Unlike some private universities that get 25 to 40 percent of their operating budget from their endowments, TLU’s draw represents about 5 percent of its budget, making it more dependent on tuition and outside grants than some of its peers.


Tuition-driven

Since 65 percent of TLU’s operating budget is based on tuition alone, the next question is, “How will the economy affect enrollment?”

In fall 2008, TLU had a record enrollment. Since the recession grew more severe as 2008 progressed, the economy is expected to be more of a factor in 2009’s enrollment numbers.

While incoming 2009 freshman applications to TLU are down compared to this time last year, Norm Jones, vice president for enrollment services, said he is seeing students wait longer to complete their applications this year due to the uncertain economy.

One of the most critical factors in enrollment is financial aid, and at TLU, 99 percent of students receive financial assistance. If the endowment is down, there is less financial aid money available to offer to students, and TLU leadership must then decide what to do.

“We could give a student less financial aid than we would during good times, or we could increase our unfunded aid, which decreases our net revenue,” Ledbetter explained. “So it’s a dangerous game. If we decide to offer less aid to students, we run the risk of their not coming to TLU, and we would lose even more revenue.”

In addition to TLU-funded aid, over half of TLU’s students receive one or both of the need-based Texas Equalization Grants and federal Pell Grants. If there are cutbacks or further restrictions placed on those programs, it could create further problems for students who need financial aid in order to attend TLU.

There are also issues concerning student loans and the private equity market.

“Eligibility criteria for private loans has tightened up,” Cathleen Wright, director of financial aid at TLU, said. She explained that the Federal Family Education Loan Program (FFELP), which includes Stafford loans and Parent PLUS loans, is unaffected because of legislation that was recently passed by the U.S. Congress.

“It is too early to tell how the economy is affecting individual students and their families,” Wright said. “At this point, we haven’t received calls from students or their families concerned about being able to pay for spring.” She said that students whose parents have lost a job or have had to take a lesser paying job should talk to TLU’s financial aid counselors to see if more federal and state aid is available.

After financial aid, the average TLU student pays approximately $13,000 annually for tuition. Because TLU remains so tuition-driven, its budget for 2009-2010 relies primarily on enrollment and donations.

TLU has a good track record of making the right fiscal decisions. When the economy took a downturn in 2000, TLU found itself operating at a deficit. The university took tough measures, making budget cuts, reducing staff, and restructuring debt. Those difficult, but sound, financial moves helped position TLU for the current economic crisis.

“If we hadn’t done what we did in October 2000 and managed conservatively coming in to this, we’d really be hurting. For the last seven years, we have operated in the black. We have no outstanding revolving line of credit debt and we’ve only issued debt, at a low, fixed rate to make some needed repairs and campus renovations, and we haven’t over-extended,” Ledbetter said.

“There are things happening that we can’t control, but we don’t have the big gaping holes like some other schools. We have a strong cash position. Our audits have been good. We have a sound investment strategy. We are as optimistic as we can be at this point.” ♦