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Catholic Colleges Face Unusual Financial Pressures

Focus on affordability for students — the 'living endowment' — can weaken the institutions' bottom lines

By BECKIE SUPIANO
Chronicle of Higher Education

When the main building of Our Lady of the Lake University was damaged in a fire this spring, its president, Tessa Martinez Pollack, worried the blaze would exacerbate its money woes. "It's a known fact," she told The New York Times, "that we're like a lot of other Catholic universities that are struggling to stay afloat financially."

Not all leaders of Roman Catholic institutions agree with Ms. Pollack's assessment, but Catholic colleges and universities do face financial challenges unique to them. For much of their history, they have relied on unpaid faculty members — brothers, nuns, and priests — who are in shrinking supply. They have a shorter history of fund raising, and therefore smaller endowments than most private colleges. And many see a core mission as providing access to all students — and thus keep their tuition relatively low.

A report scheduled to be released this week from Moody's Investors Service, "Spotlight on U.S. Catholic Higher Education Sector," focuses on the 55 Catholic institutions Moody's rates, which are among the largest and most affluent of those colleges.

As a result, "the overall conclusion is slightly more positive than I expected," says Richard A. Yanikoski, president of the Association of Catholic Colleges and Universities, which represents 196 American colleges. "Schools that borrow are more likely large institutions or growing fairly rapidly," he says. Still, the report notes that even some larger colleges are feeling a pinch.

The 'Living Endowment'

The vast majority of Catholic colleges and universities were founded by religious orders, such as the Jesuits or the Sisters of Notre Dame. A smaller number were founded by individual dioceses of the church. In either case, the institutions usually relied on the order or the church for resources, including land. Priests, brothers, and nuns served as faculty members — free of charge. As membership in the religious orders began declining in the 1960s, after the reforms of the Second Vatican Council, colleges began hiring lay faculty members, who had to be paid.

Until the 1970s, most Catholic institutions' boards were also exclusively made up of brothers and sisters. That set Catholic colleges in stark contrast to most private colleges, where board members were chosen for their ability to help raise a lot of money. Catholic colleges still lag behind in that regard. "We've got schools out there that don't even have half a million dollars in endowment," says Mr. Yanikoski.

The Catholic-college mission also results in comparatively small endowments, Mr. Yanikoski says. Many Catholic colleges strive to provide an affordable education, a response to Catholic social teachings about prioritizing the needs of the poor. Traditionally the colleges are much more likely to encourage donors to invest in students — the "living endowment," as he calls it — rather than other projects.

Catholic women's colleges are even less likely to have built up large endowments, Mr. Yanikoski says, because most of them were founded after World War I, much later than institutions like Georgetown University that began as men's colleges. The smaller endowments also reflect couples' giving patterns, Mr. Yanikoski says: Couples who attended different single-sex institutions are more likely to give to the man's alma mater.

Finally, women's colleges today are particularly likely to focus on underserved students.

That is certainly the case at Trinity Washington University in Washington, D.C. Before the 1960s, Trinity attracted women from "the good, hearty, Catholic middle class," says the university's president, Patricia A. McGuire. But once the Catholic men's colleges opened their doors to women and Catholic students began attending secular colleges in larger numbers, "students at institutions like Trinity realized they could go anywhere."

As a result, "the question became what to do, and was there a future for us?" Ms. McGuire says. Trinity's answer was to step up its efforts to recruit underserved women, particularly those from the Washington area. About 60 percent of the women enrolled at Trinity receive federal grants for lower-income students. And 95 percent of its students receive institutional aid.

At a college with a $10.7-million endowment, that has required careful financial planning. But it has also allowed Trinity to pursue its founding mission, Ms. McGuire says.

Moody's Outlook

Trinity, though a member of the ACCU, is not rated by Moody's, so it was not included in the agency's new report. That report compares 55 Catholic institutions with the other 225 private colleges in Moody's portfolio.

The institutions in the report, which have the strength to borrow money, are among the healthiest Catholic colleges. The other private colleges Moody's uses for comparison are similarly among the strongest in their group.

The University of Notre Dame has the largest endowment of any Catholic institution, and the 14th largest over all, at $5.9-billion. But only a handful of other Catholic colleges break into the top 100 largest endowments list. "We are just not, as an entire group, not nearly as wealthy as other private colleges," Ms. McGuire says.

Those endowments aren't going to grow overnight, either. In the 2007 fiscal year, the Catholic institutions rated by Moody's brought in a median of $9.7-million in gifts, compared with $13.2-million at other private institutions.

But according to Moody's, the endowment gap between Catholic institutions and other private ones is slowly narrowing. Catholic colleges and universities are beginning to invest more resources in fund raising, and several are in the midst of capital campaigns.

Seton Hall University, in New Jersey, has revved up its fund-raising efforts. Twelve years ago, the university's endowment was "just barely $50-million," says Dennis J. Garbini, vice president for finance and technology. Today it stands at more than $230-million, and the university just wrapped up a $150-million capital campaign. A third of the money it raised will go toward scholarships.

Promoting Access

The Catholic tradition of serving the poor also influences tuition. In the 2007 fiscal year, the Catholic institutions rated by Moody's had a median net tuition of $15,636, compared with $18,101 for other private colleges.

Tuition and fees at Saint Joseph's College, in New York, will be $15,973 this year. "We have a mission of providing quality, affordable education to our students," says Theresa LaRocca Meyer, vice president for enrollment management. The college reaches out to middle- and lower-income students, particularly on its Brooklyn campus, she says. Doing so is "part of the mission of the Sisters of St. Joseph," who founded the college.

Affordability is also a priority at Seton Hall. Tuition and fees are $29,360, but the college steeply discounts tuition for most students. "As a Catholic institution, we strive to focus our budget priorities not only on budget issues and attracting students, but consistent with our mission of maintaining affordable and accessible education," Mr. Garbini says.

Despite their comparatively low tuition, most Catholic colleges and universities are dependent on it. At the ones rated by Moody's, a median of 82 percent of operating revenue came from student charges, compared with 68 percent at other private colleges. According to the report, Catholic colleges' reliance on tuition "makes it imperative that the institutions maintain a strong market presence to attract net tuition paying students and for continued sound operating performance."

In addition to limiting revenue, Catholic colleges' focus on access affects their enrollment policies. According to the report, "Many Catholic institutions have emphasized growth in their undergraduate enrollment as an expression of their service mission, whereas many other privates have been heavily focused on limiting enrollment growth in order to become more selective and enhance a market reputation for quality."

Making Gains

Despite their commitment to access, Catholic colleges are increasing their tuition revenue more quickly than other private institutions, Moody's found. Between the 2003 and 2007 fiscal years, Catholic institutions had a 6 percent compound growth rate for net tuition revenue, compared with 4.7 percent at other private colleges. Moody's attributes the rise in tuition revenue to increasing costs, as well as the growth of professional degree programs, which colleges are less likely to offer at a discounted rate.

Catholic colleges have found a number of ways to walk the line between bringing in tuition and providing access. For one, they tend to keep a tight rein on spending, which Moody's says contributes to their strong operating performance as a group.

Catholic colleges also are playing up their special strengths. Their religious identity is often viewed as an asset, even by some non-Catholic applicants. And a good number of Catholic colleges are located in urban areas, which have become more popular with students.

The report points to Boston College as a good model on those fronts, saying that over the last 20 years the college "has transformed itself from a local commuter institution into a nationally prominent provider of professional degree programs."

Not every Catholic institution will follow Boston College's path, but they will look to increase enrollment and giving. After all, if they're going to continue to promote access, they have to stay around.

http://chronicle.com/cgi-bin/printable.cgi?article=http://chronicle.com/weekly/v54/i49/49a01401.htm

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