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CNN Sunday Morning

College Tuition Is on the Rise

Aired September 02, 2001 - 08:15   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
MARTIN SAVIDGE, CNN ANCHOR: With tuition charges rising and college endowments dropping in many cases, students are caught in the middle, making college more expensive. That's the subject of an article in the new issue of "Smart Money" magazine. Vera Gibbons of "Smart Money" is with us this morning to discuss this trend.

Good morning to you. Thanks for being with us.

VERA GIBBONS, "SMART MONEY": Hi, Marty. Thanks for having me.

SAVIDGE: In your article, you focus on Denison University of Ohio, and tell us a bit about that story, for people who have not had a chance to read it yet.

GIBBONS: Well, about 10 years ago, Denison started moving away from the safer investments and started investing in things like venture capital funds, hedge funds, technology stocks. They wanted to see those big double-digit returns, and they were able to. They saw their endowment go from about $69 million in 1990 to $524 million last fall.

This year, the picture doesn't look quite as rosy. They've lost about $100 million, and just like a lot of individual investors who have seen their nest egg sort of vanish into thin ear, Denison is now faced with the reality that they are a lot poorer this year than they were last, and as a result, they're really going to have to watch their spending going forward.

SAVIDGE: Now, how badly is this going to impact that particular campus?

GIBBONS: Well, they're going to have to slow down their spending in three particular areas: scholarships, staffing and salaries. As much as they don't want to have to do this, it looks like that's a pretty real scenario.

SAVIDGE: All right. Well, they took a gamble, it seemed like at the time a good one, and they obviously got good returns on it. But they weren't alone. This wasn't the only university that's run across this trouble.

GIBBONS: Right. Schools from Vanderbilt to Harvard to Stanford, everybody jumped on the tech bandwagon because they did want to see these huge returns. I mean, competition amongst these colleges and universities is fierce. Everybody wants those top students. They want the kids who are in the top ten percent of their class. They want the kids who have the, you know, stellar SAT scores. And in order to get these kids, it takes money. Denison wanted to be as competitive as possible, to get these kids.

SAVIDGE: Now, we talk about Denison and it might be easy to say, well, all right, it's a small college, perhaps they didn't know better. Harvard University, though, obviously, with a famous business school, makes the same error.

GIBBONS: Well, they didn't take quite the gamble that Denison did. Denison actually went so far as to actually violate some of their own investment guidelines. Their guidelines specified that they couldn't have one manager look after more than 20 percent of the fund. At one point, they had one guy looking after 26 percent of the endowment, or $130 million.

They also went so far as to put 13 percent of their endowment into one stock, violating their investment guideline that they can only have 10 percent in one stock. And we all know what happened to Cisco, they lost millions and millions of dollars on that one deal.

SAVIDGE: Well, as a result of the downturn of the market, what does this mean, not just for the students at Denison but, say, students in general going to college these days?

GIBBONS: Well, short-term, nothing drastic. I mean, a lot of the schools now are trying to rebalance their portfolios and preserve what they've got. Long-term, though, if endowments continue to erode and inflation creeps up, then eventually their might potentially be less scholarship and grant money available. That's sort of a worst case scenario.

SAVIDGE: All right. Vera Gibbons with "Smart Money" magazine. It's an interesting article and thank you for joining us this Sunday morning.

GIBBONS: Thanks, Marty.

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