November 3, 2008
Dear Reed College parents:
As you well know, recent months have witnessed a dramatic deterioration in the condition of the nation’s economy and its financial markets. These developments are having an adverse impact on every aspect of American life—in our personal lives, at our places of work, and throughout our governmental and political systems. And, of course, they have a direct impact on higher education. In the past few weeks, I have been meeting with faculty, administrators, and trustees to map out a strategy to enable Reed College to deal responsibly and sensibly with those impacts. I am writing to share with you our assessment of the situation and our plans to deal with it.
Let me begin by emphasizing that Reed College is generally well positioned to absorb the impact of an economic downturn. We have an enviable reputation in American higher education; we have a very large and strong applicant pool; our faculty and staff members are well compensated and well supported; we have reserves for current operations adequate to meet our obligations; our debt is relatively small and was recently refinanced; we still have a healthy endowment; our physical facilities are in excellent condition; and we have just completed several major construction projects.
That said, we are hardly immune to the forces that are buffeting financial markets and the economy. A severe economic downturn adversely affects the financial health of the college in two primary ways—by reducing endowment income and by increasing demand for financial aid. Between December 2007 and the end of September 2008, our endowment’s value declined from $461 million to $401 million (a 15 percent decline), and the investment performance for the fourth quarter of 2008 looks to be even worse. Because our endowment is highly diversified, losses to date are moderate compared to those experienced in many of the popular stock-price indices. Nevertheless, the prolonged endowment decline that we have experienced will inevitably translate into a significant reduction in revenues available to support the operations of the college.
The combination of increased unemployment and declines in the values of real estate and other investments will severely strain the ability of many families to pay for their children’s education. We must therefore plan for an increase in the demand for financial aid. Unlike many of our peers, Reed College evaluates a student’s financial need every year. We remain committed to meeting the full demonstrated need of every admitted and enrolled student. (Information on our financial aid policy can be found at http://www.reed.edu/financialaid/.) Fortunately, we have not received reports that Reed students are having difficulty obtaining federally subsidized loans for their educational expenses, but we are concerned about the tightening of credit standards for private loans.
Given these realities, we have formulated a plan to close an anticipated deficit in next year’s budget. In a memorandum to faculty and staff members sent last week, I announced the following actions:
- We will postpone a previously planned reduction in the size of the overall enrollment by continuing, in the next several years, to enroll classes roughly equal in size to those enrolled in the past several years.
- We will postpone all nonessential renovation and construction projects.
- We will reduce inflationary allowances for personnel and non-personnel expenses.
- We will closely scrutinize the need to fill vacant staff or faculty positions, and postpone filling any position not deemed absolutely necessary.
- We will reduce the amount of the contingency fund built into the budget each year.
- If necessary, we stand ready to propose a temporary increase in the rate at which we spend from the endowment.
Every action that we take to meet anticipated budgetary pressures will be judged by two essential criteria. First, we must protect the financial aid budget so that we can continue to meet the full documented financial need of every Reed student. Second we must protect the ability of the college to offer every student the kind of first-class educational experience for which Reed is justifiably famous.
Reed College is resilient. Though these times feel unprecedented to many of us, the college has weathered worse financial conditions in its history. Thanks to the generosity of the Reed community—of which you are a part—and thanks to the strength of our resources and our reputation, we have options that would not otherwise be available. I know that the college will weather this storm and will continue to prosper in the coming years.
Sincerely,
Colin S. Diver
President