Amid all the proposed cuts, the University deserves to be commended for announcing that it will increase financial aid to keep Princeton affordable for the students whose families have lost significant income or savings. Reflecting on this announcement and the current economic situation calls to mind the misguided attempts earlier this year from some members of Congress to require that all universities spend a minimum of 5 percent of their endowment annually. President Tilghman strongly cautioned against such a requirement, and her opposition has now been vindicated.
Had the University been required to spend 5 percent of its endowment every year, we might find ourselves in a very different situation today. Prudent planning and limits on spending over the past several boom years mean that the University is in a position to increase its financial aid - not decrease it as other schools are being forced to do. The money the University saved in years past by spending less than its endowment returned will now hold it in good stead.
The members of Congress who supported enacting a 5-percent-spending law said they were concerned about the rising costs of attending college. But Princeton's recent announcement that it will increase aid suggests that universities should not be required to spend 5 percent of their endowment in good times because they may need to spend even more than that in lean years to maintain essential services. University expenditures are best left steady, rather than being pegged to an arbitrary percentage of the endowment.
Congress should be reminded of past horror stories of the overspending of college endowments. For example, Yale's endowment lost more than 40 percent of its value in the '70s, and the university had to freeze spending in 1977. Rutgers now faces a crunch from its $102 million football stadium and a declining state budget.
Prudent endowment management has allowed Princeton to avoid needing to make the kind of painful decisions that Rutgers now faces and Yale once made. President Tilghman was correct when she advised Congress that good times don't last forever. Endowment money that is conserved when returns are high can be a school's salvation when times are bad.
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