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This special online article of National CrossTalk examines the financial hardships of Georgia's LaGrange College, and those of small private colleges generally, in a time of difficult economic challenges.

July 2009

When Times are Tough

Georgia's LaGrange College faces financial challenges as parents and students struggle to afford the cost of a private college

photos by robin nelson, black star, for crosstalk

LaGrange, Georgia

IT WOULD HELP to have three or four hands when you navigate the lunch line at the LaGrange College cafeteria these days. It gets even more awkward afterwards when you try to balance your dirty dishes on the narrow conveyor belt that is designed to whisk flat trays through a tunnel to the dishwashing crew.

Cafeteria trays became a disposable luxury last fall when LaGrange officials began looking for ways to cut half a million dollars from a $30 million annual budget. The cost of washing hundreds of trays a day was an easy target—easier, certainly, than cutting jobs.

Rated highly for its affordability as a four-year private college, LaGrange has survived the toughest economic year in memory with a balanced budget, according to outgoing President Stuart Gulley, but not without some tough decisions that will be felt even more in the coming year.

Stuart Gulley LaGrange College President Stuart Gulley has balanced the budget so far, but worries about the future.

The decisions on what to cut came only after lengthy discussions with staff and faculty that gave consideration to eliminating positions, furloughing people, and reducing contributions to healthcare and retirement plans.

In the end, the administration opted to forgo salary increases for staff and faculty this year, which, with an additional quarter-million dollars in cuts in the operating budget, will save a total of half a million dollars. In addition to the salary freeze, the savings will be realized through cuts in discretionary travel, fewer professional development opportunities, and by dropping out of some professional organizations.

The school's endowment has shrunk nearly 30 percent in the past year, two big donors have already announced cuts for the coming year, and LaGrange is still Pull Quoterecovering from a sharp enrollment drop last year—what Gulley described as a "perfect storm"—that followed a larger-than-usual graduating class in 2008. Enrollment dropped from 1,092 students to 959, but the school is budgeting for a target enrollment of 1,033 students this fall.

LaGrange raised tuition six percent for the coming year, on the heels of a 7.6 percent increase last year. Making all the pieces of the budget fit is especially challenging for LaGrange because of Georgia's vaunted HOPE scholarship, which pays the tuition costs of Georgia residents who graduate from high school with a B average and maintain it in the state's public university system.

In a sour economy, the appeal of those public institutions increases, despite the fact that LaGrange offers the HOPE scholarship (worth $3,500 annually), and matches it for qualifying students who are Georgia residents. That aid, plus scores of donor scholarships and all the traditional grants and loans offered by the institution, the state of Georgia and the federal government, still leaves the average LaGrange student—or his or her family—owing from $10,000 to $12,000 a year to meet the $33,000 cost of attendance.

While there is no sense of panic on the bucolic campus that dominates the northwest corner of this sleepy town of 27,000 in west Georgia, there is still anxiety among both administrators and students about what the future holds.

Martin Pirrman College Controller Martin Pirrman believes cautious investment policies have enabled LaGrange to avoid wholesale layoffs.

A Gallup survey conducted last summer for student lender Sallie Mae—even before the economy took a nosedive—found that parents were increasingly worried about hikes in college tuition, rising interest rates for scarcer loan money, declining savings and dropping home values.

All these concerns played out this past year at LaGrange and small colleges like it across the country. Founded as a women's academy in 1831 by the United Methodist Church, LaGrange is the oldest private college in Georgia. A coed institution since 1953, LaGrange has averaged around 1,100 undergraduate and graduate students in recent years, with nearly nine in ten coming from Georgia.

Despite the sour economy, the school still has a lot of curb appeal: a highly regarded program in the fine arts; a rating by U.S. News & World Report as the third best school in the Southern Baccalaureate College category as well as a "best value"; the intimacy of a low 11-to-one student-instructor ratio; the safety of a small town; a close relationship with the Methodist church—the college motto is "challenging the mind, inspiring the soul"; and a new football program that has suddenly caught fire after an abysmal start.

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Other positives include a surge in applications for the 2009-10 school year, the opening of a new $16 million library, and the completion of a $65 million capital campaign with pledges extending to 2012.

While some private colleges reacted to the economic collapse with wholesale layoffs and emergency appeals for contributions, LaGrange had already positioned itself for financial uncertainly, according to controller Martin Pirrman. After years of dividing its investments between two regional banks, LaGrange hired Merrill Lynch about five years ago as a consultant on managing its portfolio, vastly diversifying its exposure to a wide range of mutual and hedge funds. Of its $31 million in debt, two-thirds is locked into fixed-rate bonds at 3.2 percent, and the remaining $10 million is in variable-rate bonds but with a swap agreement that will permit their conversion to that same fixed rate.

Also, LaGrange is more conservative than many private institutions on spending from its $45 million endowment. While many peg annual endowment spending to a percentage—typically five percent—of the last three years' average market value, LaGrange uses a five-year average. This helps to lessen the impact of economic bumps.

Dana Paul Freshman applications increased by 12 percent during Dana Paul's first year as vice president for enrollment management.

Yet, President Gulley acknowledges that endowment spending is likely to be down at least $100,000 a year for the next five years, forcing consideration of more tuition increases and an increased enrollment in the coming years. "That's going to have to be made up somehow," he said.

LaGrange attempts to limit tuition revenues to around 60 percent of the budget (projected to be about 63 percent this coming year). "You certainly don't want to go into the mid-sixties," said Pirrman. "You're getting pretty tuition-dependent then." Room and board provides another 13 percent of annual revenues, meaning that the student contribution to the budget approaches 75 percent.

Another proactive move that has paid dividends came three years ago when LaGrange launched a football program. A team that went 0-20 the first two years made the playoffs in their Division III conference last fall and ended with a 10-2 record. It not only boosted school spirit, the new program also boosted enrollment by attracting 100 boys who wanted to play football at a Division III school that doesn't offer athletic scholarships.

"We studied it endlessly, but it was a smart move," Pirrman said of the football initiative. "In addition to bringing in more students, it helped us with gender balance."

Finally, an admissions program that was floundering badly was overhauled last Pull Quoteyear when Gulley hired Dana Paul away from Berry College to serve as vice president for enrollment management. A 32-year veteran of college recruitment wars, Paul energized an admissions office that Gulley concedes he had let drift too long.

That energy appears to have paid off. Freshman applications for the coming fall term were up 12 percent from the previous year; acceptances increased 22 percent, and deposits paid were up 70 percent.

The big question remaining is the "yield"—how many students will actually show up in the fall. Paul, who had his doubts six months ago, is optimistic. One key to that optimism is that freshman retention—the number who return for their sophomore year—is now projected to be 84 percent after averaging around 70 percent in recent years, a number considerably lower than that experienced by most of the comparable private institutions.

David Rowe Fundraising dropped in the first half of last year but picked up in the spring, says David Rowe, vice president for advancement.

Why the good numbers? Paul speculates that the bad economy, ironically, is acting as an incentive for some students and parents. "There are folks out there who see higher education as more valuable than ever before," he said. "They see it as a protection against the vagaries of the economy."

But Paul added a cautionary note. Some parents who have received financial aid packages are raising questions about whether they will be "able to swing it, after all," and are coming back to see if they can get more assistance.

Gulley, who is assuming the presidency of Woodward Academy in Atlanta this month, shares that caution as he looks further down the road.

"The kind of families we attract (at LaGrange) probably had enough reserves to get through the coming year," he said. "The question is, if the economy doesn't actually improve, can they make it through the year afterward and the year after that? Beyond next year may be a challenge."

While fundraising for the operating budget during the first half of the last fiscal year—July to December 2008—fell about six percent from the previous year, it recovered during the second half of the year to be almost even. David Rowe, the LaGrange vice president for advancement who left at the end of June to become president of Centenary College in Louisiana, said the climate for fundraising improved during the spring, noting that donors "seemed to have more optimism about their portfolios."

Rowe is particularly proud of a fundraising appeal in which the college pledged funds from a special bequest to match two-for-one up to $500,000 in donations to the operating budget. The matching million dollars would be used to build a pedestrian bridge linking the north and south Pull Quotecampuses. The goal was to raise the half million dollars in six months, but that target was met in less than five, and ended up raising $571,000 from 821 separate donors. The bridge, named the "Gulley Gateway," in honor of Gulley and his wife, Kathleen, for their 13 years of service to the college, was opened in May.

Only two major contributors—one individual and one foundation—have made significant cuts in donations promised for the coming year, Rowe said. LaGrange is especially dependent on foundations for contributions—they accounted for 81 percent of the school's contributions in the last fiscal year—but Rowe has discovered that there is no new money to be found there.

"We made overtures to foundations we didn't have longstanding relationships with," he said, "and most of them were waving off new relationships and new requests because they're having trouble keeping up with their existing relationships."

The subtle pressure on both administrators and students is evident in every conversation, reflecting an awareness of financial issues that would have been unimaginable a few years ago.

It starts with a simple number that private college admissions officers know all too well. Eight of ten cross-applications filed by LaGrange applicants are to public schools. That is the reverse of cross-applications ten years ago, when eight of ten were to private schools.

"It's not a trend that makes me sleep well," said Paul, the admissions director.

Paul particularly noted a greater concern and awareness among students about the financial situation at home. Whereas ten years ago, students appeared clueless about family income or ability to invest in college, that is no longer the case. "Now, you ask what their parents make, they can tell you," Paul said. "They can tell you what their parents estimate they've going to be able to afford on an annual basis. And some of these kids are saying, 'I feel a responsibility to my parents to make sure that my higher education is not a financial burden on them.' The whole mindset (among parents) of 'We're going to sacrifice to send our son or daughter to the best school' has been replaced by, 'What can we afford, what will have the least impact on our comfort level with regard to the lifestyle we've become accustomed to?'

Sylvia Smith Many students choose LaGrange to take advantage of small classes, "but they pay for that privilege," says financial aid director Sylvia Smith.

That increases the pressure, Paul said, to recruit students who have the potential to succeed, and to weed out those who may turn out to be slackers and whose parents are now more likely to say, "We've just kissed away fifteen grand for you to walk around campus and get C's and D's, and we're just not going to do that anymore."

If it is Paul's challenge to get them to campus and judge their qualifications, it is financial aid director Sylvia Smith's job to figure out a financial package that is in both the students' and the college's interest.

Possibilities abound. One-third of LaGrange students qualify for federal need-based Pell grants. The HOPE scholarship match is a big attraction. LaGrange also offers several big-dollar merit scholarships. Numerous donor scholarships are available. Federal loans are plentiful, though some private lenders have shut down as a result of the credit crunch or limited access to their funds. The work-study program helps.

Smith's office also looks for resources connected to the majors that applicants are likely to pursue. Pre-med majors may qualify for special grants, and a number of hospitals offer nursing scholarships. Those with an eye to becoming teachers in Georgia have access to at least two programs that provide grants to students who commit to service in the state's education system.

Looking toward the fall, Smith said it's difficult to tell the outcome, but she sees the economic impact as more than a one-time event.

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"I think in future years it's going to be more difficult for families to make that decision (to opt for a private education)," she said. "A lot of students come here because they don't want to be in a class of a hundred and fifty students. But they pay for that privilege. It's a question of trade-offs, and are they willing to face it."

While working to assemble a financial aid package that fits, Smith also encourages students to do their own spadework—to look for scholarship resources within their hometown communities and within the companies where their parents work. They are directed to scholarship search engines on the Internet.

"We try to get them to look beyond the traditional resources," said Smith, adding that "a certain amount of reality has to be brought to bear, especially with those families that don't want to borrow to go to school. We have to tell them pretty candidly that that is not going to be an option here unless you've got the resources. We won't be able to pull together $30,000 in educational grant assistance…that's not reality. So we encourage them to look at it as a long-term investment, that the interest rates are reasonable, the monthly payments are reasonable because they have so much flexibility beyond the standard ten-year repayment, and to look at it as an investment."

Smith sees the same kind of student concerns about the economy that Paul described. "I think parents communicate more about what's going on with their financial situation than in the past," Smith said. "So if there's any kind of change, if a father's being laid off, or there's an illness, they're conscious of that in their decision-making process. We have students who want to be here but have parents who've lost their jobs, and they don't feel they want to put the added burden of private school tuition on top of that."

The economic reality is also illustrated in the popularity of work-study programs, where students who were wait-listed for one of the 375 slots found little movement last year.

The experiences of students interviewed at mid-year and again at year's end echoed both the optimism and concerns of school officials.

Spencer Cullom Scholarships, grants and parental contributions have enabled freshman English major Spencer Cullom to attend LaGrange.

In December, Spencer Cullom, a freshman English major from Marietta, Georgia, was worried about her family situation because she has a younger sister who will be starting college in two years and a younger brother who will be starting two years after that. Cullom had three scholarships plus the HOPE matching grant but already had a state university in mind if it became necessary for her to leave LaGrange.

At the end of June, however, Cullom said she was "happily returning to LaGrange this fall" and will receive the same scholarships and financial assistance she received last year.

"Sorry to be boring," she said, "but the economy hasn't really had an effect on me, and as long as I can keep my grades up and continue to receive the HOPE and the other scholarships, I should be fine."

One the other hand, Emily Salter, a freshman from Newnan, Georgia, took out $14,000 in loans last year in her Pull Quoteown name. She said she intends to return to LaGrange this fall, but has been unable to find a job this summer, and that her prospects for financial aid are still unclear. "The economy right now isn't working very well, and being a college student and not having a job over the summer is tough," Salter said. "I've had to really watch what I spend; I'm running out of money fast."

Kenneth Wiley, a sophomore theater-English co-major, also from Newnan, was attracted to LaGrange by its theater program, its small size and its low student-teacher ratio. He has a twin brother at Georgia Tech in Atlanta and said his parents almost had their home foreclosed on last fall.

He, too, is still uncertain if he'll have enough money to make it through the coming year. He has been offered $23,000 in financial aid, but that leaves him at least $6,000 short, and he still owes $1,400 on loans he took out last year. He is working at a summer camp making $150 a week, which he fears will not be enough to pay off his debts.

Kenneth Willey Sophomore Kenneth Wiley has been offered $23,000 in financial aid, well short of the $33,000 it costs to attend LaGrange for a year.

On top of all that, Wiley learned in mid-June that his father has cancer that is inoperable but can be treated. "The outlook is positive—as positive as can be expected," he said. "But with medical expenses on the rise, and the likelihood that the economy is going to derail any further loans, I may end up at home this fall looking for a job.

"Am I upset? Am I angry? Of course. But if the situation at home grows too intense to keep affording my education at LaGrange, I have the option, the choice, the responsibility, to give up that privilege, go somewhere else, or even return home," Wiley said. "My parents have done so much to give me everything they didn't have," he added. "Losing LaGrange, I feel, would break their hearts as much as it would mine. So I'm staying as long as I can."

Wiley's comments reflect the kind of short-term anxiety that fosters long-term concern for college administrators, and raise a basic question: Will parents continue to pay for the amenities and advantages of a private school if they are not getting an elite brand name in the bargain? Offering the former but not the latter may not be enough to sustain lesser-known small colleges.

Smith, the financial aid director, summarized the issue starkly: "A lot of private institutions are going to see difficult times in terms of whether parents are willing to fork out the investments for the benefits available at private institutions, in favor of a less costly one, regardless of the quality of the education," she said. "Unfortunately, and I've spoken with other colleagues about this, we may see students just forego college for a while. Because I do believe that the American dream, as it appears now, is disappearing: Home ownership, a college education, is not necessarily a certainty anymore."

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National CrossTalk July 2009 - Online Edition



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