Berea College has the most to lose from stock market decline

No college in Kentucky has taken a bigger hit from the plummeting stock market than Berea College, where an endowment helps every student attend tuition-free.

The 1,514-student Berea College relies upon returns from its huge endowment — the largest for a higher education institution in Kentucky — for 80 percent of its educational and operations costs.

Its endowment has lost $300 million from its high-water mark of more than $1.1 billion in the summer of 2007, said Jeff Amburgey, Berea's vice president for finance.

The endowment's total value sunk to $754 million in November but rebounded slightly with the market to about $800 million this month, he said.

Still, a 25-30 percent drop — if that holds up through Berea's fiscal year ending June 30 — would represent the deepest cut to its primary income source in the college's 153-year history.

"Berea's endowment, as far as I can tell, has not experienced a drop of this magnitude even in the Great Depression," Amburgey said. At that time, most of the endowment funds' investments were in U.S. Treasury bonds that were largely unaffected by the 1929 stock market crash.

Now, the money in the endowment is invested in stocks and bonds, as well as some hedge funds, which are set up as large private investment partnerships.

Amburgey said the hedge funds have "somewhat helped" because they haven't plummeted the way many stocks have. But they still lost value on paper.

"So there was really no place to hide," Amburgey said.

That's the problem every college and university has faced. But few, if any, U.S. colleges are as dependent on their endowments as Berea. The college provides a $23,000-a-year education to its students for free. To qualify, students must demonstrate financial need and must be "academically promising," according to the university's mission.

With no income from tuition, Berea has relied on the generosity of wealthy donors to build up a sizeable endowment that far outpaced every other Kentucky university and kept up with some of the largest schools in the country.

To pay the bills each year, Berea skims off about 5 percent of the average value of the endowment funds over 12 months, Amburgey said. That amounted to about $50 million this year.

Of that, $34 million went toward the college's $43 million operating costs.

The rest of the money taken from the endowment went to several funds reserved for building improvements, student aid for room and board and an emergency reserve fund, Amburgey said. Some of the endowment funds are restricted for specific uses, such as paying for the laptop computer each student is given at enrollment.

Amburgey said Berea can weather the financial turmoil with the help of a surplus built into this year's budget and by employing basic belt-tightening measures, such as restricting new hires and continuing energy efficiencies.

The risk, he said, is if the economy and stock market continue to flail throughout 2009 and beyond.

"It's our financial lifeblood," he said. "We've got to keep the purchasing power of that healthy for the future."