Officials doubt feasibility of 'Time' tuition plan

Administrators denied a recent Time report that Penn could use its endowment to lower its tuition. Time magazine author Erik Larson's suggestions for lowering Penn tuition are neither feasible nor economically sound, according to several Penn administrators and faculty. Larson -- a 1976 College graduate and the author of the now infamous Time article "Why Colleges Cost Too Much" -- suggested lowering tuition by spending a higher percentage of Penn's $1.9 billion endowment. The University currently spends 3 to 5 percent of its endowment annually -- the smallest percentage in the Ivy League. Larson said the University should increase its spending to 6 or 7 percent and use the extra funds to lower tuition. But University President Judith Rodin said that such a solution would be self-defeating, since the endowment covers programs not paid -for by tuition. "The endowment is there to serve programs so it is anyway subvening tuition," Rodin said. "If you would start eating into the endowment, you have less to spend on programs and ultimately you would have to increase tuition." She added that since Penn is under-endowed compared to its peer schools, it has the least opportunity of all the Ivies to "eat" into its endowment. And Budget Director Michael Masch said the University cannot afford to spend more of its endowment, since there is no way to predict market trends. "By having a conservative spending rule, we hedge against the possibility of a market downturn," he said. Associate Treasurer Lucy Momjian said returns on the endowment have been fairly steady since 1979, but added that the economy -- and especially the stock market -- has boomed since then. And Economics Professor Herbert Levine said dipping into endowments is usually a bad idea. "An endowment is built up as a permanent increase in the income generating part of the funds you have," he said. "It's almost part of the 10 commandments of any financial officer of any firm that you don't eat into the endowment unless you have a crisis." And Finance Professor Jeremy Siegel noted that spending the University's endowment on tuition breaks may not be feasible since much of the endowment is earmarked for specific projects Siegel added that he doubts many donors would contribute to the University if they knew the money would cover on-going expenses. In his article, Larson also questioned why the University has increased tuition at a higher rate than inflation, suggesting than an inflation-based rate of increase might better serve students. But Siegel stressed that the article measured tuition increases against the overall rate of inflation, while failing to consider fluctuations in the rate over different sectors of the economy. "Certain costs go up higher than the rate of inflation, particularly costs in the service industry, like education," he explained. Rodin agreed, explaining that economic measures of inflation are not meant to specifically address the financial aspects of running a university. "The consumer price index is about laundry and groceries, not the high tech things you do at a university," she said. Levine agreed that the CPI measures a different package of goods than those used by universities, but added there is still a reason for concern if tuition is rising faster than salaries. Masch said the University plans to lower future tuition increases, although there is no commitment to bring increases in line with inflation. But Rodin said the University is trying to lower future tuition increases to a rate nearer to the inflation rate. "We are budgeting downward," she said. "We are planning for decreasing increases and we will continue to do that over the next few years." Daily Pennsylvanian staff writer Michael Brus and Business Manager Tagar Olson contributed to this report.