Author: Riley Kimball
Outside the Oxy bubble, the stock market is taking a beating that began with a nearly 500-point drop on the Dow Jones Index on Sept. 15. Since the onset of the current credit crisis, the Dow Jones market has fallen over 25 percent. A turn of events such as this can be frightening to those already struggling to pay Oxy’s high tuition. So, how exactly will the credit crisis affect Oxy?
Michael Groener, Vice President of Administration for Occidental College, issued a notification about the school’s financial standing in the Oct. 9 Student Digest. In his statement, Mr. Groener identified three concerns: management of cash flow, management of the endowment, and monitoring Oxy’s retirement plan for faculty.
The liquidity of funds is the most complicated issue. Oxy keeps its excess funds in several places, including the Commonfund Short Term Fund. This account exists to help schools across the country manage their assets. Unfortunately, when Wachovia Bank, trustee of the Fund, neared bankruptcy, it terminated the Fund. This means that Oxy’s investments in the Fund will be returned, but not quickly.
Most of the school’s money, however, is in the Community Bank, centered in Pasadena. The Community Bank does not distribute residential loans, so it has avoided the majority of the downturn. This means that the majority of Oxy’s funds are still accessible. The money that Oxy recovers from the Commonfund will be reinvested in two other accounts: the State Street and the Vanguard short-term government funds, until a new investment strategy is formulated.
The endowment, another concern, remains sturdy. Under the council of Cambridge Associates, the endowment is extremely diversified, so even a crisis such as this will not hurt the endowment in the long term. While returns will be low for the foreseeable future, the endowment remains safe.
Retirement funds, too, are secure. They, like the endowment, will see decreased returns for the time being, but TIAA-CREF, the organization that manages retirement accounts, is stable in the market.
In an interview, Groener elaborated on how the crisis would directly affect students. Regarding an unusually high increase in tuition, he said that he “wouldn’t expect that.” Groener explained that it’s difficult for one college to increase tuition more than others, so students should not anticipate skyrocketing prices.
Groener identified some budget concerns for next year. “We’re looking at various scenarios: what if we can’t fill the incoming class? What if some current students cannot return? Will there be a heightened demand on financial aid?” He also anticipates a downturn in donations from alumni.
Groener noted that fortunately Moody’s Investors Service, which distributes and manages bonds of many large institutions, has shown that “institutions like Oxy which are more selective tend not to have difficulties with enrollment during recessionary periods.” This applies to the problem of giving, too, for more selective schools suffer smaller declines in giving.
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