The Economics of Excellence

John and Susie Roush

By John A. Roush, Centre College President

This summer marks Susie’s and my fifteenth anniversary at Centre, and what exciting years they have been! Though not without some bumps along the way, the College’s journey over these years has taken it along a road of ever greater strength and accomplishment. Some of the signs include:

  • A student body that has grown in size, from well under 1,000 to 1,350; that has grown in quality, as measured by high school class rank and standardized test scores; that has grown in geographical and ethnic diversity; that has grown in its global experience, by studying abroad in nation-leading numbers and by bringing a global perspective to the campus; and that has grown in achievement, in the classroom and laboratory, on the playing field and performance stage, and in service to the community, whether that community be Danville or the wider world.
  • An experience that continues to be based not merely on the acquisition of knowledge, but that also fosters the development of the wisdom and commitment to use that knowledge to create the good society.
  • A faculty and staff of the highest preparation and professionalism, and dedicated to the guided growth of young women and men as intellectual, social, and spiritual beings—in other words, the Centre Experience.
  • An environment for living and learning that has seen remarkable improvements as a result of over $100 million in renovation and  new construction projects.

Although this record of achievement was not predestined, the College has been able to grow the student body and achieve increased student revenues at a time of great change in the demographics and economics of American families. While Centre has become more attractive to prospective students, the relevance of higher education, especially residential liberal arts education, is under increasing scrutiny and ever greater pressure to demonstrate its value. Even though Centre has a consistent record of success in hiring, recruitment of faculty and staff of the highest quality has intensified, as Centre increasingly competes for its top choices with institutions possessing significantly greater financial resources. Having made a commitment to providing a highly residential learning experience (some 98 percent of students living on campus), Centre must continue to provide the classrooms and laboratories, the residence halls and student life facilities, the studios and the playing fields that mirror and support it.

As the saying goes, however, past performance is no guarantee of future success. While good planning and prudent management have played their part, Centre has been lucky. We certainly intend to continue to plan well and to manage carefully, and we certainly hope to remain lucky, but these things are, in and of themselves, insufficient. To speak of the pace and scope of change is to speak in clichés, but it does not diminish the power of that truth. If Centre is to ensure its present status as a very good college in the face of a world of great volatility, much less move to the greatness that it can achieve, more is needed.

Only three sources of operating revenue are available to most private colleges and universities—student tuition and fees, annual gifts, and income from endowment. To base one’s future on the whim of 17-year olds is not for the faint of heart. The options for higher education are multiplying, as are the financial pressures on most American families. Even among those students who understand and desire our kind of educational experience, growing numbers of them require greater assistance in meeting the cost. This is especially true for Centre, which has become even more distinctive among American colleges in its commitment to being a place of both high achievement and high opportunity. Centre cannot depend on dramatic increases in revenue from tuition and fees, either through significant growth in the student body or substantial increases in the comprehensive fee. Much of the enrichment of the curriculum and enhancement of campus facilities has been made possible through extraordinary generosity. But even for a college with loyal alumni and devoted parents and friends such as Centre’s, that generosity is subject to social and economic shifts.

Centre College Endowment Growth, 1998-2012

Centre College Endowment Growth, 1998-2012

Centre has made steady, if not spectacular, progress in the growth of its endowment since 1998. The graph also depicts the effect of the two economic downturns since 2000.

No institution can make itself fully immune to these factors. However, if one possibility exists, it is to build a permanent base of funds, a foundation of ongoing support—in a word, endowment. Many people think of endowment as a savings account or a rainy-day fund that can be tapped as needed or desired. A better understanding is to regard an endowment as a trust fund, one whose principal can never be spent, but which is invested, with a portion of those earnings then used to support the operations of the institution.

Let’s use Centre’s endowment to illustrate how this works. Centre’s endowment as of March 31, 2013 was approximately $230 million—the largest in Centre’s history. But that does not mean that the College has $230 million that it can spend. The endowment is invested in a variety of ways—stocks, bonds, private equity funds, etc. Centre’s trustees then establish a “spend” or “draw” rate, which is a percentage of the value of the endowment, calculated by taking the average value over the preceding twelve-quarter, or three-year, period, so as to smooth out fluctuations in the financial markets. The spend rate is set with two objectives in mind—first, to generate adequate income to support the College’s operating budget, and second, to enable the endowment’s principal to continue to grow over time. At present, Centre’s endowment spend rate is five percent. Assume by way of example that the average endowment for the current three-year period is $200 million (remember that we are still dealing with some of the bad quarters from the Great Recession). Applying a five percent spend rate to a $200 million average yields $10 million in endowment income available for use in the College’s current operations. Next to income from student tuition and fees, endowment income is the second largest of Centre’s three sources of operating revenue.

Ten million dollars sounds like a lot of money, and it is. But look at it next to Centre’s needs. Almost all Centre alumni and friends agree that one of Centre’s greatest distinctions is being a place of high achievement and high opportunity—making an excellent educational experience available to qualified students no matter what their financial circumstances might be. However, this is what making that commitment come to life looks like. For the 2013-14 academic year, Centre has made commitments for student financial aid and scholarships amounting to $22.4 million. Even if all of Centre’s endowment was devoted to student financial aid, we would still be significantly short of fully funding that commitment through endowment. But only a portion of the endowment is restricted to supporting student aid; at present, the endowment generates only some $5 million toward this core commitment. The remainder of the endowment is designated to support the academic program, faculty professorships and chairs, and other areas of the College’s operation. In essence, Centre is writing off that $17.4 million difference, which means that those funds are not available to support current efforts or seize new opportunities. In order to ensure Centre’s current status and to move it to the next level of service and excellence, it is clear that the College needs a dramatically larger endowment.

Of course, Centre has seen significant growth in the endowment over the past fifteen years, even though the country has endured two major financial crises in that period. Through the generosity of the Centre family and through wise investment policies, Centre’s endowment has grown from $134 million in 1998 to the $230 million figure noted above, and that achievement should not be underestimated. Over that same period, Centre has come to be favorably compared with, and considered to be among, the very best institutions in the nation. We celebrate this development, of course, but it also means that the College now competes with those institutions, most of whom have significantly larger endowments than does Centre. For example, U.S. News and World Report recently ranked Centre in the top five undergraduate teaching colleges in the nation; the other four among the top five are Davidson, Carleton, Grinnell, and Oberlin.

Why does this matter? If Centre has been able to achieve so much, with comparatively fewer resources, can’t that continue? Centre is an extraordinarily efficient place, and I take particular pride in that, for it demonstrates that our faculty and staff are focused on the core mission of the College, and are willing to go the extra mile and take on extra responsibility in order to serve our students. But I am also confident in saying that Centre has achieved as much efficiency as it can.

U.S. News Top 10 Best Undergraduate Teaching: Endowment Comparison

U.S. News Top 10 Best Undergraduate Teaching: Endowment Comparison

Centre has the second smallest endowment among the institutions recently named by U.S. News and World Report as the best undergraduate teaching colleges in the nation, with which Centre increasingly competes for faculty, staff, and students.

More important, the difference in resources matters because Centre has a different commitment than those institutions. Centre is committed to more than just academic excellence. Centre is committed to making that excellence available to qualified and deserving young men and women, regardless of their financial circumstances. This is the Centre College that its alumni and friends know and treasure. This is the Centre College that America needs.

It has indeed been a wonderful fifteen years, filled with extraordinary accomplishments by the Centre family. As we look forward together to the College’s bicentennial, to be celebrated on January 21, 2019, we know that the coming years will be filled with even greater achievement, as well as even greater challenge. Over the next several months, I invite you to think with me about the issues that will shape and define Centre in the near future. In subsequent white papers, we will talk about topics such as:

  • exploring ways to provide an even more creative and rigorous educational experience, grounded in the liberal arts and sciences, that empowers young people to live lives of learning, leadership, and service in a rapidly evolving and more technological national and global society;
  • ensuring that qualified and motivated students have access to that experience no matter what their financial circumstances may be, and that they can do so without incurring debt that limits the life choices that a Centre education seeks to create;
  • recruiting, supporting, and retaining the exceptional women and men of the Centre faculty and staff who bring the Centre Experience to life, and;
  • providing the physical setting that supports the guided growth of individual students in a close and caring community.

The road ahead is an exciting one—not without its share of bumps—but a road that will lead Centre into its third century of service. I am glad that we’re taking the trip together.

U.S. News Top 10 Best Undergraduate Teaching: Endowment Per Student Comparison

U.S. News Top 10 Best Undergraduate Teaching: Endowment Per Student Comparison

Of the two most common ways of measuring endowment, endowment per student enrolled may be the more important indicator of institutional strength. Centre has the third smallest endowment per student among the top ten undergraduate teaching colleges as ranked by U.S. News.

View this report as a PDF

Posted in Campaign, Home Page News, Reports