What Are Some Potential Consequences for Campuses, of the Current Financial Crisis?

In a recent meeting between some SCUP volunteers and staff in Ann Arbor, it was noted that one of the consequences of the current financial crisis might be an especially difficult time for small private colleges without large amounts of very liquid capital. We hypothesized that, because of the financial crisis, campuses might have limited access to capital, in places where they had stored or invested it, and that might cause them cash flow problems. Now, the New York Times article quoted from below, Bank Limits Fund Access by Colleges, Inciting Fears, shows that at least in some places, this is happening. And this excellent piece, As Credit Crisis Freezes Colleges, Worries Mount, by several Chronicle of Higher Education reporters and editors is a useful scan of the external financial environment and possible effects on higher education.

In a move suggesting how the credit crisis could disrupt American higher education, Wachovia Bank has limited the access of nearly 1,000 colleges to $9.3 billion the bank has held for them in a short-term investment fund, raising worries on some campuses about meeting payrolls and other obligations.

Wachovia, the North Carolina bank that agreed this week to sell its banking operations to Citigroup, has held the money in its role as trustee for a fund used by colleges and universities and managed by a Connecticut nonprofit, Commonfund.

On Monday, Wachovia announced that it would resign its role as trustee of the fund, and would limit access to the fund to 10 percent of each college’s account value. On Tuesday, Commonfund said that by selling some government bonds and other assets held in the fund, it had succeeded in raising its liquidity to 26 percent.

Still, Wachovia’s announcement sent shock waves through higher education, sending hundreds of college presidents rushing to check their financial vulnerability on every front.

Some smaller colleges that had not previously arranged lines of credit were feverishly seeking to negotiate those on Wednesday. And some large institutions said they were facing, at the least, a major financial inconvenience as a result of Wachovia’s action.