Now is the time to build financial aid endowment

Duke has carefully balanced its expenditures on financial aid, programs, faculty, and infrastructure to become a top-ranked, internationally renowned university in spite of its relative youth. Duke supporters have helped the university grow in many ways, and during the 1996-2003 Campaign for Duke, donors did much to transform the campus, build the faculty, and improve the lives of Duke students. As part of that comprehensive campaign, Duke supporters committed about $300 million for financial aid, including almost $200 million for financial aid endowment.

Now, as Duke is seeing its financial aid costs increase dramatically, the need for permanent financial aid support has emerged as an even greater priority. Between 2000-01 and 2005-06, for instance, the university's expenditures on need-based undergraduate aid increased far more rapidly than revenues that might offset them. While Duke had to increase its aid spending by about 75 percent, tuition and fees rose only 27 percent.

The reasons for Duke's rising financial aid costs are many, and they will continue to be felt.

Increased student need: Changes in the economy since the late 1990s have had an impact on families in all income brackets, and this has resulted in a marked increase in student need.

Reduced family contributions: In an effort to reach out to lower and middle income families, Duke decreased its expectations for what most families should be asked to contribute to the total cost of education. This change resulted in a proportional increase in demonstrated student need.

Meeting rising need with grants, not loans: Duke made a deliberate decision to keep the loan and work-study portion of aid packages stable. This means that the university has been meeting students' increased need with larger grants.

Expanded benefits for aid recipients: While aid recipients could not always afford to pursue internships, study abroad, and attend classes during the summer months, Duke recently began offering additional grants which allow aid recipients to pursue summer learning opportunities. In recent years, the university also began providing a limited amount of need-based financial aid to international undergraduates, who had not previously been served by Duke's financial aid program.

Reduced federal support: Duke, like other colleges and universities, has had to cope with the decline in federal support for financial aid. Twenty years ago, federal funds supported 20 percent of Duke's need-based aid; today, the number is 8 percent.

Duke remains committed to financing its current aid programs, and the university would like to be in a position to make further enhancements to its aid packages. But to meet these mounting costs, Duke needs new ongoing sources of funding. Duke's peers in higher education have been building endowment for a much longer time, and some now support as much as 80 to 90 percent of their need-based aid programs with endowment dedicated to this purpose. At Duke, a relatively young school, less than a quarter of all aid costs-and less than 20 percent of need-based aid-is generated from financial aid endowment. And the financial aid programs for Duke athletics and the graduate and professional schools are similarly dependent on operating revenues.

What all this means is that Duke is in a considerably more vulnerable financial position than many of its peers. This practice of financing so much of an increasingly expensive financial aid program with operating revenue may not be sustainable in all foreseeable futures. In periods of economic uncertainty, student need tends to rise at the same time as investment returns are down and internal resources are stretched in many other ways.

Duke never wants to be in the position of having to make fundamental choices between funding financial aid and supporting the academic programs that draw students here in the first place. That's why Duke's Financial Aid Initiative is so important. New endowment dedicated to financial aid will provide resources for student need that are available year in and year out, in tough economic times as well as good. And over time, these resources will grow to provide an even greater source of funding for students in the future.

Next: A $300 million fund-raising initiative