American universities have long been the envy of the world, with seemingly bottomless purses to bankroll cutting-edge research, top-notch faculty and construction projects galore. And fiscally speaking, these schools have it better than most businesses in the U.S.: multiple sources of revenue, including parents willing to pay tuition through the nose amid all kinds of money trouble, have often kept these institutions insulated from economic downturns. But in a financial crisis of this magnitude, even the ivory towers are getting hit — and in more ways than one. Not only have Bank of America, Citigroup and some two dozen other lenders cut back on or stopped issuing student loans, but the market meltdown has left many colleges scrambling to come up enough cash to cover payroll and other near-term necessities.
Last week, nearly 1,000 colleges were told they couldn’t access most of the $9.3 billion sitting in a short-term fund that had been offering slightly higher returns than U.S. treasuries. To prevent a run on the fund –12% of which was invested in mortgage-backed securities — the fund’s trustee resigned and froze withdrawals so it could liquidate the assets and distribute the proceeds in an orderly manner. The same thing happened to another 200 schools with $1 billion in an intermediate-term fund. Given that the schools will get about half of their money by the end of this year and the rest by 2011, there’s a severe cash crunch for many small schools, some of which had up to half their liquid assets in the short-term fund. Read full story. (Time)