A Short Course in Sokanomics: Managing Finances to Support the University's Mission

November 09, 2020
Founders Circle with Peace Fountain and Founders Hall in the background
SUA depends on thousands of individuals and families around the world, many honored on the Founders Circle wall and various locations on campus, to maintain Soka's mission and experience.

The pandemic has sent a shock through higher education. Campuses are quiet, enrollments are down, and most schools expect to see less support from donors this year. The American Council of Education estimates the financial impact on higher education to exceed $120 billion.

It’s a highly challenging time, and an ideal moment to look at how SUA’s mission-driven and atypical approach to financing the education it offers—let’s call it Sokanomics—is helping it weather this storm.

Educating students is a highly expensive endeavor, with the bulk of a college’s spending used to pay its faculty and staff. Much of the rest goes to maintaining its campus. Understanding how colleges and universities fund their operations begins with looking at two things—tuition and endowment—and how they work together. How much SUA relies on each to cover its expenses is unique among colleges and universities, a decision that was made at the school’s founding.

“SUA was designed as a place to bring together a global community where students can learn from professors and one another,” said Archibald Asawa, vice president of finance and administration. “One of the goals—the dream—was to offer need-based financial aid to all students, domestic or international, and Soka remains among the very few colleges that offer such aid to international students. We also wanted to accept students on a need-blind basis, so admission is based on their academic achievements, alignment with our mission, and their potential to contribute to the community, not their ability to pay.”

In addition to SUA’s policy of need-blind admissions and comparatively low tuition, it waives tuition entirely for both domestic and international students from families with incomes of less than $60,000. “Whether you are a student from Santa Ana or Nepal, no matter where you are from, we waive tuition for those families,” said Asawa.

The result of these policies is that most SUA students pay far less tuition than most of their peers at other colleges. A school’s discount rate is the total amount of aid awarded to undergraduates as a percentage of the total tuition and fees a school would collect if every student paid the full price. SUA’s discount rate—78%—is among the highest in the country, according to Asawa. The average at private colleges was 51% in 2019, and for all colleges 46%, according to the National Association of College and University Business Officers.

So how is SUA’s generous financial aid policy possible? Two reasons: the size of its endowment and the generosity of its donors.

A Well-Managed Endowment

In 2001, SUA was founded with an endowment of about $200 million. This year, it stands at about $1.3 billion. To get a better sense of what that means and how it compares to other schools, the size of the endowment should be considered alongside the size of the student body. With 406 undergraduates, SUA’s endowment per student is the second highest in the country, ranking behind only Princeton University.

“The level and quality of what SUA offers students are available because of incredibly generous donations made by thousands of individuals and families from around the world who believe in the mission of the university and in the students who are here to immerse themselves in the Soka experience,” said Eric Reker ‘09, SUA’s investment analyst. “We have been able to consistently provide this support because of them, as well as the wisdom and vision of our board in managing our endowment.”

With SUA’s endowment so critical to its ability to continue need-blind admissions in the future, it must be carefully managed. Endowments grow through investment gains, as well as through donations. As the endowment is drawn down to be used for expenses, it reduces the amount that can be invested. Market returns are also variable, and a few years of a down or flat market will have a dramatic impact on the endowment’s size.

To maintain the health and perpetuity of the endowment principal, SUA’s Board of Trustees set an annual spending policy of 3.5% to 4%, said Asawa. Drawing down the endowment at that rate covers about 80% of SUA’s annual operating expenses. Tuition covers roughly 10% to 12 %, and the remaining gap of 8% to 10% is filled primarily from SUA’s donors.

How It Came Together This Year

Last spring, as COVID-19 began its spread around the globe, SUA quickly made plans to address the negative impact the pandemic would have on students and their families, on university donors, and as a result, on the university’s finances. Facing a sizable deficit for this current fiscal year, a variety of “austerity measures” were enacted, Asawa said, including freezing salaries, cutting back on non-essential hiring, eliminating all non-essential travel and professional development, and greatly reducing operating expenses and utilities wherever possible. As a result, the university has not had to lay off or furlough any employees, and has continued to maintain employer contributions toward their retirement.

“Because of our fiscal discipline and endowment, we are quite fortunate relative to many other colleges and universities that have had to implement extensive staff and faculty furloughs and layoffs, as well as suspend contributions toward their retirement plans,” said Asawa.”We really wanted to financially support our SUA community during the time of this pandemic.”

To support students and their families, the Board of Trustees last spring rescinded a tuition increase that had been approved for the academic year, keeping tuition, room, and board costs at last year’s level. It also created a special coronavirus relief grant equal to 25% of tuition for all students for the 2020-21 academic year. In addition, those students awarded merit scholarships to cover their room and board expenses received checks this semester to cover these costs during this remote instruction period. “All in all, we provided over $7 million in institutional aid, including $1.6 million in the form of our coronavirus relief grant to students,” said Asawa.

Enrollment of first-year students this fall was down slightly from projections, although less than the 16% average decline at colleges nationwide, and some new costs have been incurred to support online learning. The Board of Trustees did approve a special endowment distribution this year to make up for any potential budget shortfall, said Asawa.

No one can say when the pandemic will end, or how long the economy will take to rebound, but SUA’s finances remain stable. “We can only do this because of the generosity of the people who believe in our mission,” said Asawa. “What our university founder did was create a special place to gather and develop global citizens who will become the future leaders in society and for peace. I always tell people to be mindful about everything we spend because these funds carry the hopes and dreams of our sincere donors.”