When the markets were booming, billionaire colleges like Harvard, MIT and Stanford tapped their swelling endowments and launched spending binges on faculty, buildings and scholarships.

Now, they're seeing firsthand the one downside to relying on a huge nest egg: The market crash has them confronting sharp budget cuts.

A new survey released today reports college endowments fell 3 percent in the fiscal year ending June 30. In a follow-up, a smaller group estimated declines averaging 23 percent in the first five months of fiscal 2009, which began in July.

That decline is nearly twice as big as any full-year return since endowment performance was first tracked in 1974, said Brett Hammond, chief investment strategist at TIAA-CREF, which collected the figures with NACUBO, a college business officers group, and Commonfund Institute.

The survey of 791 colleges accounts for virtually all of the endowed savings of American public and private colleges -- some $522 billion last June. But the losses since then would erase nearly $120 billion. Colleges typically spend around 5 percent of their endowments annually.

The challenge for colleges with eroded endowments is that many of the faculty they hired now have tenure, all those new buildings still need heating -- and financial aid demand is rising.

From 2002-2007, college endowments grew 11.5 percent annually. Last June, there were 77 institutions with endowments of $1 billion or more -- 30 more than in 2005. But in the seven months since, at least 30 may already have lost the distinction of being billionaire schools.

Compared to other institutions, the plight of elite universities is akin to the trust fund child versus the guy with no savings but a steady job. You'd probably rather have the trust fund. But when the market crashes, it's the trust fund child who notices the lower standard of living.

Such institutions as Stanford and Yale note that the plunging market has essentially reduced their endowment spending to where it was three or four years ago. The dilemma is that they boosted spending on such programs as financial aid during the good years. Yale, Stanford and others say they're committed to their expanded aid programs, but less well-endowed schools may have to cut back.

Last week, Stanford's faculty senate was briefed on projected endowment losses that could reach 30 percent. The university will cut $120 million over two years from an $800 million budget. Forty-nine business school employees have already been laid off, senior administrators have taken salary cuts and some employees have even been asked to turn in their university-owned Blackberries.

Commonfund's John Griswold says the 1970s were more dangerous overall, when endowments were smaller. But many colleges relied on them less then, too. What's unprecedented is the breadth of this decline, across the full range of investments colleges made, hoping to hedge against big losses.

"There's great concern and anxiety, I think partly because this is such a broad and sharp decline," Griswold said.

Emory University in Atlanta is expecting $60 million less annually from its endowment ($5.5 billion last June), the president there wrote recently. Even Harvard has cut travel, hiring and visiting faculty. Its endowment was $36.9 billion last June -- the highest of any institution -- but it is projecting losses that could exceed $10 billion.

Some public universities have been hit, too; the Universities of Washington and Illinois have lost around 25 percent, or $500 million and $370 million, respectively. However, public institutions rely less on endowments; at Illinois, for instance, the endowment kicks in less than 2 percent of the budget, compared to 44 percent at Yale.

Mount Holyoke, the Massachusetts women's college, is one of many looking for more money for financial aid even as it has to save $5 million overall amid a fundraising slowdown. For now, most capital projects are on hold, except for energy-saving ones, said CFO Mary Jo Maydew.

It's one of those rare times when the poorer colleges -- who balance their books mostly with tuition -- can afford a small smirk.

"What we provide is paid for," said Joe Womack, vice president for advancement at William Jessup College, a small Christian college outside Sacramento, Calif. The school's $1.2 million nest egg is the second-smallest of the 791 endowments NACUBO ranked.

"I think we get out ahead of ourselves when endowments provide millions of dollars for us to get fat on," he said, adding it's "hard to trim that fat in higher education."

Colleges, he says, are learning the same lesson as everyone else: "You've got to live within your means."

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