WEBSTER GROVES — David Underwood and his wife, Nancy, loved their experience at Webster University. It’s where they met. It’s where they fell in love. And it’s how they were able to move up from their working class backgrounds.
So when Nancy died in a car accident in 1993, just a few years after graduating, David used the insurance proceeds to set up a scholarship in her name at Webster. He wanted to help students who, like her, loved photography and needed a little help to get started in life.
“I just thought, ‘I want to do something good with it,’” he said.
Then this week, FedEx delivered a letter from the school’s board chair: Webster University wants to tap Underwood’s donation and others like it to meet a loan obligation.
In the letter, Webster Board Chair Sumit Verma said the university planned to ask a court to lift restrictions on endowment funds — which are typically for scholarships, professorships and research — in order to use the money to fulfill requirements of a loan.
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“Webster is committed to restoring your donated funds to their present value when resources are available to do so,” Verma said in the letter.
As of Thursday afternoon, such a request had not yet appeared in court filings.
Webster spokeswoman Stephanie Dane said in a statement that terms of the loan dictate the university have a certain level of unrestricted money and that “many” donors have agreed to the university’s request. She did not provide details on the loan or how much the university is seeking.
Verma did not respond to a request for comment.
The letter comes at a precarious time for the private college: Webster has lost more than $128 million over the past decade, including a $37 million deficit at the end of the 2022-2023 school year. Meanwhile, its board of trustees, led by Verma, continually awarded raises to Chancellor Beth Stroble and President Julian Schuster that made the duo among the highest-paid university leaders in the region.
The school also faced a lawsuit over unpaid rent at its satellite campus in downtown Ƶ. And its bond rating has fallen into junk status, which affects the school’s borrowing power.
Four of its leaders, including Stroble and CFO Richard Meyer, have since resigned.
University officials said last year that some things had improved. Enrollment this past fall grew 27% over last year to over 13,000 students, thanks to a focus on international students and pivot to science, technology, engineering and mathematics degree programs.
Verma’s letter, however, suggests the university’s finances are more dire than publicly known.
Typically a university invests donations in an endowment, and spends interest on operating expenses and allows the principal to grow toward long-term goals and financial stability. Sometimes endowment funds are unrestricted, and colleges are allowed to use that money however they see fit. But donors will often request their funds be restricted and used only for specific purposes, like Underwood’s scholarship.
The Nancy Anne Underwood Scholarship went into effect around 1998 and has since helped at least 25 students. It’s a small fund, David Underwood said, about $4,200, but he had been impressed with how the university had been able to grow his and other donors’ money. He was only vaguely aware that the university had faced recent financial problems.
“It’s making a difference in people’s lives, so it has some long-term value to me that something good came out of that,” he said. “And so when you see a letter like this...”
‘Not a way to rebuild trust’
At least two other Missouri universities have sought to tap into restricted endowment funds.
Fontbonne University in Clayton, which has experienced a revenue decline of more than $14 million over the past decade, is one of few U.S. colleges that reportedly tapped into restricted endowment funds.
A civil court judge in 2020 approved the Catholic university’s request to use restricted funds for “scholarships and institutional aid,” court records show.
Most recently, a Missouri judge last fall lifted restrictions on donations to Avila University in Kansas City after the school, under financial stress due to enrollment declines, petitioned the court.
The ruling allowed Avila to access $6.4 million from 97 donor funds intended for scholarships.
The idea of asking donors to lift their restrictions on endowment funds was first floated in the early days of the pandemic by economic professor Buck Goldstein at the University of North Carolina.
The proposal was not widely adopted, in part because universities soon enjoyed a flood of federal relief funds and a stock market boon on their investments.
“The context was this emergency situation across the board,” Goldstein said. “I wasn’t thinking about it in terms of schools that were about to go bankrupt trying to get donors to change the use of their gifts.”
“That sounds like a really losing proposition,” Goldstein continued. “And probably not a way to rebuild trust in the institution.”
The letter Verma sent to Webster donors did not provide any details about the loan. The one-page letter just told donors that “meeting its current financial challenges has required a number of adjustments.”
Webster’s financial filings of the 2022-2023 school year show that a lender had demanded full payment of a $30 million loan in April after the university had failed to uphold one of its requirements.
The university paid that lender in June with a loan it obtained from a different bank. That loan is due in 2026, though Webster has already failed one of the loan’s requirement. The school was working to correct that, according to financial filings.
The financial filings also show that Webster has already used unrestricted endowment funds as security for loans. In October 2022, the university transferred $12.5 million from endowment funds used by its board of trustees as security for a $10 million line of credit. Trustees approved using an additional $20 million from their board-designated endowment funds to support university operations.
Webster officials are even tapping into its European campuses for help. The school has hired a consultant to leverage equity at its campuses in Geneva, Vienna, and in Leiden, Netherlands.
An independent audit of Webster’s financials said the schools’ continuing deficits “raise substantial doubt about the university’s ability to continue.”
The filings show some promise. A $35 million fundraising campaign launched in 2019 has so far raised $17 million, filings show.
Underwood does not want his wife’s scholarship to be used for anything other than what he established it for. He hopes the court will intervene.
“If Webster is failing on that account,” Underwood said of protecting endowment funds, “that’s deeply upsetting for the community at large as well as all of the people over the years who’ve made some pretty significant contributions that came out of our good experiences there.”