It’s time to add another item to the list of painful consequences of the current recession: NYU is unable to reach very far into its scholarship endowment for students because of a 30 year old law.

In 1978, a New York state law was implemented, designed to keep endowments of non-profit organizations (like NYU) from being depleted. Basically, it dictates that any endowment funds may be used so long as the organization doesn’t spend beyond the “historic dollar value” (HDV) of the endowment. The HDV includes the value of the endowment at its inception and any donations to the endowment beyond that. This means that NYU and other non-profits are only able to spend the appreciation their endowments have earned – none of the principal can be touched.

In normal economic conditions, this is a good idea – it keeps an endowment from being tapped into too much, ensuring sustained growth into the future. However, because of the current recession, many endowments have lost a great deal of value and are approaching their HDV level – limiting access to the funds many of these non-profits need to use, since other investments have lost value as well.

Because of the damage to the scholarship endowment here at NYU, around $10 million of the total $16 million in the fund isn’t usable. And it doesn’t look like the economy is going to turn those numbers around anytime soon.

Martin Dorph, NYU’s senior vice president for finance and budget, said, “Our primary mission is to hold our students harmless. As a result, we may have to make choices about other things we may have to eliminate or reduce. By implication, the problem then shifts somewhere else.” Basically, NYU is going to have to significantly cut back in other areas in order to give financial aid to its students.

Although new laws have passed in many states eliminating the HDV baseline, New York hasn’t even introduced similar legislation. It may mean less financial aid for an already hurting student body.

Photo courtesy of Flickr user greefus groinks – used under CC license.