How Your University Makes Money
University funding in the United States is unique among developed countries. Rich nations usually fund all of their universities publicly while simultaneously subsidizing the cost for their citizens to attend. College in the US rely mostly on private donations and other sources of funding while requiring students to shoulder a much higher percentage of the full cost required to attend the institution. While this system does have some advantages, the price for attending a good school can be very high, and more students than ever are starting their professional lives mired in five or six figure debt bills. Here is a break down of how your university (which is usually a non-profit organization) makes enough money to sustain its yearly operations and expansions:
- Research funding from the government or other organizations. Universities that employ specialists in certain areas of study will often receive research requests from government organizations or other non-profit groups. While the projects are almost never explicitly sponsored by the group, financial support is given to the professors or departments to aid in the completion of the project. For example, a university with experts in salmon migration could be tasked by the U.S. Fish and Wildlife Service to study the impacts of pesticides on migration patterns. The field costs for the study would be covered by the department and it would be published under the names of the experts. When the research is published private companies can use the findings to drive innovation and employment.
- Student tuition charges and fees. This source of income is one of the university’s largest, and the one that impacts students the most. Most universities are unable to charge the premium that elite schools can, but fees across the board are rising at a rate that far outstrips inflation. Students shouldn’t feel bad when their parents describe how they worked themselves through university on a tiny salary without debt. Today, because of the rapidly risings costs, that would be a complete impossibility. Typically, tuition and student fees cover far less of the costs associated with running a university than students’ assume, creating the need for alternative sources of financing.
- Investments. Universities are very cautious with their money and usually invest large grants and other donations into long term low yield investments. These large pools of equity help keep the university secure and ensure a steady stream of funding for future program expansion and support. They also help universities secure funding for expensive capital expansion.
- Grants and donations. Universities find themselves fundraising almost constantly to support research, daily operating expenses, and program expansion. These funds are typically the first or second largest source of university income next to tuition fees. Alumni networks are extremely important to universities, not only for student networking opportunities, but also as donation pools for capital expansion and operating costs. Alumni are usually the first to know when their Alma Mater is building a new structure or expanding its programming, and they are given the opportunity to support the growth. Business donations are also accepted, and occasionally former students or supporters leave their estates to the university on their passing as an endowment.
Universities and other places of higher learning are a vital part of a developed culture. The funding models currently in place around the world all have their pros and cons and politicians will debate the issue for years. In the meantime, the universities will continue to do their best to educate the next generation of productive, motivated, talented, and ambitious members of the United States.