College 101
Colleges and Cash Flow: How Schools Pay for Themselves
Has there ever even been a sky that blue? (Source)
Post-secondary institutions rake in nearly 500 billion dollars annually (source). That's more money than you and everyone you know will ever make in your entire lifetimes. Combined. So it's not hard to see why college revenue is such a big deal. However, not all post-secondary revenue streams are created equal, and things look very different between private, public, and for-profit schools. It can be a jungle out there, but don't worry, we'll break it down for you.
Public Colleges and Universities
Just listen to your mom. (Source)
Your mom wanted you to go to a nice state school nearby and your mom makes a good point. Tuition is generally more affordable at two- and four-year public schools. State and federal funding subsidizes these institutions at a higher rate than any other kind of post-secondary institution. Government funds made up about 71% of the total revenue for two-year schools and 40% for four-year schools (source) in 2011–12. This allowed public institutions to rely on tuition and student fees for just under 25% of their yearly revenue (source) during the same period. Basically, state schools are designed to keep you from going completely broke.
Well, sort of.
Funding for state schools has been in not-so-great shape for a few years now. Median state funding per student dropped from $6,211 in 2003 to $4,695 in 2012 (source), which helps to account for the increase in tuition. State school tuitions have risen 28% since 2007 and in some states, like Arizona, tuition has risen more than 80% (source). Students are largely picking up the check.
So it's understandable that college-goers are surly. As out-of-pocket tuition and expenses rise, public college is not the same fortress of cost-cutting that it was in the 1970s when state funding accounted for up to 75% of public school revenue (source).
But we're not saying your mom is totally wrong. State schools can still be a safe bet for the cost-conscious student, but several factors like in-state tuition, federal grants, and loan awards can play a large role.
And lest you think all state schools are the college equivalent of one-room school houses, consider the massive endowment of schools like University of Texas at Austin—the current leader in football revenue—who brings in over $165 million a year from their football program alone (source). That's a lot of taquitos.
Private Colleges and Universities
So how big's your endowment? (Source)
Private institutions play by slightly different rules. In 2011–12, four-year private non-profit schools made a slight majority of their revenue (42%) from alternative sources, which was more than they earned from tuition and student fees (39%) or government grants (16%) (source). Private colleges and universities are on a whole 'nother level.
Prestigious universities with strong name recognition and vast alumni network often have diverse revenue streams that lead to massive funds like Harvard University's 36 billion-dollar endowment (source). Again, think of the taquitos you could buy. Or tacos, if you prefer the classics.
Large endowments provide a safety net for schools that might otherwise feel the sting of a changing landscape in higher education. Colleges and universities have increasingly offered discounts on the price of full tuition and fees in order to make enrollment more attractive. This money, for colleges that can afford it, comes in the form of institutional grants, and the discount rate was expected to rise to 46.4% by the 2013–2014 academic year (source). Some private schools without the moolah to compete have already gone broke trying to keep up. Link to: Is Your College Going Broke.
For-Profit Institutions
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If you thought that private universities ran the risk of bleeding you dry, then we have some bad news for you: private for-profit colleges and universities make 89% of their revenue from student tuition and fees (source). This is the largest percentage across all three types of post-secondary institutions surveyed here. It can get pretty expensive.
A two-year investigation by a Senate committee revealed that 96% of for-profit students take out federal and private loans, which more than 20% of students default on within three years (source). So like we said: it's expensive.
But that doesn't mean that all for-profit students and alumni are unhappy with their education. In one survey, 37% of alumni said their degrees were "well worth it" and 58% thought their school did an excellent or good job teaching marketable skills (source). For-profit colleges also tend to serve populations who aren't as well-represented in public and private universities. A 2012 report by the Departments of Treasury and Education found that 80% of for-profit students were the first in their families to attend college and 51% came from low-income families (source).
On the other hand, the for-profit college system has been plagued with lawsuits and challenges from state and federal government. The decision to attend any school shouldn't be made lightly, and in the case of for-profit schools, it might be wise to keep a close eye on your financial situation. Because, you know: expensive.
How about the future?
We wish our office looked like this. (Source)
Things are rapidly changing in the college game and there are a lot of ideas about what the future holds. It's likely that whatever the landscape looks like in the near future, it will involve technological innovation. Schools are increasingly using Massive Open Online Courses (MOOCs) to give students access to courses and classwork on their own time and on their own terms. Arizona State University, for example, offers what adds up to a student's entire freshman year in online courses (source).
Whatever they do, it's clear that colleges and universities across the board are going to have to innovate to survive. And if not, there are always other ways to get an education.