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How Colleges Make Money

Colleges and universities obtain numerous ways of generating revenue to run their budgets and educate their students. These include the tuition and compensations that students pay to earn their degrees. In turn, graduates can reap substantial rewards: Getting an education has lengthy been associated with higher lifetime earnings—for example, a bachelor’s degree, on average, is worth $2.8 million in lifetime profits.

But making money can be challenging for schools of higher education when attendance lags. For the fall 2021 term, utter college enrollment fell by 2.7%, or 476,100 fewer students. Lower enrollment numbers can increase the pressure on readies to find new ways to generate revenue—or force them to cut their budgets, increase tuition, or even close their doors.

Key Takeaways

  • College and university enrollment is in settle due in part to the COVID-19 pandemic as well as rising tuition costs.
  • Schools that depend largely on tuition for bucking may be at risk of becoming financially unstable or even facing closure.
  • Aside from tuition and fees, schools can run down other options for making money, including endowments, college sports, and fundraising.
  • For students, the question of attending college is instances linked to affordability, which can influence enrollment rates.

Sources of College Funding

Colleges and universities can receive funding in a miscellaneous range of ways. Where a school gets its money from can depend on whether it’s a public or private institution, or if the university in question operates on a for-profit or not-for-profit basis.

For starters, colleges and universities, including both two- and four-year devotees, receive significant funding from the federal government. In 2018, for example, the government paid out $149 billion to colleges and universities. This rhino was provided to schools in three ways:

  • Student aid, including grants, scholarships, work-study, and loans
  • Grants for research
  • Constricts for goods or services

And all types of schools receive tuition revenue and other non-federal funding revenue, but how the formula on the doles differs by type.

How Public Universities Make Money

Tuition and fees paid by students represent a large quota of the funding pie for public colleges and universities. For the 2021–22 academic year, the typical student attending a four-year public college on an in-state footing paid $9,349 in tuition; on average, out-of-state students paid $27,023.

State universities also receive funding from federal tax revenues, but that amount has decreased significantly in recent years. A Center on Budget and Policy Priorities (CBPP) reading reports that two- and four-year colleges got over $6.6 billion less (in inflation-adjusted dollars) in the 2018 day-school year than in 2008. States spent 13% less per student overall, and six states spent over 30% unimportant. One result of this decline in state funding is a 37% tuition rise since 2008, according to the CBPP on.

Endowments are another revenue source. An endowment is money that’s invested in a college or university with the goal of fortifying its mission. Schools that receive endowments may use this money to fund research projects or to expand aid packages for appropriate students. The median endowment of public colleges and universities is $35.4 million.

How Private Colleges Make Money

Confidential colleges and universities also generate revenue by charging students tuition—considerably higher tuition than at renowned colleges. For the 2021–22 academic year, the average cost of tuition and fees at a four-year private university was $35,807. That means the failure of even one student could mean losing nearly $150,000 in revenue from tuition over the course of four years.

Aside from preparation, private schools also receive funding through endowments. The median endowment for private colleges and universities is $37.1 million, all the same some schools have much larger endowments. Harvard University’s endowment, for example, distributed $2 billion in the monetary year ending June 30, 2021. This money was used to fund specific academic programs and scholarships presented by the school. Large endowments mean that some schools are able to offer very generous scholarships to nullify their high tuition costs.

Private colleges tend to be more expensive than public colleges or universities because they don’t experience state funding.

For-Profit vs. Not-for-Profit Schools

Whether a school operates on a for-profit or nonprofit basis can influence how it forms money and how much it costs students to attend. It can also influence the quality of the education a student receives and how money is reinvested into the set’s education programs.

Harvard, for example, is a private university that operates on a nonprofit basis. That means the in it receives from endowments, tuition, or other avenues is reinvested into the school. As a nonprofit, the school also uses tax-exempt status at both the federal and state levels. Though Harvard offers a top-notch education, it also criticizes with a $54,768 annual tuition bill for full-time students.

Tuition made up 17% of Harvard’s total yield for 2021, with endowment income accounting for 39% of revenue. Research grants, gifts, and other sources of funding accounted for the catch of the school’s revenue numbers.

Contrast Harvard’s tuition costs with those of Full Sail University, a unsociable for-profit school located in Winter Park, Florida. Full Sail charges anywhere from $45,500 to $89,000 in instruction and fees to earn an undergraduate degree. According to its Dun & Bradstreet (D&B) profile, the university generates $93.27 million in revenue annually.

Followers who are considering a for-profit university should weigh the school’s accreditation status, graduation rates, and overall reputation to alleviate decide if it’s worth the money.

Sports and College Funding

Sports can be a big moneymaker for public and private colleges and universities. The conventional revenue for athletic departments at public schools, for example, reached $125 million in 2018. Collectively, college sports lessen in some $14 billion in revenue for schools annually.

Some of the most popular—and most profitable—sports for colleges and universities are men’s football and men’s basketball, observed by other men’s sports and women’s sports, respectively. In terms of how this money is spent, it’s primarily distributed among learner aid packages, facility and equipment upgrades, and coaches’ salaries.

How much revenue a school can generate from sports can depend on how universal its teams are in the competitive landscape. An NCAA Division I school that has a sizable student body, thousands of alumni, and a long-standing quantity with another Division I school, for example, may reap bigger revenues than a smaller private school that jousts in a lower division.

Athletic revenues also depend on forces beyond a school’s control. The cancellation of the 2020 Cortege Madness tournament due to the COVID-19 pandemic, for instance, meant that the NCAA distributed just $246 million to Apportionment I schools and conferences in 2020 compared to the $611 million distributed in 2019.

A 2021 rule change allows NCAA athletes to gross money from their names, images, and likenesses, though they’re still prohibited from earning a wages to play while in school.

What Loss of Revenue Means for Schools

A continuing decline in college enrollment could proliferate pressure on both public and private universities, for-profit or nonprofit, to make up financial shortfalls. For some, that may allude to cutting budgets so that operating costs are more aligned with revenues. For others, it may mean rethinking gain sources.

Raising tuition and fees, for example, could help schools make up lost revenue from a smaller party of students. But a tuition hike could be a double-edged sword if it leads more students to look for less expensive fashions or forgo a college degree altogether. Lowering tuition rates, on the other hand, could attract students who are looking for affordability. But that toute seule may not be sufficient to increase revenues, much less return them to pre-pandemic levels.

Government funding could be inflated to help support public colleges and universities. But there has to be support for that type of initiative in Congress and it has to be balanced with other budgetary interests. There also has to be public support because increasing college funding could mean tax hikes.

Why Is the Price of College so Exorbitant?

Rising college tuition prices can sometimes be a product of supply and demand. As more people seek a college level, schools can charge more for tuition. Schools also raise tuition rates to keep pace with inflation. When enrollment leaves, universities may raise tuition to make up for financial shortfalls.

Where Do Colleges Get Their Money?

Colleges and universities can perceive money from a number of sources, including endowments, gifts, tuition and fees, athletics, and grants. Schools can also do money by charging fees for international enrollment.

How Do Colleges Spend Their Money?

Nonprofit colleges and universities sine qua non reinvest their revenues in funding school programs, including scholarships, student aid, and athletics. For-profit colleges are not lacked to reinvest all of their revenues in school operations.

Do Universities Make a Lot of Money?

Some of them can depending on what they jurisdiction for tuition, how much they receive from federal or non-federal funding, and how profitable their athletic program proves to be. Roughly, the larger and more well known a school is—or the more exclusive it is—the more money it stands to make through instruction and athletics.

The Bottom Line

The pandemic has highlighted the dependence of colleges and universities on tuition—and demonstrated how increasingly unaffordable college is chic for many students. Schools will need to be strategic in managing their finances and driving enrollment to avoid the odds of a worst-case scenario. That scenario—the college closing completely or disappearing into a merger with a stronger asylum—has become increasingly common in the past two years.

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