Let me reiterate! Campus Housing is an auxiliary service because it is not central to our teaching mission and it is offered on a fee-for-service basis. Image courtesy of Presenter Media.
In 2014, The Washington Post ran an article that reported that “there were 87 colleges across the country that require full-time students to live on campus their first year of college.” Interestingly, The Post did not indicate their source of information. I checked the catalogs of 86 of the 87 institutions. I couldn’t check the catalog of one of the institutions because it closed in 2016 due to low enrollment and lack of funds. It no longer maintains a website. What I discovered about the other 86 institutions was quite informative.
This photograph was taken May 18, 2005, showing Damage Controlmen aboard USS Belleau Wood (LHA 3) instructing U.S. Naval Academy Midshipmen on proper firefighting techniques in Belleau Wood’s Well Deck. The Midshipmen spent two weeks aboard Belleau Wood as part of their summer training program. Official U.S. Navy photograph by JO2(SW/AW) Chad A. Bricks. The image has been released into the public domain by the U.S. Navy. Image courtesy of JO2 Bricks, U.S. Navy, and Wikimedia Commons.
In their catalogs, all 86 of the remaining institutions stated that they required all full-time, first-year students to reside on campus. However, 56 of the institutions indicated that students could petition for an exception to this rule. The 30 institutions that did not indicate any policies for exceptions included two experimental colleges, the five federal-military academies, seven Catholic, male religious-vocational colleges or seminaries, and 16 Orthodox Jewish rabbinical yeshivas or seminaries. Students at the military academies are considered members of the armed services and are on-call 24/7/365 in case of an emergency. Their training must take that into account. Catholic religious-vocational institutions duplicate the living conditions that their graduates must undertake in their church service, i.e., a celibate, monastic life. Orthodox Jewish Collegiate Yeshivas and Seminaries are restricted to young, unmarried males, who must dedicate themselves solely to their studies. Older or married Jewish students desiring to be rabbis attend a Kollel. The 56 institutions that permitted petitions for exceptions included one Tribal college, three public colleges, three state-related military academies, and 49 private institutions.
The Best College Editions of the 2017 U.S. News and World Report indicated that 13 colleges self-reported 100% of full-time, first-year students lived on campus. Image courtesy of Presenter Media.
In 2017, U.S. News and World Report published an article with self-reported institutional information that the magazine had gathered for their annual Best College Report. One item in the report was the percentage of full-time, first-year students who reside on campus. In 2017, they listed only 13 colleges which reported 100% of first-year students living in college housing. All but one of these 13 institutions were from The Washington Post list. When I checked the catalog of the one college that wasn’t included by The Post, I discovered that they require married students to live off-campus. Apparently, they either had no first-year married students or they misrepresented their data to the U.S. News and World Report.
The other 12 institutions were divided into two groups of six colleges each. The first group consisted of the five federal military academies and one experimental college which, accordingly to its catalog, did not accept petitions for waiver of the residency requirement. The second group of six colleges consisted of five private institutions and one state-related military academy. All of these six accepted petitions for waiver of the residency requirement, including the state-related military academy. Is it possible that they had no waiver petitions for 2017, or that they didn’t grant any that they did receive? I think “not.” Could the 100% figure be due to round-off error? How likely is that?
Although campus housing has many benefits for students, the biggest benefit may be the fact that for years, it was almost always a moneymaker for colleges. Image courtesy of Presenter Media.
As I stated in my previous post, the research is overwhelming. Students who reside on campus tend to do better on average and get a more complete educational experience than students who reside off-campus. Is there any other reason why colleges would want students to reside on campus? Prior to the year 2000, there was a very simple explanation. Many schools could make money on residence halls. This is why campus-housing outsourcing firms lined up at the doors of colleges to offer their services. There was money to be made in campus housing. As Mark Twain said in his 1892 novel The American Claimant, “there’s gold in them thar hills.”
For many years, residence halls were the easiest and cheapest buildings to construct on campuses. Image courtesy of Presenter Media.
For many years, residence halls were among the easiest and cheapest campus structures to build. The designs were fairly standard and construction was straight forward, not like specialized academic spaces. Once built, major modifications were not as frequent as updates to other campus structures. All of my full-time employment experience in the academy was prior to 2009. During the decades leading up to Y2K, a college with a good credit rating could fund construction costs for residence halls through low-interest bonds.
The floor of campus housing has cracked under American higher education and is threatening to swallow it whole. Image courtesy of Presenter Media.
If you have been reading my posts about the 21st-century crises facing American higher education, you know that I believe, as a whole, it is in a state of turmoil and chaos. However, working on this post has made me realize that the once-solid ground under campus housing has cracked wide open. How deep into the resulting fissure have colleges fallen in the past decade? For the four decades, I was intimately involved in the planning aspects of campus housing and in the oversight of campus housing managers. During that time, if campus housing was handled properly, the institution did not lose money in this area.
A graph of the Median Cost per Bed in thousand $ from 1999 to 2015. The data is taken from the magazine College Planning & Management. Graph created by the author of this post using Libre Office spreadsheet.
This is no longer the case. In my research for this post, I discovered the Annual College Housing Reportpublished by the Magazine College Planning & Management. Paul Abramson was in charge of the collection and analysis of the data for the report. In his 2008 report, he concluded that the “…cost of residence hall construction is rising and rising rapidly.” In the same report, he continued by stating that the median residence hall built in 2008 would cost almost $26M.
In subsequent reports, by 2013, the median cost of a new residence hall had risen to more than $39M. In 2019, it is estimated that the median cost of a residence hall will be close to $56M. Those numbers blow what we were doing in the 20th century and the very early years of the 21st century right out of the water.
In 2020, it is estimated that the median cost of a bed in a new college residence hall will exceed $100,000. Is a scene similar to this worth $100,000? Is it economically viable for the institution? Image courtesy of Presenter Media.
The last residence hall construction project which I helped plan was completed in 2006, two years after I left that institution. The planning process began in 2003. This residence was designed to house 192 students. The total cost was $3.1M. Our cost of $16,146 per bed was less than half of the median cost per bed of all new residence halls during the period 2003 to 2006.
According to Abramson’s data, our residence hall should have cost us approximately $11.5M. We built it for $3.1M. How could we build our residence hall for less than one-third of what other colleges were spending? There were two primary reasons.
The first was the fact that our whole institution had come together and adopted a Facilities Philosophy. Three of the main tenets of this philosophy were the following:
We guarded our available resources tightly. All financial expenditures supported the mission of the institution. Image courtesy of Presenter Media.
Enlightened frugality: [Our] University operates within a world of limited resources. All financial expenditures for the physical plant must support the mission of the institution. This requires that all solutions to physical planning be comprehensive, with nothing considered in isolation. Issues of building placement, traffic, and parking, engineering systems, natural systems, and aesthetics must be woven together to form a tapestry of buildings and spaces that foster a university culture. Buildings can and should be attractive, but not ostentatious. They should be functional, and not pretentious. They should be designed and built to last, but should not look or feel austere. Buildings and outdoor spaces should exhibit grace, dignity and elegant simplicity.
Form follows function! All campus spaces must be designed and constructed with an express purpose in mind. Planning comes before design or construction. Image courtesy of Presenter Media.
Form follows function: This expression is an architectural maxim that connotes the idea that all spaces, indoor or outdoor, should be designed and constructed with an express purpose in mind. Learning spaces should be designed and built-in terms of the learning that will occur in those spaces. Community spaces should be designed and built with community in mind. This tenet places the priority on the planning and the delineation of intended uses or purposes for given spaces. Planning comes before the design and construction of the space.
The campus should have a common architectural language that can be expressed differently in different venues. Image courtesy of Presenter Media.
Common language: [Our] University should have a common architectural language that should be readily seen throughout the campus. Although there should be common themes, these ideas may be expressed differently in different venues. Each new venue should tie into the existing campus vocabulary, but at the same time should be encouraged to bring in new expressions.
Building off these common tenets kept us on the same track and reduced the possibility of wild deviations in designs across campus.
We developed solid working relationships with vendors that understood us and worked with us. Image courtesy of Presenter Media.
The second reason we were able to hold construction costs in check was that we had developed solid working relationships with two architectural firms, three construction firms, and numerous vendors who understood us and worked with us.
The story of the 192-bed residence hall exemplifies how the tenets of our facility philosophy and working relationships helped us. This new residence hall intended for juniors and seniors was a deviation in design from our typical residence hall. Instead of central hallways with two- or four-person suites on either side, the interior was based on a new design. The exterior of the facility fit in with all of our other buildings on campus. The new vocabulary introduced was a series of balcony hallways overlooking central lounges. Six-person suites were accessed from the balcony hallways. This design answered the desire of our juniors and seniors for more communal, gathering spaces.
We budgeted not only for the initial costs of buildings but for the ongoing costs of operating them. Image courtesy of Presenter Media.
In addition to construction costs, we normally budgeted annual maintenance, housekeeping, and utility (MHU) costs of 10% of total construction costs, or $310,000 in this example. Since this residence hall cost $3.1M, financing it with a 2% bond meant that we could pay off the entire initial cost plus accrued interest in eight years with annual payments of $450,000. We could also pay off half of the entire MHU costs for those eight years. By maintaining an occupancy rate of 95%, in another four years, we paid off the entire MHU for all 12 years. From that point on we were making more than $400,000 annual profit from this building.
Since we normally assumed a life expectancy on residence halls of 20 years before a major renovation was required, this profit accumulated for eight years. At the point we needed a major renovation, we would reset the clock and start the process over again. In my 40+ years in the academy, I only saw two residence halls decommissioned. One was converted to faculty offices and the other was condemned and demolished to make room for a completely new residence hall.
This photograph is a picture of the Niagara River, upstream from the falls. It is almost at the point of no return. The river is picking up speed as it flows toward the falls. The rapids start around the bend in the background. The photograph was taken by Yinan Chen on May 3, 2013, and distributed on www.goodfreephotos.com. This image has been released explicitly into the public domain by its author, using the Creative Commons Public Domain Dedication. Image courtesy of Yinan Chen, goodfreephotos.com and Wikimedia Commons.
American higher education as a whole is speeding toward more white water ahead. The current is running too fast for anchors to work. Some colleges are “up the creek without a paddle” and heading for the giant waterfall. Other colleges have supercharged engines onboard that can possibly keep them out of harm’s way if the captain applies the engines at the appropriate time and turns the rudder in the correct direction.
It’s happened again. I’ve run out of time and space to finish my discussion of outsourcing, auxiliary enterprises, and the sale of institutional assets. I willcontinue my discussion of auxiliaryenterprises next week in my post, The Commercialization of American Higher Education – Part IV.
In this current post, I return to the discussion of the Business Model of All of Higher Education. In a previous post, The Business Model of All of Higher Education Is Broken, I introduced the five sources of revenue for Institutions of Higher Educations(IHEs): 1) Tuition and fees; 2) Fundraising, advancement and development efforts; 3) Endowment income, appreciation, interest and dividends; 4) Auxiliary enterprises; and 5) Governmental appropriations. In this post, I had originally planned to consider all of those sources of revenue in one post. However as I began to work with that idea, I found the explanations growing too large for one post. In addition, no matter how hard I cranked the revenue generating machine for each revenue source in an attempt to create additional funds, I discovered that increasing the effort in any given area did not produce a commensurate return on investment (ROI). Therefore, I decided that I needed to expend more time and coverage in this series to each source of revenue to give it the analysis I felt it deserved. Thus, I have decided that I will begin to plan to cover each of the revenue sources individually in separate posts. As I get into the ins and outs of the revenue source, I may have to add more posts. I begin this process with the source of revenue with which all students and their families are most familiar, Tuition and Fees . It is also the revenue source that the general public most clearly associates with Institutions of Higher Education (IHEs).
from Presenter Media
The revenue from tuition and fees obviously depends upon enrollment. This means that there are really only five ways to increase the useable revenue from tuition and fee. These five possibilities are:
increase the tuition and fees, thus increasing the base amount each student pays;
increase the number of students paying the tuition and fees, i.e, increase tuition-paying enrollment;
decrease the discount rate on tuition, thus decreasing the average amount of institutional financial aid given to enrolled students;
change the model of teaching and learning in order to increase the efficiency of the use of this revenue stream;
do a combination of two or more of the above at the same time.
With points 3 and 4 above, I apologize for sneaking the expenditure side of the business model into the conversation. However, much of the general public acts as if it believes that tuition and fees cover the cost of a college education. This is definitely not the case, and has not been the case since the beginning of formal American higher education in the mid-17th century. Since this rabbit trail would take us deep into the expense side of the budgets of IHEs, I will leave the exploration of this topic to another post. I will devote the remainder of this post to just addressing the issue of increasing tuition and fees. I will cover the problems of increasing the number of students, decreasing the discount rate and changing the model of teaching and learning in additional posts. I will also address the four other IHE revenue sources in additional posts.
from Presenter Media
When IHEs announce tuition increases each spring for the following fall, it is usually met with varying degrees of disdain. Students, parents, the general public, as well as federal and state governments are already enraged at the current level of tuition and fees. The data are clear. Tuition and fees have increased at rates exceeding the annual general inflation rate for years. Just at the suggestion of another increase, the reaction varies. It runs the gamut from a reluctant acceptance to a loud murmur to a campus uproar and rebellion.
The following three charts use the same data extracted from the College Board Pricing Trends, which has the most comprehensive collection of data on college pricing trends. Although the charts are based on the same data, they give us three different pictures of the history of Tuition and Fee Increases over the past 40 years. Why have I chosen to present this information in three ways? It is to try to help my readers understand that there are different ways to look at the same data and that one’s first impression may not be the only or best way to view the subject.
The first chart is a 40-year history of tuition and fee increases in “current dollars,” i.e, the average list price of tuition and fees for all colleges in a given segment weighted by full-time undergraduate enrollment. These list prices are compared against the 40-year average increase in list prices. The current dollar tuition and fees are the prices that students, their parents, and government officials will see first. These are the dollar figures against which everyone reacts. The first impression from the graph is how similar the tuition and fees were for all three segments in 1975. Based on the scale of this graph, it is almost impossible to distinguish the price of the four-year, public institutions and the two-year, public institutions. Although the private, four-year institutions were more expensive, on the scale of this graph, in 1975 they did not appear “that much more expensive.”
CHART 1: History of Tuition and Fee Increases Compared Against 40-Year Average Annual Increases
The second impression that this graph conveys to me relates to how the actual increases fall below the projected increases based upon the 40-year average annual increase. This means that the early increases were less than the average annual increases and it took quite awhile for the actual increases to catch up with the average annual increases. It appears that the sharp increases in both public and private four-year schools occurred in the period from 2000 to 2010. This would coincide with decreased support from government appropriations for financial aid.
This graph clearly gives the impression that the gap between the three segments has grown significantly. This is the feeling that students and their parents get when they start looking at colleges and the tuition prices. The fourth and fifth impressions that this graph gives me revolve around the two-year public institutions. The first of these impressions is how much more affordable this choice seems compared to the other two choices. The second impression is how close to a straight line the actual increases appear. To me, and many other commentators and critics of higher education, this raises the spectre of whether these institutions “know the secret” for holding down tuition increases.
The two primary conclusions that many will draw from this graph are: 1) the two-year, public institutions are the most affordable choice for an education; and 2) the four-year, private institutions have had uncontrollable tuition increases over the past 40 years.
The second graph, entitled Growth Factors of Tuition and Fees from 1975 to 2015 Across College Segments, Selected Academic Years, portrays the same data that the first graph did, but gives a very different slant to that data. This chart tells us how fast tuition and fees grew. Surprisingly, it says that the time to double has been relatively constant. In rough terms throughout the 40 years from 1975 to 2015, it has generally taken 15 years for tuition in any of the college segments to double.
CHART 2: 40 Years of Tuition and Fee Growth Factors
SInce the blue bars representing the public, two-year institutions increase in height the most consistently, this is another verification of the steady, almost constant rate of growth of tuition and fees for the colleges in this segment. During the first 20 years, I find it very interesting to note that the public, two-year institutions increased their tuition and fees at the fastest rate, while public, four-year institutions at the slowest rate. In the second half of the 40-year period, the growth rate of public and private four-year institutions shot up, far out stripping the two-year public institutions. Does this represent a shift in public funding priorities for higher education?
Although the growth factors were very close since the private four-year institutions started out with higher tuition and fees, doubling the higher rate increased the differential. Thus, the actual dollar spread in tuition did indeed produce growth.Two different graphs give you two different pictures.
The third graph is entitled the Five-Year Percentage Changes in Tuition and Fees Across College Segments, From 1975 to 2015. This graph plots the percentage change in tuition and fees over five-year periods from 1975 to 2015. This graph gives one a very different picture of tuition and fee increases over these 40 years. The overall trend of data points in this graph are actually decreasing. This doesn’t say that tuition and fees are decreasing. What it says is that the rate of change is slowing.
CHART 3: Five-Year Percentage Change in Tuitions and Fees, 1975 to 2015
Looking at the three different sets of points and lines joining those points, it is not surprising that the blue points representing the two-year, public institutions show the least variation. That confirms what we have seen in the other two graphs. The red points show the most variation away from a straight, decreasing line. The four-year, public institutions have been the institutions most affected by the whims of state legislatures or governors. Again, even though the rate of increase for private, four-year institutions is slowing down, don’t look for the public, four-year institutions to catch them in list price anytime in the near future.
Chart 1 hit me right between the eyes. To those who can remember, I challenge you to go back to your college days and put your tuition and fees into an appropriate year in the chart. For some of us we will have to add lines at the beginning of the chart. My experience would extend the chart another 10 years to the left. In the early sixties at the flagship university in a small state, I never paid more than $175.00 annual tuition plus $10 lab fees per science course, which usually added $20 or $30 per semester. Since computers were just coming into use, as a mathematics and physics major I had to pay a $25 per semester technology fee for the right to put my card decks in the hopper each night and come back the next morning to get the print out from the pin-fed line printer. In addition, as a commuter, I had to pay $50 per semester for a “hunting license” to try to find a parking space in an on-campus parking lot. Thus, my total annual tuition and fees bills were less than $550. My textbooks and supplies were less than $150 per semester. I lived at home, and my mother never charged me anything for room and board, because I took care of everything around the house since my father died during my freshmen year in college. Gasoline averaged about $0.30 per gallon, and I spent maybe $10.00 per week to keep my car in gas, and $25 per week for coffee and lunches. Thus, my total out-of-pocket expenses to go to college were less than $2000 per year, or $8000 for my entire undergraduate education. If you subtract the $6000 in scholarships that I won or was awarded, my B.S. degree in mathematics cost me less than $2000 out of pocket. Even in early 1960 dollars, that was entirely possible to pay for out of summer or part-time school year earnings. For my four years in graduate school, I had a fellowship that paid tuition and living expenses. I didn’t pay one nickel out of pocket for my Ph.D. I graduated in eight years of schooling, with a B.S. and a Ph.D.in mathematics, with a wife, a child, a house, two cars, money in the bank, NO DEBT, and an offer of a tenure track job! In today’s world that would be definitely an anomaly. According to CNN, for the most recent year for which data is available, the undergraduates of the class of 2013 walked off the commencement stage with an average debt of $35,200, while Ph.D. graduates “stumbled” off the platform with an average debt of $57,600. Among Ph.D.s, more than 28% had debts of more than $100,000. The average J.D. and M.D. graduating from Law School and Medical School respectively, had a debt of more than $140,000. Much has been written and debated about the debt bubble that has overtaken or is overtaking American higher education. It looks like I have created at least one more blog post on the Debt Bubble.
from Presenter Media
Why does this picture look so bleak? I believe it looks bleak because we could be on the verge of very bleak times for higher education. American higher education is heading for a perfect storm, unless it changes course or one or more components of the storm change direction. A perfect storm is the confluence of events which individually may not necessarily be dangerous, but the combination of these events creates a potentially disastrous situation. Here, too, I am taking you to the suspenseful edge, and leaving you to dangle. The perfect storm will be another post in this series on the broken business model of American Higher Education.
I recently came across a very thoughtful and extremely well-written blog post This Needs to Be Run More Like A Business written by Jason McNeal. In this post, Jason gives an impassioned plea for a different approach to private education since “the business model approach to higher education is helping to discourage giving.” Jason suggests that board members and I would assume he would include administrators should know better than to say, “Our business model in higher education is broken.” I am sorry Jason, but “The Business Model for All of Higher Education is Broken.” I say this as an administrator with 40 years of effective service in private higher education. I have also spent considerable time praying, studying, thinking and writing about higher education. You do make a valid point when you imply a criticism of the board member’s statement, “I simply do not understand why our tuition and fees are not sufficient to cover our costs.” In the worlds of private, non-profit, higher education and public, higher education, no traditional college or university covers its education and general costs with just tuition and fees. It is like one individual in a sinking rowboat trying to bail out the boat, with other sitting by, just watching and doing nothing to help. This model is broken. However, the model of using a leaking boat to try to get across a lake is also broken.
from Presenter Media
Why do we want to get across the lake? We want to build an excellent education that works for students, faculty, and the general public. This education must be affordable for everyone involved, including the students, faculty and the general public. This education must be sustainable not only in the short run but for the long run. I, for one, see problems in all the current approaches that we are using to reach these goals. For 40 years, I tried to work toward these goals in the best way that I could. I had some successes, but I also had some failures. I will discuss some of both in future posts. Why? Because we can learn from both our successes and failures. When Thomas Edison was asked about thousands of experiments on light bulbs that didn’t work, he is reported to have said, “We haven’t failed. We now know a thousand things that won’t work, so we are much closer to finding what will.” When we find something that partially works, we should try to determine why and what we could do to make it work better. These are the steps to success. Let’s work together to bail out the leaky boat, find the leak and fix it. Then we can row together across the lake to the land of success, where we will have excellent, affordable and sustainable education for all.
We can begin by looking at two partial successes. The two areas where we see tuition and fees possibly covering all the costs of fulfilling the educational mission of the institution are non-traditional higher education and proprietary, for-profit, higher education. I say “possibly” because more than half of the non-traditional programs or for-profit institutions lose money and eventually fail. The traditional higher education institutions have been variously described as time and location fixed, brick-and-mortar, bastions of teacher-centric delivery of education to late adolescents recently graduated from high school. Non-traditional education disrupts one or more characteristic of traditional higher education. In other blog posts, I will speak more about the differences between traditional and non-traditional higher education.
Institutions of higher education have five sources of revenue. I am sorry if I offend educational purists who do not want to use business terminology to describe operations within higher education. In using the term “revenue”, I did resist the temptation to use the more highly-charged business term “income.” Thus, I will label money coming into the institution to pay for the operations of the institution as “revenue.” There can be no argument that colleges are required to pay operating expenses like salaries, fringe benefits, construction and maintenance costs, utility and insurance costs, supply, equipment and service costs. Since I am focusing on the revenue side of the institution in this post, I will reserve discussion of the expense side to other posts.
There are four sources of revenue for the not-for-profit segment of higher education. There is a fifth source for public institutions.The five sources of revenue are:
Tuition and fees;
Fund raising, advancement or development efforts;
Endowment income, appreciation, interest or dividends;
Auxiliary enterprises;
Governmental appropriations (Reserved for public institutions).
There are two very distinct ways to look at these sources of revenue. The first is how the general public sees these categories of revenue. The second is how colleges and universities are legally required to report them in audit statements. (OOPS, another hint at the trouble lurking within the presence of the higher education business model) In this post, I will restrict my attention to how the general public understands these five sources of revenue. In future posts, I will discuss how colleges are forced to handle and report the revenues associated with these categories.
from Presenter Media
Tuition and fees: These are the charges (I apologize for another business term) the institution individually imposes upon students for the privilege of attending and obtaining an education, and possibly a degree or some other credential. By “tuition” I mean that portion of the financial obligation imposed upon students for enrolling in classes. By “fees” I mean extra charges for a number of other things such as student services or activities, laboratory, clinical, internship, practica, music, travel, technology, special class charges, health or insurance fees, parking fees, and a myriad of other add-ons such as application, matriculation, course change, graduation and transcript fees, . I also throw into this category “Room and board charges” because these charges are individually assessed to participating students. These are the financial obligations imposed upon students who reside and eat in college-owned or operated facilities. The students and their parents see these charges on their college bill (a residue of a business model). Student and their parents refer to these charges as the total cost or the price of attending. I haven’t yet considered financial aid. Whether the financial aid is not from the institution or comes directly to the student as a government appropriation, it is usually considered a discount by the students and their parents Either way, when we get to the accounting of financial aid, it must be treated as a cost to the institution(another business model problem lurking in the forest).
from Presenter Media
Fundraising, advancement or developmentefforts: For the private, non-profit, and public segments of higher education, this category includes all charitable gifts and donations. These gifts may be in the form of cash, stocks, bonds, or physical property, including real estate, art, supplies, or equipment. They may also include services in lieu of payment. This category seems to be the area about which Jason is most concerned. From reading Jason’s blog, I know he doesn’t consider fundraising and development work as begging. However, in the eyes of many of the general public, this is what it comes across as. In the for-profit segment of higher education, this category also includes what is known in financial circles as the investment of assets. Investments are the purchase of assets with the hope of generating a profit. Investments are not always profitable and may incur a loss. Many colleges and universities, across all segments of higher education, raise funds through gifts that are known as grants. Grants are funds or products that do not have to be repaid given by the grant maker, which can be a government department, corporation, foundation or trust to a recipient. Usually, grants are awarded after the recipient has made a written request for funding of a specific project through a process that is known as grant writing. Most grants that are awarded will require of the recipient some level of verifiable compliance and reporting of outcomes. In future posts, I will consider the topic of university fundraising, including its rewards and perils.
from Presenter Media
Endowment income, appreciation, interest or dividends: By an endowment, I mean a financial asset, which normally came into the possession of the institution in the form of a gift or donation. Endowments may or may not have a stated purpose at the bequest of the donor. This category of revenues also includes the return or dividends on the investment of charitable donations. It also includes the appreciation in value of the gifts that the colleges and universities are holding in “trust.” Most endowments are designed to keep the principal amount intact while using the investment income from interest or dividends for the “charitable” efforts of the institution. By “charitable” efforts, I mean those efforts which contribute to the stated primary mission or purpose of the not-for-profit institution. This category also includes what are commonly known as “quasi-endowments.” These are funds set aside by the institution from institutional funds. These funds may have come from donors or excess institutional funds. As with “endowments” the principal of quasi-endowments are reserved, and only the interest or dividends are expended. The management of endowment principals and investment demands close scrutiny on the part of professional managers, whether internal or external to the organization. In future posts, I will deal with the topic of endowments and their management.
courtesy of GrahpicStock
Auxiliary enterprises: Auxiliary enterprises are entities that exist to furnish fee-based goods and services to the general public, students, faculty or staff, acting in a personal capacity and not as an agent of the institution. Auxiliary enterprises should be self-supporting in the sense that the revenue covers the full direct and indirect costs of providing the goods and services. Some definitions of auxiliary enterprises exclude areas that are outside the core functions of an academic institution. For all academic institutions, core functions would include teaching and learning activities. For many, they would include research activities. For some, they would also include service activities. such as agricultural extensions for land-grant institutions. There are many possible uses of the wealth of physical facilities associated with a college or university, which could be used outside the core functions of the college. There is an army of experts at a college which could be deployed to service students and the general public in areas outside the core functions of the college. When auxiliary enterprises produce a surplus of revenue over expenses, those surpluses may be used to offset budgetary deficits in any area of the institution, including areas essential to the mission of the institution. Although there are many calls for colleges and universities to stick to their knitting, and stay clear of auxiliary enterprises, these programs may be a way for a college to fill in some budget gaps. I will speak to this argument in a future post.
from Presentation Media
Governmental appropriations: With recent rulings of federal and state courts, Departments of Justice and General Accounting Offices, this category may seem to be reserved for public institutions. Because education is not mentioned in the United States Constitution, including its ByLaws, it is one of the areas reserved for the prerogative of the states. However, Congress has enacted certain laws with which all employers and public buildings must comply. In addition, there is a federal Department of Education (DOE). The DOE exists primarily to safeguard the federal investment in education. This investment comes from the billions of dollars over the years that have been designated for educational concerns by Executive Orders and Federal Appropriations approved by the US Congress. These monies have been augmented by state and local appropriations. Although direct appropriations primarily only go to public institutions, the federal and state loans and grants to individual students greatly affect the well being of most private institutions. With the acceptance of federal and state funding, colleges and universities must also accept certain increased levels of governmental oversight. Compliance regulations control what colleges can and must do in many disparate areas. These areas include human subject research compliance, environmental health and safety compliance related to research, animal research compliance, export controls compliance, conflict of interest, technology transfer requirements, research misconduct requirements, accreditation, financial aid, FERPA, sexual misconduct (Title IX), Clery Act, drug and alcohol prevention, IPEDS reporting requirements, Title IX athletics administration, gainful employment, state authorization, and equity in athletics data analysis (EADA), immigration, disability, anti-discrimination, and environmental health and safety regulations outside of those related to research. Uncle Sam surfing the dollar is in control. The perverse version of the “Golden Rule: He who holds the gold, makes the rules,” dominates the day here. In future posts, I will discuss governmental funding and compliance issues in higher education.
As with any living organism, colleges and universities ingest monetary resources in order to perform the life functions of growing or producing fruit. For colleges, the desired fruit includes student learning, research and scholarship, and community service. The five categories listed above are the life-giving resources upon which colleges and universities depend. They are the food and water of colleges. If colleges and universities do not get enough funds for their nutritional needs over extended periods of time, they will starve to death. Thus, in higher education, we have three choices. We can 1) increase funding from these sources; 2) cut expenditures, or 3) do a combination of increased revenue and decreased spending. To me, this sounds like a business model. If we look more closely at each of the five funding sources, we will easily find huge difficulties in getting significantly more funds from any of these sources. Due to the length of this post, I will look at those difficulties in future posts.
