What Are Universities Spending Their Money On?

A few days ago, Timothy Egan wrote an op-ed for the NY Times about how universities should spend more on tuition relief:

Last year a record 76 American colleges passed the $1 billion mark in total endowments.
For all of that, you would think there would be some relief from tuition costs that have tripled in 20 years. Or that wealthy universities would be giving back, say, half as much as they are making every year. Or that they would not be charging $21,000 for an American student to live in a mud hut in Africa during a semester abroad. Or that they would give up their taxpayer-financed tuition grants so that more needy schools, dependent on the same pool of federal money, could put a student on scholarship. You would think.
“It’s fair to ask whether a college kid should have to wash dishes in the dining hall to pay his tuition when his college has a billion dollars in the bank,” said Senator Charles Grassley of Iowa. Grassley, the ranking Republican on the Senate committee that oversees tax policy, has written to the nation’s 135 leading universities, asking them to explain what they do with their tax-free endowments.
The response from nearly 20 percent of the nation’s top colleges has been — how dare you! They have refused, thus far, to answer basic questions about their tax-free finances. Others have made cosmetic changes, such as raising the income level for financial aid, to head off further Congressional inquiry and anger from middle-class families.

So what are colleges spending the money on? In other words, what are the areas where costs have skyrocketed for universities? I’ve tried to find these data and I haven’t had much success.

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9 Responses to What Are Universities Spending Their Money On?

  1. Anne-Marie says:

    One word: football.
    This may vary with region, but I attend a large research university in the south and the energy/money/emphasis on football is astronomical.

  2. FutureMD says:

    It’s certainly not football. Football pays for itself with ticket sales, merchandising, TV, etc…
    It almost sounds like they are hoarding the money trying to make as much as possible for some future date (that will likely never come) when they can stop acquiring more money and simply keep up with inflation while giving the rest away.

  3. DrA says:

    I know the answer for state-assisted universities in the Land of Lincoln, and it isn’t what Egan thinks. Over the past 30 years state support has gradually been withdrawn. State support at my institution has gone from 64% to 26% over 3 decades; it’s gone from 33% to 26% over the past 5 years. In addition universities are given mandates to pay for things that previously were covered by the state, but get no new state support to pay for them. This is a deliberate decision by the state to transfer the primary cost of higher education to the student, and their families. Every time the state decides to reduce support, perhaps by just not providing any increases, they make a de facto decision to increase tuition. This is exactly why tuition has gone up faster than costs, which have gone up. In fact, when corrected for dwindling state support, our institution is doing more with less, an efficiency of necessity, so “higher costs” part of tuition has actually gone up slower than the cost of living.
    The really brilliant thing about this scam is that the universities get the blame for rising tuition, and some legislators even pile on demanding “answers”. Imagine the outcry if the state passed a bill saying, we’re going to reduce state support to higher education, so tuition at state institutions will be soaring. Ah, but they didn’t have to do anything so upfront.
    You may not have noticed that I did not use the term “state supported” but used “state assisted” to better reflect the situation. The state now requires that tuition remain fixed for students throughout their 4 years, but all this does is pass even higher costs on to their younger brothers and sisters, while tying the university’s hands to manage it’s finances.
    I think university presidents in our state have to be very careful, in the if-you-want-to-keep-your-job kind of careful, about explaining this to the general public. Our president has been very candid about these figures to university groups (I know this because I represent the faculty to the foundation board.), but in public he doesn’t lay the blame squarely on legislators’ doorsteps like he could. Guess he likes his job.

  4. Justin M says:

    This isn’t answering the question. Lower state funding only affects state run institutions. Last I checked, there weren’t any $30,000/year land grant schools out there.
    One problem we have here in Arkansas is a legislature bend on turning effective rural community colleges into poor 4 year colleges. Degrees in business are one thing, but how many graphic design and landscape architecture departments does one state need to fund? We are trading high cost and quality for a fast food style educational experience.
    As academics we are also trading good jobs at research institutions and high performing community colleges for a mash-up that ends up looking more like the University of Phoenix

  5. natural cynic says:

    One thing that needs to be considered is the effectiveness of the endowments. Endowments are usually investment capital that is used to derive income and depends on the skill of investment managers and the state of the economy. How much endowment money was invested in real estate? how much in financial institutions? how much in short-term US government bonds? etc. If the endowment money is in financial sectors that are sucking, then bigger endowments are making less than endowments half their size were ten years ago. The same kind of thing has happened with the investment of insurance premiums – the less the ROI, the higher the premiums.

  6. PhysioProf says:

    They sure as fuck aren’t spending it on faculty research.

  7. rjb says:

    I’m at a small private liberal arts college that is tuition driven, not endowment driven. Our endowment is really quite low compared to our peers. And our tuition is climbing dramatically. Meanwhile, the budget for the academic program of the institution has remained flat. Where is this going? One place is health care costs for faculty and staff. Every year, this expense has increased by between 10-20% !!! Also, utilities expenses and other maintenance costs are increasing faster than inflation. That doesn’t explain everything, but it is a significant factor.

  8. Hook 'Em Horns says:

    It’s certainly not football. Football pays for itself with ticket sales, merchandising, TV, etc…
    I’m sorry, but you’re simply mistaken. The big dirty secret about big college football programs is that they do not pay for themselves, even with all that stuff you mentioned and more (like massive donations from alumni who apparently don’t understand what universities are for). Not many university administrators are willing to admit this, and even fewer athletic program directors, but I have talked to some who are.
    I’d be interested in data to the contrary, though.
    Anyway, you are correct that most colleges aren’t blowing most of their money on football. My guess is that most of the money is disappearing into the inflated salaries of metastasizing levels of administration. How many big universities have open accounting?

  9. Kaleberg says:

    My impression is that a huge chunk of the rising costs go for administration. There is a lot of empire building in this sector, and there are a lot of new requirements that have come in since the 1960s. Colleges have to do a lot more reporting to the government and sponsors, especially now that there are so many new ways to handle funding. Colleges are also acting more in loco parentis than they used to. Real estate is more expensive, too, so more college students live on campus. This means a larger housing department. Sponsors want to build new research centers. That means more maintenance costs and overhead. Students used to double up more often, but now there are more single rooms, so dormitory costs have risen.
    While these actual costs are a part of it, each one allows for more empire building, and that amplifies the effects.

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