How Private Universities Are Funded

As we saw in the previous blog post, Private universities rely on high tuitions, private donations and large endowments—rather than State support—to remain financially viable, while Public universities rely on high State appropriation (which, in fact, is shrinking), low tuition (which, in fact, is growing), and small endowments (a recent development, historically) to help remain financially viable.

Tuition & Fees plus Room & Board (Sticker Price)

According to a 2012-13 College Board Study (http://trends.collegeboard.org/sites/default/files/college-pricing-2012-full-report_0.pdf) the average charges for full-time undergraduates are as follows:

Average published tuition and fees (sticker price) at four-year private universities = $29,056.

Average published room and board cost at four-year private universities = $10,462.

Average total cost of attendance at four-year private universities = $39,518.

For four-year public universities, the corresponding figures are: $8,655, $9,205, & $17,860.  This means that, at private universities, the average sticker price is almost three-and-one-half times higher than that of public universities, and the average total cost of attendance is double that of the public universities.   

Average Net Price (Bottom Line)

The average net price for tuition and fees at four-year private universities is $13,380, which is less than half of the “sticker price” of $29,056.  For public universities, the average net price is $2,910, which is just one-third of the $8,655 sticker price.  

The private university average net price for tuition and fees plus room and board is $23,842.  The public university average net price for tuition and fees plus room and board is $12,115.  So, on the average, the net price of attendance, on campus, for a private university is about double that for a public university.  

Private University Fund Raising

A recent Council for Advancement and Support of Education (CASE) report for the 2011 fiscal year showed that private contributions to higher education institutions, both private and public, increased by 8.2 percent over the previous year, and totaled $30.3 billion, with most going to private universities.

A highly recognized proxy measure for fund raising success is the “alumni participation rate” (or APR) which is: the number of alumni who make a donation that year, divided by the total number of alumni. In a recent US News ranking, university APR’s ranged from a high of 60.2% to a low of 7.80%, with private universities tending toward the high end and public universities tending toward the low end.

Of 65 top rated schools in America (by US News), thirty-eight (38) or 58% were private, and twenty-seven (27) or 42% were public.  The average APR was 30.7% for private, and 17.0% for public universities!

Clearly, private universities are much better at raising private funds from their alumni than are public universities—and for good reason.  Private universities have always had to reach out to their alumni for support since they could never rely historically on other sources, such as State appropriation, to hold their tuition down.

Public universities, on the other hand, are relatively new to private fund raising because, up until 30 years ago, State appropriation obviated the need for private support.  In fact, private fund raising was basically prohibited at the state-owned universities until 1982, when Act 188 first permitted it.  Then three years later, the BOG passed Policy 1985-04-A which directed the presidents to raise private funds.      

Private University Endowments

823 U.S. and Canadian institutions participated in the 2011 NACUBO-Commonfund Study of Endowments.  The total for all endowment assets that year came to $408.1 billion!

The top 100 (out of 823) schools accounted for three-fourths, or $310 billion, of that total; and the top 25 (out of 823) schools accounted for about one-half, or $208 billion, of that $408.1 billion total.

Of the largest 25 endowments in the study, however, twenty (20) belong to private universities, and only five (5) belong to public universities.  Remarkably, the average endowment for those five publics ($8.6 billion) is almost equal to the average endowment for the 20 privates ($8.7 billion).  But while the averages are almost equal, 80% of the $208.1 billion total, or $165.1 billion, was held by the private universities, and just 20% of the $208.1 billion, or $43 billion, was held by the public universities.  

Clearly, private universities are well ahead of public universities when it comes to high tuitions, high average net cost of attendance, high alumni participation rates of giving, and large endowments.   But the public universities—relative late-comers to the game—are working hard to catch up since it is the only realistic way to make up for the rapid loss of State funding, which continues its inexorable decline.