Universities' Monetary Strategies: Exploiting Students' Finances

Universities are expensive, and it's only natural for students to wonder where their money goes. In most cases, student fees don't even come close to covering the full amount universities need to keep running. Universities are essentially businesses, and businesses on that scale cost a lot to run. So, how do universities take out money from students?

Staff salaries and benefits

Salaries for university staff typically account for a large portion of the overall budget. This includes not only the salaries of teaching faculty but also those of administrative and support staff. In some cases, the cost of administrative staff can exceed that of teaching staff, as seen in the example of Colgate University, where total personnel expenses outside of top officials amounted to $86 million.

The salaries of teaching faculty can vary based on their position, discipline, and rank. For instance, the College and University Professional Association for Human Resources (CUPA-HR) provides data on the median salaries of executive and senior-level administrative positions, as well as professional and staff positions commonly found in higher education institutions.

In addition to salaries, universities also incur expenses related to employee benefits. These benefits can include healthcare, retirement plans, and other perks or allowances. The specific benefits offered can vary between institutions and may be negotiated as part of employment contracts or collective bargaining agreements.

The overall cost of staff salaries and benefits can be a significant financial burden for universities, particularly in times of declining enrollment or reduced funding. Universities may need to make difficult decisions regarding budget cuts or tuition increases to ensure they can continue to attract and retain qualified staff while also maintaining their financial stability.

While staff salaries and benefits are a substantial expense, they are crucial for maintaining the quality of education and support services provided to students. Universities must carefully consider their financial strategies to ensure they can continue to offer competitive salaries and benefits that attract and retain talented and dedicated staff members.

Investment in campus facilities

Secondly, state-issued bonds and grants can play a significant role in funding campus facility projects. Certain state agencies facilitate borrowing through state-legislated bonds, while some states offer specific grant programs for constructing and renovating community college facilities. Bank direct placements, where bonds are sold directly to a single bondholder, are another option that provides flexibility in loan covenants.

Thirdly, public-private partnerships (P3s) are often utilised for campus housing projects, allowing universities to preserve their debt capacity for core projects like research facilities. In a P3, a public institution collaborates with a private company to finance, build, and operate projects. This model has been used by universities like the University of California, Merced, and San Diego State University for their expansion initiatives.

Lastly, corporate and individual donors make significant contributions to capital financing. Universities often approach corporations and alumni for donations or partnerships to support specific projects, such as specialised labs or research buildings. These donations can be pivotal in securing loans from financial institutions, as lenders assess the institution's donor base and commitment to the project.

Universities must carefully navigate these funding options to balance the need for top-notch facilities while avoiding overspending. The choice of funding sources depends on various factors, including the size and location of the institution, the availability of state support, and the nature of the project.

Research, teaching and scholarships

Research funding is often essential to a university's ability to deliver research-based graduate degrees. However, for undergraduate students, a high level of spending on research by a university is also beneficial. Top research universities are more likely to attract top academics, have high-quality learning resources, and enjoy a strong international reputation.

Scholarships and grants often represent a sizeable portion of university outgoings. For example, at the University of Melbourne, Australia, student scholarships and prizes accounted for almost 4% of the institution's spending in 2010-11.

Students can receive merit scholarships for good grades, high test scores and participation in extracurricular activities. Merit aid is a form of college financial aid that does not consider a student's financial need but is awarded based on academic, athletic, artistic, leadership or special-interest merit. The average merit award to full-time undergraduates was $12,088 in the 2022-2023 academic year. Merit aid might cover a student's entire tuition or be a one-time award of a few hundred dollars.

Research grants are another source of funding for universities. In 2018, the US federal government directed 27% of its total investment in higher education, or $41 billion, to grants for universities. Grants are a form of financial assistance given to fund research and projects that contribute to the public good. The National Institute of Health (NIH) under the Department of Health and Human Services awarded $41 billion to colleges and universities in 2018, the largest higher education investment from any federal department that year.

Universities also use students' tuition fees to boost research rather than teaching, according to a 2015 report by the Grattan Institute. The report found that in 2012, universities spent at least $2 billion on research that was meant for teaching. This means that around one dollar in every five was spent on research rather than tuition.

Tuition and fees

Payment Methods

Direct Debit

Utrecht University, for example, accepts payments via automatic direct debit. Students can choose to pay the full amount at once or in five instalments. A direct debit authorization must be given digitally via Studielink. A similar process is followed at the University of Glasgow, where students can set up a Direct Debit instruction online during financial registration through MyCampus.

Credit/Debit Card

The University of Washington accepts credit and debit card payments for tuition and related fees online only. The University of Glasgow also accepts credit and debit card payments online via MyCampus. However, cardholders must obtain permission if they are not the ones making the payment.

Cheque

The University of Glasgow accepts cheque payments. Cheques must be made payable to the university, in Sterling, and drawn on a UK or overseas bank account. The student's full name, student number, and what the payment is for must be written on the back of the cheque.

Bank Transfer

The University of Washington and the University of Glasgow both accept bank transfers. For international students, the University of Washington has partnered with Flywire to provide a secure payment method, allowing students to pay online from banks and countries around the world, usually in their home currency. The University of Glasgow provides details on its website for students to make payments from both UK and international bank accounts.

Government grants and appropriations

Federal grants often fund university research and development labs, with medicine, environment, agriculture, and general science and technology being common fields that are funded. For example, the National Institute of Health (NIH) under the Department of Health and Human Services awarded $41 billion to colleges and universities in 2018, the largest higher education investment from any federal department that year.

State governments also provide substantial financial support to universities, primarily through general-purpose appropriations to fund the general operations of public institutions. In 2017, state investments in higher education amounted to $87.1 billion. While state funding has experienced cuts and declines in recent years, it still plays a crucial role in supporting public colleges and universities.

The convergence of federal and state funding has altered how higher education dollars flow, with federal support mainly directed towards financial assistance for students and specific research projects, while states focus on general operations of public institutions. This mix of funding sources ensures that universities have the necessary resources to carry out their educational and research missions.

Frequently asked questions