The University- Show Me the Money!

As promised, here’s the second post regarding my take on higher education. If you’re new you can read my first post to understand what I’m doing. New or not, you need to know that my goal is to write for the least common denominator here; I’m writing with the idea that there may be many of you who have no clue what happens in the administration of higher education and other than listening to politicians rail on colleges and universities as of late (or perhaps you’re getting ready to send a kid to school in the near future), had no-freaking-reason to care before now. 

Also, I am just going to use the word university or school for both colleges and universities, and for the most part, I’m talking about four year institutions. 

I’m trying to take rather complex problems, which universities attempt to fix in numerous ways, and make one simple narrative out of it all. I think of the President while I write this-- a smart guy, who probably would like to see evidence of my argument, but doesn’t have a lot of time to spend on it or the desire for me to try to prove how smart I am. This one’s for you, Barack Obama. I am going to explain how university money works and why your SOTU address made employees of universities curse at their TVs. 

In other words, if you know something about working in a university already and this explanation makes you want to punch me in the mouth because of its over-simplicity, I ask that you please don’t actually punch me in the mouth. 

Where do universities get their money? It depends on what kind of university they are. There are three main types: non-profit public schools, non-profit private schools, and for-profit schools. Where they get their money depends on what kind of school they are, so I’ve made a table: 

Type of School	Non-Profit Publics	Non-Profit Privates	For-Profits
Types of Money	State money       Federal money- (including grants)       Tuition       Investments- (endowment/gifts)       Other- (hospital, stores, etc.)	Investments- (endowment/gifts)      Tuition        Federal money- (including grants)       Other- (hospital,     stores, etc.	Tuition         Federal money        Other (if at all)
Examples of Schools	University of (state name here) systems	Harvard, Yale, etc.	Cappella, DeVry, Kaplan, Phoenix.

One thing to note- these are in order of the amount each type of school typically receives. Don’t believe me (or don’t like my table)? Check out this cool infographic that breaks it down even further.

Great, now we know where the money comes from. But what happens when there’s not enough money?

This happens a lot. For the most part, it’s state money that gets cut for publics and endowments go down for privates (from here on out I’m pretty much going to ignore for-profits). Reductions can be huge. Check out this infographic that describes how funding has been reduced in our system for the past twelve years, and pay attention to the difference between what is promised and what is actually received. 

Universities have two big options when they have a deficit: they find a way to make up the deficit or they reduce their costs. Keep in mind—they are non-profits, so they cannot hold on to money (aka, make a profit). Use it or lose it. 

Some schools try to make up the deficit by making more money. An example would be asking faculty to seek grant money for their research. The competition is steep and the money so restricted to the specialization that I’m not going to say anything further about grants here. 

How do they reduce costs? State schools usually have a mission that has been given to them by their state legislature. They have to meet that mission, no matter what. Private schools have obligations as well—especially to donors. And there are people to pay. They have to keep the lights on and have to heat the buildings. The first thing that is usually trimmed is any excess in operating costs (think office supplies—seriously—it gets down to counting pieces of paper printed and staples and reusing file folders). Once that is exhausted, there is a moratorium placed on events and travel (faculty tend to travel to conferences, and that’s pretty important—but there’ll be more on that later when we talk about what it’s actually like to be a faculty member), and the university then moves to mission critical. In fact, many universities have been on mission critical for about a decade or so. In mission critical we start seeing hiring freezes, salary freezes and furloughs. 

Go look up furloughs right now, if you’re unfamiliar with the concept in higher education. 

I’ve heard of some places where the faculty got together, and decided that instead of furloughs or firing people, they would all take a pay reduction. When I worked at a private university in 2008 (aka, economic apocalypse for those who use gift/endowment money invested in the stock market) the Chancellor actually gave back a chunk of his salary and urged senior faculty members to do the same. 

And if there are no more costs to cut? They increase tuition and fees and admit more students. Class sizes go up. Dorms are overfilled. Yada, yada, yada. 

What happens when they increase tuition? With privates, not much. People get pissed off, students may have to drop out, and potential donors might balk, but relatively little happens to them when compared to public schools. With publics (especially in this state), the state legislature has to vote on the tuition increase, and if it’s ‘too big’, universities get penalized. Also, the legislature or governor threatens to take even more of the money away and it becomes highly political. It just keeps escalating, and with more students the need for funds just gets worse. 

Better yet—think about this: Politicians reduce state funding. Tuition is raised because state funding is reduced. Politicians rail against universities for increasing tuition. Politicians then approve the tuition increase, and then promise to reduce funding even further. Universities then have to raise tuition again when funding is further reduced. Then they rail some more on the increased tuition that they approved.  Does this seem logical?

So why do you think what Barack Obama said was so bad? Let’s take politics out of it. State and federal governments are not bringing in the money they did before. That’s a fact. No matter if you agree with it or not, higher education gets cut when they try to balance their budgets. But to threaten to cut funding even further because tuition was raised because funding was cut is idiotic. There, I said it. Mr. President, I hope you read this, and think about it for a little while, and consider changing your rhetoric. I have motion sensors in my office to reduce the electric bill that make my lights go off if I sit too still for 15 minutes, and we reuse everything we have until it falls apart. Staff only replace their computers every five years.  We continue to limp along. The good news is at my university, our service is greatly appreciated and we are thanked by the administration at every opportunity. I don’t think everyone could say that. 

Next time, we’ll talk about where all this money goes.  How do universities spend the money they do have? It’s more complicated than you think.