Editor’s Picks

How Non-Profit and For-Profit Universities Make and Spend Their Money: Four Takeaways from the Latest NCES Report

By Henry Kronk
January 26, 2018

While they accomplish many different tasks and serve various roles, at the end of the day, all universities are businesses. Whether they’re for-profit, private non-profit, or public non-profit, they operate on a budget and pay their employees. Administrators manage huge sums of cash. While many forms of revenue, such as federal grants and appropriations, come with stipulations on how they must be spent, many others come with exactly zero strings attached. Universities make money in surprising ways and spend it with, at times, a corresponding strangeness.

Some of these are compiled in the latest report by the National Center for Education Statistics. The government entity gathered data from all schools that receive any kind of Title IV federal funding. Institutions that benefit from these federal dollars are required to report their operating information. The report condenses info on enrollment, staff and personnel, financial stats, and academic libraries for the 2016 fiscal year. It has several interesting takeaways. Today we’re focusing on the financial stats.

In 2016, public non-profits netted nearly $300 billion collectively. Private non-profits took in over $180 billion and for-profits managed $13.5 billion. The following marks some interesting aspects of where that money came from and where it went.

Tuition and fees only account for one fifth of a public university’s total revenue.

Considering that public university tuition has tripled in the past thirty years, one might conclude that it forms the most robust and significant form of funding for a given institution. Depending on how you slice the pie, that could be presented as nominally true. But it’s also much lower than many believe. Tuition and fees made up an average of just 21.5% of public non-profit universities’ total revenue. State appropriations are immediately behind it at 17.6%.

At private non-profit universities, the figure nearly doubles to 39.3%. Meanwhile, private for-profits collect over 90% of their revenue from tuition and fees.

non-profit

Profits from sales and services of hospitals makeup the largest source of revenue outside of tuition, grants, and appropriations.

Healthcare is one of the largest industries in the U.S., and higher ed institutions are some major beneficiaries of those dollars. At public nonprofits, sales and services in healthcare total nearly 15% of their revenue. At private nonprofits, that figure is 13.3%. If you’re after a well-funded university, therefore, you might want to seek out one with a robust medical program. The profits they make likely translate into bigger cushions in the budgets of other departments.

But solid funding doesn’t necessarily translate into better instruction.

Another thing students and parents might be surprised to learn is that by far the majority of expenses go to areas outside of instruction. The amount spent on instructing students is a mere 28.7% at public for-profits and 31.9% at private non-profits. At for-profits, where student tuition is far and away the greatest source of income, they spend only 25.5% of their budget on instruction. Speaking of margins, that leads to another interesting takeaway.

Gross revenue by type of organization makes no sense.

One might expect public non-profits to spend all the way up to the limits of their net revenue, but that is not the case. In 2016, they squirreled away a collective $7.5 billion. Private non-profits, meanwhile, are almost just as far in the red. They reported a collective net loss totaling $-6.1 billion. The only thing that adds up here are the for-profits. They managed to fulfill their fiduciary duty of making as much money as possible far better than the other organizations. They grossed just over $1 billion in 2016, allowing for an ROI of nearly 8%.

These are not the end of the latest NCES report. It bears reading in full. We would be very interested to read a more detailed document. As this latest one is just a first look, that reality should soon be on its way.