By Megan Krueger
As any college student can tell you, attending university is not cheap. Tuition has been skyrocketing at an average annual increase of 9% at public universities and 6% at private universities over the past twenty years. This means that back in 2003, after adjusting for inflation, you would likely have been paying anywhere from $13,000 to $36,000 in tuition annually. That’s a lot of money, but still half of what George Washington University undergraduate students pay today, at $64,700 (plus housing, dining, and mandatory fees). Needless to say, $64,700 times 11,500 (give or take) undergraduates is… a lot of money (about $744,050,000, to be precise). Given that life on campus can’t exactly be called luxurious, students may naturally begin to wonder where in the world all that tuition money goes.
Well, here’s your answer. According to News Nation, the standard breakdown looks something like this: 26% of your tuition money goes to instruction (which includes faculty salaries and administrative costs), 20% goes to academic support and student services, 16% is used for hospital services, and 4% returns to students in the forms of grant aid. Some older but more detailed information from the Delta Cost Project indicates that private research universities in particular spend the majority of tuition money on instruction, auxiliary expenses (dormitories, bookstores, etc.), research, institutional support (administrators’ salaries), and academic support. Money is also directed to operation and maintenance and scholarships other than tuition discounts. By directing the most money toward instruction, schools are able to compensate a larger number of professors, which helps to maintain good student-to-faculty ratios.
Now, it’s important to keep in mind that at many universities, tuition money is actually not the main source of revenue. Public universities receive a significant portion of their budget from the state, and money also comes from endowment returns, research grants, and other sources. On the topic of endowments (which are essentially pools of investments that serve as financial safety nets for universities), it is worth noting that many schools with extremely generous endowments could probably cover most of their costs only with endowment revenue and grant income, raising the question of why they still choose to charge such exorbitant amounts in tuition.
So, where is endowment revenue going? And what do universities invest in, anyway? Well, that’s where things start to get a little hazy. University endowments face little regulation and have no spending rules or taxed earnings, which allows for an overall lack of transparency about university budgeting and spending. Post-secondary institutions are notoriously reluctant to share their financial information. Universities, as nonprofit institutions, are required to provide some semblance of financial records to the public (you can view George Washington University’s annual financial reports on their website, although, fair warning, it’s not exactly an electrifying read), but these reports are extremely broad and lack many concrete details when it comes to specific investments. Private universities in particular, as non-governmental agencies, are not subject to open-records laws, making it even more difficult to obtain information on private investments.
Finance professor and researcher Neal Stoughton theorizes the push for privacy is due to universities’ desire to not “be subjected to a lot of political influence, because that’s not the way to invest for the long term. That’s not the way to get a higher rate of return.”
This is definitely true: in 2018, Harvard faced backlash from students in light of their investments in commercial farming, and again in 2019 for their holdings in the fossil fuel industry. The New York Times also found that the University of California had invested with Cerberus Capital Management LP, who, at the time, owned Bushmaster, the maker of the assault rifle used in the Sandy Hook Elementary School shootings. Incidents like this are precisely why many students want greater transparency as to where school money is going, so they can decide whether or not to continue supporting universities that invest in industries linked to gun violence, climate change, and other social issues.
So, what’s the bottom line here? At the end of the day, you still have to pay tuition to complete your degree, so does it really even matter where your tuition money goes? Well, I would argue that, yes, it absolutely does. Students assume that in paying tuition, they are funding their own education, and therefore they have a right to ensure that what their money is being used for is actually benefiting them. While universities may gain higher profits from keeping investments and other financial details private, they are not gaining public trust: maintaining secrecy about what student (and in the case of public schools, taxpayer) dollars are used to do raises suspicion, whether warranted or not.
Transparency is especially relevant now, when annual tuition at private universities costs the same as a car. Accordingly, the college dropout rate is soaring between 30 and 40%, with a majority of students citing university’s unaffordability as their primary reason for leaving. In fact, fewer students are choosing to attend university in the first place, for the same reason.
If the goal is to set students up for future success, universities need to focus on making education as accessible as possible, and a potential step in this process is improving the visibility surrounding their spending and investing. In this way, schools can confirm that they are using their resources in students’ best interests, and students can rest assured that their tuition money is not going to waste.
