The Funding Strategies Behind U.S. Colleges: Stocks, Tuition and More | WSJ

– Columbia University alumnus Robert Kraft says he is not comfortable
supporting the school. – Are you still supporting
Harvard financially? – No. – [Speaker] These are just
some of the many wealthy donors who have threatened to pull
support from universities over mounting pro-Palestinian protests in the last several months. [Protesters] Let them go! But those large donations aren't the only thing
keeping schools running. – This idea that university trustees and university administrators
are gonna say, oh my god, I'm gonna change my strategic vision 'cause I'm worried
about a $25 million gift when you have $50 billion
in the bank, it's ludicrous. – [Speaker] To explain
how colleges stay afloat, we asked former university
president Morton Schapiro to break down the
finances of three schools with different revenue sources and what changes mean for
the future of higher ed. – Having a large endowment really helps, and I've been really
fortunate to be president of two institutions with
very large endowments.

– [Speaker] Endowments are
big funds typically collected through donations and invested. – You only take enough of
it so that you can support what the donor wants, but you leave it to be invest and invested. So the endowment is an
investment in the future. – [Speaker] In 2023, Northwestern
took about 674 million from its endowment, or about 5%, which is the standard amount schools take from their endowments every year. – There's nothing magical about the 5%. You know, if you go much above that, you're probably gonna erode the
real value of the endowment.

If you go much below it, then it's unfair to the current generation of
faculty, students, and staff. When things are really bad, I think you should take
a higher percentage. – [Speaker] That standard 5% of Northwestern's endowment
made up more than a fifth of the school's operating revenue in 2023. – When you have the kind
of wealth that Northwestern and its peers have, that gives
you a lot of flexibility. – [Speaker] Schools with large endowments depend less on other
slices of the revenue pie, like tuition or private gifts. – You can support study abroad activities and you can support all
kinds of internships. Endowment per student speaks powerfully to what the life experience is gonna be once you're on campus. – [Speaker] It also speaks
to the range of students who are likely to be on that campus. – The socioeconomic diversity of the undergrads at at Northwestern and like many peer institutions,
much greater than it was. Even while I was president,
I started in 2009. – [Speaker] In 2020, only about 16% of students at private
nonprofit universities paid full price.

That's down from 29% in 1996. That's partly due to those
ballooning endowment funds. Northwestern's has grown more
than six times since 2001. – The endowment grows because of equity
markets, you know, stocks and also private equity
investments in the returns have been spectacular, – [Speaker] But a lot of
that wealth is concentrated in just a few schools in the US. – If you don't have a large endowment, you're gonna be much more conscious about attracting students, in many cases, undergrads who can pay the sticker price. Private colleges, they are
not getting state support. So where are they getting their money? The rest is mainly tuition.

– [Speaker] Like at Hamilton
College in upstate New York where tuition made up almost 60% of operating revenues in 2023, despite Hamilton's large
$1.3 billion endowment, that high percentage. – Makes it a little bit more vulnerable to changes in the market. You better make sure you're
gonna continue to be able to get the students and
you know, fill the dorms and get a substantial proportion of them paying at least
close to the sticker price. – [Speaker] Hamilton said in a statement that the school admits
students without regard to financial need and that
the school is fortunate to support need blind admission. But there are plenty of schools even more dependent on
tuition than Hamilton. – Small schools that really
are almost completely relying on net tuition revenues from undergrads are increasingly in need aware. You know, they're not gonna
admit a lot of students from needy families because they're not gonna
give enough need-based aid to make it possible for them to come so they don't admit 'em.

'Cause if you admit
'em, their yield is low and your admit rate is very high and you don't look and select them, – [Speaker] And there's
also a looming threat. – They look at the demographic
cliff that's about to hit, and the number of high school graduates is gonna go down substantially. We expect over the next couple of decades. – This enrollment cliff is in part because of a decline in birth rate since The Great Recession.

– The vast majority of
undergrads in this country go to a campus within 50 miles of where they graduate high school. There's no cliff in a lot of the Sunbelt, but there's a really precipitous
cliff in other places. Rust Belt, New England, et cetera. You know, Hamilton again
has a international draw that's gonna protect it, but there are a lot of
other liberal arts colleges who draw much more locally, and it's gonna be a real struggle for them once this cliff is realized. When you talk about
being tuition dependent, it's always said in a negative way.

Is there anything positive? I think you're focused more on your undergraduate experience. – [Speaker] Smaller private schools aren't the only ones
increasingly dependent on their students to pay the bills. – State operating subsidies
or state appropriations, the publics, has really
plummeted as a share of their operating budgets, so that's really been devastating. – [Speaker] The University
of California system, which consists of 10 schools
throughout the state, got more than 4 billion
of state funding in 2023. In 2001, state funding made up nearly 20% of revenues in the University
of California system. By 2023, it was less than 10%. – They still get some chunk
of change from the state, but boy have they taken a hit. Now it's been pretty flat
in the last 12 years or so, 14 years, but they haven't made up for this precipitous decline. Why? Because states have had a
lot of financial troubles. It's not that universe. The state of California
is not really proud to have the greatest
higher education system in the history of the world. They just can't afford to
fund it the way they used to. – [Speaker] But schools need to make up for that loss in funding.

– A lot of publics have tried to go into what the privates have long done, generate money from your undergrads. – Since 2001, average
undergraduate tuition for its in-state students has
increased more than four times at the University of California, and it is more than tripled
for out-of-state students. – It also means that a lot of
these public universities need to fill their seats in the classrooms and beds in the dorms with
people of out of state where they can charge full price. – [Speaker] The estimated
average total cost to attend the University of California is about 38,000 in 2024 if you're a resident of the state. If not, the cost nearly
doubles to around 72,000. But as seats become more competitive, California approved a
plan to cap the number of out-of-state students
UC schools can admit and compensate them for the lost income. Now, tuition and fees make up about 11% of the UC system's revenue
compared to around 6% in 2001.

In a statement, the
University of California said that its world-class
college degree is also one of the nation's most affordable. Adding that the system
has kept attendance costs relatively low and stable, and added more than 26,000 additional
California undergraduates since fall 2015. – They say privatize the publics. But you know what that means? It means raising
undergraduate tuition levels without accompanying
levels of financial aid so that it makes publics
increasingly bastions a privilege. – It's an inflection point for many schools across the country. – I think the widening
gap in wealth at public and private colleges university
means that, you know, if you're able to get
into one of those schools with tremendous resources, the sky's the limit for
how it's been on you.

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